Over the last couple of months I have been working on adding some additional sources of passive income; however, before I embarked on that mission I needed to simplify things.
Through a job change last year as well as a brokerage merger, I felt that I had too many different accounts and it was adding overhead to my monthly financial reporting. However, the real impetus to consolidate things began with the desire to utilize my Health Savings Account as an additional investment vehicle.
Let’s take a look at what I have consolidated.
Health Savings Account
While with my prior employer, I had a Health Savings Account but had never taken advantage of the investment options. There were two primary reasons why I avoided the investments:
- Poor investment options
- Monthly fees to invest
The HSA was administered by Health Equity and while I felt that their interface and servicing of medical bills was quite nice, the ability to invest was diminished with subpar investment choices that had much higher expense ratios than I care to pay. In addition, they charged a monthly fee just for the right to invest–so a fee double whammy!
With my new job, I transitioned to their health plan at the beginning of this year. I did not do it sooner because my old employer had covered our health insurance premiums for the remainder of 2018 as part of my severance.
My new HSA is administered by Payflex and the investment options are much more appealing.
First, there are no fees to invest. As long as I maintain $1,000 in my HSA, the rest of my funds can be invested at no additional cost. The $1,000 minimum is fairly standard in my experience, but the lack of fees was a welcome change.
In addition, the investment options include a number of low-cost index funds. As many know, high expense ratios and/or management fees are silent killers and can really erode your returns over time. Therefore I was extremely happy to see that the new options included a fund that is already part of my portfolio–the Vanguard S&P 500 Index fund.
The above investment was made after transferring my old account into the new Payflex account. My strategy is to maintain $1,500 in the HSA and invest everything else. We do occasionally use the HSA to pay a medical bill, so I have setup every deposit to be split between the HSA and investment. When the balance of the HSA exceeds $1,500 I will transfer money manually into my investment.
On the downside, my new employer does not contribute as much to the HSA as my old employer. However, due to the lack of fees and better investment options I am perfectly comfortable with that trade-off.
Similar to the HSA, due to my job change I now had two different 401(k) accounts as well.
Fortunately, those were both with Fidelity so it was not much additional effort to leave everything status quo. However, my old employers plan had funds that were managed by Northern Trust and carried expense ratios higher than the index funds that I prefer. In addition, they did not distribute dividends or capital gains.
To reduce those expenses, I sold my positions in the old plan and transferred the funds into my new plan.
The new plan offers Fidelity index funds that carry low-cost fund options and those certainly made a nice contribution to my dividend income report last month.
Beyond the 401(k) accounts, I also have a combination of IRAs that are held at Vanguard. I have contemplated whether or not I should transfer the Traditional IRA to my new 401(k) as that would then open up the possibility of doing a backdoor Roth IRA contribution, however for right now I have opted to leave the Vanguard accounts alone.
Last year when I initiated my dividend portfolio, I opted to use Fidelity as I liked the user experience more than the other broker that I was using at the time.
That other broker was TD Ameritrade, which I now had as a result of their acquisition of Scottrade.
The Scottrade user experience was nothing to write home about, but I was used to it after having had an account there for many years. When that transitioned to TD Ameritrade, I never fully adjusted to their interface and was not a fan. I know a lot of people love them but it didn’t click for me.
Therefore I transferred the holdings from TD Ameritrade over to my Fidelity account and simplified my brokerage accounts.
Then, as I was doing my taxes this year, I realized that I still had an old account over at E*Trade and it was holding shares of Bank of America. I had all but forgotten about this account until tax time served as my reminder of its existence.
I quickly initiated the transfer of these shares over to my Fidelity account as well, and that certainly felt like a nice little bonus. However, given how much I enjoy tracking my investments and finances, I am definitely embarrassed by the fact that I had forgotten about this account.
It is not uncommon to accumulate investment accounts over time as jobs change, mergers occur, or other life events change our situation.
For many people, we don’t like to seek out change and it is easier to maintain the status quo. However, that can lead to losing track of things (as I certainly did) or paying more for things than you should (as I was also doing with some of those expense ratios).
While I may not have completely streamlined all of my accounts, I definitely feel as though I have simplified things and I am now taking advantage of the best options available to me.
I’ve also introduced an additional source of future dividends with the new HSA account that will continue to grow with monthly contributions. The bonus of the forgotten BAC shares doesn’t hurt either!
When is the last time you evaluated all of your accounts?
Are you due for any consolidation?