Portfolio Repair

McMullen concedes, however, that his expenditures could be better organized: “I don’t track daily, small expenses very well. I put most everything on my American Express, so I can see where I spent my money. But with so many purchases, when I get my statement it’s overwhelming. I haven’t updated my budget in awhile.” Some of his larger bills are set up on automatic bill pay to eliminate guesswork.

Motivated by his son, McMullen is looking to fine-tune his approach to saving and investing. “I want to be able to start saving for his education, not just college, but maybe during his formative years. I want to be able to handle whatever life throws at me financially.”

The Advice
Black Enterprise
and Robert Rowell, financial adviser and vice president of investments for Wells Fargo Advisors L.L.C. in Charlotte, North Carolina, devised a plan to help McMullen get the most out of his  investments and reach his financial goals.

• Diversify portfolio: McMullen’s track record calls for a closer look at his holdings. “He has all his Roth IRA contributions in large-cap stocks. He has all his eggs in one asset class and is missing out on other asset classes, such as [midcap], small-cap stocks, real estate securities, emerging markets, commodities, high-yield bonds, international stocks, investment grade bonds, etc. Rowell recommends putting 65% in equities or stocks; 32% in bonds or fixed income; 2% in commodities; and 1% in cash alternatives. “From one year to the next, one class can have a higher rate of return, and you don’t want to miss the growth opportunities,” explains Rowell. He also recommends that McMullen max out his thrift saving plan contributions and make sure he has a broad brush of assets, including bonds and international investments.

• Reinvest dividends: McMullen was so disappointed with the lack of growth in his brokerage account that he started receiving dividends. Rowell advises that he reinvest them. “When they are paid in a down market, you are more likely to invest at cheaper prices,” says Rowell

• Build savings for son’s education: Rowell suggests two options: a 529 plan or the Uniform Gift to Minors Act. With a 529 savings plan, your investment grows tax-deferred and withdrawals are tax-free, as long as the money is used for college-related expenses. The UGMA allows money or other assets to be given as a gift to a minor child while you maintain control of it. The money doesn’t have to be used only for college, Rowell says.

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