Your Financial To-Do List for April 2022

Susan Dziubinski: Hi, I’m Susan Dziubinski for Morningstar. It’s April, and many taxpayers are wrapping up their tax returns or have done so already. Joining me to discuss how to end tax season on an organized note is Christine Benz. She is Morningstar’s director of personal finance and retirement planning.

Hi, Christine. Good to see you.

Christine Benz: Hi, Susan. Great to see you, too.

Dziubinski: Christine, why is the end of tax season such a good time for us to organize those financial records?

Benz: It's because the pain is still fresh of hunting around for all these documents that you might need to file your taxes. And the other thing is that you've probably recently had access to some of the information that you need to get organized. I would say, as long as you've got all this stuff sitting on your desk or sitting in a close-by file cabinet, you might as well take some steps to get it in good working order.

Dziubinski: And very often, I'm certainly guilty of this myself, people do tend to oversave their documents with the thinking, "Well, you never know when you're going to need it." Can you give us a rundown of how we should be thinking about some of these documents and what we really need to keep and what we could either shred or throw out?

Benz: Right. It's a good bet that many people are oversaving, and a huge category, especially for people who receive paper documents from their investment providers, is marketing materials, also annual reports, prospectuses--those things people oftentimes save. You really don't need to. It's very easy to access prospectuses and annual reports to the extent that you need them or want to refer to them. You can typically grab those online through your investment provider's website. That's a big category that oftentimes these are physically big documents that can really clutter up files. You can happily toss all of those.

What you want to pay attention to is tracking your cost basis. And the good news is that as of 2012 investment providers had to begin tracking our cost basis for us. Prior to 2012, the onus was on investors to track their own cost basis. So, if you have securities that you've owned prior to 2012, you want to make sure that you have good documentation, that you've saved good documentation on your cost basis. Do a check of that before you begin chucking other documents. If you're saving trade confirmations, for example, just make sure that the trade is clear, that it matches what your investment provider has on its website. You can shred those documents generally once you've corroborated them with your own documentation.

You do want to save up to three years of tax returns, not just the tax return but also any supporting documentation that went along with that return. If you want to be extra safe, you can take it out to seven years. But there is no need to save tax returns for longer than that. And then, you want to take care to save any very hard to replace documents, things like birth certificates, wedding certificates, death certificates, incorporation documentation. You want to save those in a safe deposit box or in a fire-proof box that you keep at home and keep them under lock and key if you are keeping them at home.

Dziubinski: Speaking of documents, a lot of investors have gone online and aren't receiving paper statements and paper documents. And then, there are other people who haven't done it or have only gone part away with that perhaps. Maybe they are concerned a little bit about online security. What do you think of that move to digital documentation?

Benz: I think it makes a lot of sense. I think the key thing that you want to check is that the documentation that you rely on and use to manage and monitor your own investments, just make sure that you can readily access that online before you say goodbye to the paper documentation. But there are a couple of good reasons to dump the paper delivery. One is that arguably, assuming that your security systems are up to date on your computer, your information is safer if it's not transporting through the mail. And the other key thing is that you may be paying a surcharge to receive the paper documentation because your investment providers very much want to stop sending you those paper documents. I do think it's safe, assuming that you've done the work to ensure that your software and that your computer is overall safe from a security standpoint.

Dziubinski: Christine, what sort of documentation should we be thinking about when it comes to our financial accounts and our relationships? Is there a document that we should have that warehouses all of that, or what do you recommend?

Benz: I love that idea, Susan, the idea of having what I've called a master directory, I think, makes a world of sense. And the basic idea is that you are setting out your various accounts, your account numbers, perhaps even passwords, individuals you deal with at these various financial institutions where you have accounts. You're documenting all of that. And it helps to keep track of your investments. It can also help your loved ones find out what you have, figure out what you have if for some reason you are unable to manage those accounts yourself. I do think it makes sense for everyone to create just a simple spreadsheet and take care to password-protect it, to encrypt it, because it contains sensitive information. Or if you want to print something like this out and have access to it, keep it in a safe place as well, keep it under lock and key. And also, let your loved ones know of its existence.

Dziubinski: Christine, thank you for your time today and for, as always, trying to keep us financially organized. We appreciate it.

Benz: Thank you so much, Susan.

Dziubinski: I'm Susan Dziubinski with Morningstar. Thanks for tuning in.