Old RRSPs or pension plans can pile up; brokerage accounts that you started with the best of intentions can lie fallow, racking up service charges. Clutter can crop up within those accounts, too: What started as a slim portfolio of just a couple of holdings may have gotten more complicated as you amassed more assets and went looking for more diversification.
Clutter in your financial life -- like clutter on your desktop -- has the potential to distract you from the main jobs at hand. You may not bother reviewing and maintaining your portfolio if it has too many moving parts, because you know that doing so will entail a boring afternoon of data entry and searching for passwords. It can be hard to get your arms around the real levers that determine the success or failure of your plan, like your total retirement portfolio's asset allocation or the expenses you're paying. In addition, if something should happen to you, a too complicated portfolio could make life difficult for your loved ones who are left to pick up the pieces.
In short, investing some time in simplifying your portfolio -- and indeed your whole investment plan -- is an investment of time that can pay dividends for many years to come. Here are the key steps to take to combat investment clutter and simplify your plan. While it would be nice if you could rely on a single vehicle with tax benefits for retirement funding, the reality is more complicated. Depending on your income and employment situation, you can stash your assets in an array of tax-sheltered vehicles, including company-sponsored pension plans, RRSPs and TFSAs.
You can also invest outside of the confines of those tax-advantaged options by employing taxable brokerage accounts; this is often necessary for high-income types who have made the maximum allowable contributions to their tax-sheltered options. Couples' financial affairs can get even more complicated because RRSPs and company retirement plans are maintained for each individual, not for the entire family.
Yet while it's inevitable that most people will have at least a few accounts, and married couples will need to maintain separate tax-sheltered accounts in their own names, it's still worthwhile to consolidate what you can.
Taking time to clear out portfolio 'clutter' can pay dividends many times over.
Taxable accounts can generally be collapsed together; if you're not serious about stock investing, get rid of that small discount brokerage account. Multiple RRSPs can be consolidated into a single large plan. In addition to streamlining the number of accounts that you hold, assess whether a simplified investment selection and portfolio management strategy may be able to do the job just as well as a more complicated one.
To help home in on an investment approach that's streamlined and effective, see if you can't distill your strategy into words that will fit on a single 4" by 6" index card, as discussed here. In a similar vein, working up an investment policy statement and a retirement policy statement if you're retired can help you articulate a clear and uncluttered approach to portfolio management. You can also use your IPS and RPS as "explainers" to help bring your spouse or other trusted love one up to speed on the strategy you're using. I know, I know: You love your [insert favourite niche investment type here].
But in the interest of simplification, everyone should also take a close look at whether two or three well-diversified holdings per account can take the place of a lot of smaller, more narrowly focused ones. I've often enthused about broad-market index funds and exchange-traded funds as a terrific choice for investment minimalists of all life stages.
Such funds give investors exposure to whole market sectors in a single shot, while also helping to lower the total costs of the portfolio. Employing such investment types can go hand in hand with a more simplified portfolio strategy: Because broad-market index funds provide undiluted exposure to a given asset class a U.
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Moreover, in retirement, a retiree can readily rebalance out of highly appreciated index funds to shake off cash for living expenses. Multi-asset funds that combine both stocks and bonds may also serve a worthwhile role in a portfolio, especially for smaller accounts that you're actively tapping. However, they may not be the best solution as a source of in-retirement cash flows because they don't afford you any control over what part of the portfolio gets sold to provide income.
Think about how effortless contributing to your pension plan is.
The money goes in every two weeks and is allocated across the investments of your choice; assuming you have a sane asset allocation mix given your age and keep on plowing the money into the account, you can do nothing to your plan for years and still end up OK. The good news is that it's possible to use automation in other parts of your plan, too. If you're still contributing to your retirement accounts, you can use an automatic-investment program for your RRSPs and brokerage account, giving your financial provider authority to extract money directly from your chequing account on a pre-set schedule.
Decumulators can also take advantage of automation, authorizing their financial providers to make their required minimum RRIF withdrawals on an ongoing basis, thereby supplying the cash flow they need for their living expenses and ensuring they don't miss RRIF requirements. In addition to the investment policy statement and retirement policy statement if applicable , another essential document for investors at all life stages is a master directory documenting each financial account, including investments as well as other accounts like mortgages and credit cards.
Private: the assignment of rights to a private party who may be an individual, a married couple, a group of people, or a corporate body such as a commercial entity or non-profit organization. For example, within a community, individual families may have exclusive rights to residential parcels, agricultural parcels and certain trees. Other members of the community can be excluded from using these resources without the consent of those who hold the rights. Communal: a right of commons may exist within a community where each member has a right to use independently the holdings of the community.
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For example, members of a community may have the right to graze cattle on a common pasture. Open access: specific rights are not assigned to anyone and no-one can be excluded. This typically includes marine tenure where access to the high seas is generally open to anyone; it may include rangelands, forests, etc, where there may be free access to the resources for all. An important difference between open access and communal systems is that under a communal system non-members of the community are excluded from using the common areas. State: property rights are assigned to some authority in the public sector.
For example, in some countries, forest lands may fall under the mandate of the state, whether at a central or decentralised level of government. Customary tenure typically includes communal rights to pastures and exclusive private rights to agricultural and residential parcels. The range of property is extensive and includes, for example, intellectual property.
In the case of land tenure, it is sometimes described more precisely as property rights to land. In the first case, property would include land and fixtures buildings, trees, etc that would be regarded as immovable. In the second case, property would include objects not considered fixed to the land, such as cattle, etc. Each right may be held by a different party. The bundle of rights, for example, may be shared between the owner and a tenant to create a leasing or sharecropping arrangement allowing the tenant or sharecropper the right to use the land on specified terms and conditions.
Tenancies may range from formal leaseholds of years to informal seasonal agreements. Box 1 gives some examples of rights. A right to alienate all rights to the entire holding e.
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A residuary right to the land, i. A right to enjoy the property rights for an indeterminate length of time, i. A duty not to use the land in a way that is harmful to other members of society, i.
A duty to surrender the rights to the land when they are taken away through a lawful action, e. Very often, the poor in a community have only use rights. A woman, for example, may have the right to use some land to grow crops to feed the family, while her husband may collect the profits from selling any crops at the market. While such simplifications can be useful, it should be noted that the exact manner in which rights to land are actually distributed and enjoyed can be very complex. There can be perceptual problems with this approach because, for example, some so-called informal rights may, in practice, be quite formal and secure in their own context.
Despite these perceptual problems, the classification of formal and informal tenure can sometimes provide the basis for useful analysis. In some cases, informal property rights are illegal, i. An extreme case is when squatters occupy a site in contravention of an eviction notice. In many countries, illegal property holdings arise because of inappropriate laws. For example, the minimum size of a farm may be defined by law whereas in practice farms may be much smaller as a result of informal subdivisions among heirs. Property rights may also be illegal because of their use, e.
In some countries, customary property held in rural indigenous communities falls into this category. This distinction is now becoming blurred in a number of countries, particularly in Africa, which provide formal legal recognition to customary rights. For example, in a country that forbids leasing or sharecropping, a person who holds legally recognized ownership rights to a parcel may illegally lease out the land to someone who is landless. A particularly complex situation arises when statutory rights are granted in a way that does not take into account existing customary rights e. This clash of de jure rights existing because of the formal law and de facto rights existing in reality often occurs in already stressed marginal rainfed agriculture and pasture lands.
Likewise in conflict and post-conflict areas, encounters between settled and displaced populations lead to great uncertainties as to who has, or should have, the control over which rights.
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Land administration, whether formal or informal, comprises an extensive range of systems and processes to administer:. In a formal legal setting, information on rights, whether held by individuals, families, communities, the state, or commercial and other organizations, is often recorded in some form of land registration and cadastre system.
In a customary tenure environment, information may be held, unwritten, within a community through collective memory and the use of witnesses. A stable land tenure regime is one in which the results of protective actions are relatively easy to forecast. In a formal legal setting, rights may be enforced through the system of courts, tribunals, etc. In a customary tenure environment, rights may be enforced through customary leaders. In both cases, people may be induced to recognise the rights of others through informal mechanisms such as community pressures. People who know their rights, and know what to do if those rights are infringed, are more able to protect their rights than those who are less knowledgeable.
Procedures for land rights include defining how rights can be transferred from one party to another through sale, lease, loan, gift and inheritance. Procedures for land use regulation include defining the way in which land use controls are to be planned and enforced. Procedures for land valuation and taxation include defining methodologies for valuing and taxing land. Efficient procedures allow transactions to be completed quickly, inexpensively, and transparently.
However, in many parts of the world, formal land administration procedures are time-consuming, bureaucratically cumbersome and expensive, and are frequently non-transparent, inaccessible to much of the rural population, and are handled in languages and forms that people do not understand. In such cases, high transaction costs may result in transfers and other dealings taking place off-the-record or informally. In customary tenure regimes, the customary leaders may play the principal role in land administration, for example in allocating rights and resolving disputes.
In a more formal setting, land administration agencies may include land registries, land surveying, urban and rural planning, and land valuation and taxation, as well as the court systems. Where customary tenure has been recognised by the State, functional linkages are being developed between government and customary land administration bodies. Perceived benefits include increased tenure security and improved access to credit, thereby providing the incentive and ability for farmers to invest in making improvements to the land. Similarly, it is argued by some that access to credit may not improve with formalisation since many banks are unlikely to accept agricultural land as collateral against loans.
However, even where these conditions do not exist, there is growing interest in several countries to formalise the rights of communities to protect them against encroachment from outsiders e. In such cases, the community boundaries are defined, and title to the land is registered in the name of the community. It is then left to the community to undertake its own land administration, including the allocation of rights to land within its boundaries.
Tensions can exist between de jure and de facto rights to land. Discrepancies between formal and informal or customary versions of tenure holdings create ambiguities to be exploited.
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In some countries where formal land administration systems do not function well, different titles may be issued by the State for the same parcel of land. This complicates the legal status of the land since it gives rise to competing claims.
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