Do Your Beneficiaries Know What to Do With Your Investment Portfolio? Here's Why It Matters.

I'm getting to the age where I could suddenly die, and it wouldn't be unusual. Recognizing that fact, I've been increasingly discussing my investment portfolio with my daughter, who will most likely have to take over when I'm gone. The big takeaway for me is that she's not as into investing as I am. It has changed the way I think about investing.

If your beneficiaries don't know enough about your portfolio when you die, you could be setting them up for added stress, and the risk of mistakes rises materially.

Coca-Cola versus Beyond Meat: Very different companies

A great example of what I'm talking about is found in the consumer staples sector. Coca-Cola is one of the world's largest consumer staples stocks with an iconic brand and industry-leading capabilities. It appears reasonably priced today, with a P/E that's below its five-year average and a 2.6% dividend yield that is well above the market's tiny 1.1% yield. It's not a screaming value, but it is a great business that appears fairly priced. It is a stock you buy and hold for the long term.

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Beyond Meat also operates in the consumer staples sector, making meat alternatives. It is a money-losing start-up that has been suffering from ongoing demand declines. Only the most aggressive and active investors should even consider buying Beyond Meat, noting that it may have trouble remaining a going concern if it can't generate sustainable profits.

It's about more than the investments you choose

If your beneficiaries aren't as interested in investing as you are, which one would you prefer they own? The answer is likely to be Coca-Cola. And that's just the tip of the iceberg, since you also need to have conversations about complex topics like the tax implications of investments and investment accounts.

For example, I've moved my real estate investment trust (REIT) investments into Roth IRAs to minimize taxes. If I hadn't explained that decision to my daughter, she wouldn't know what was going on or why. There's also the step-up in a stock's cost basis that happens when it is inherited, which has to be considered when making decisions. These are just a couple of simple examples of the complexity that comes with investing and with inheritances.

Prepare ahead so your beneficiaries aren't overwhelmed

Mistakes get made when people are unprepared to deal with complex topics. If you don't plan ahead by having hard conversations with your beneficiaries, you risk making an already difficult situation even more difficult. Take the time to prepare your heirs so they know what you own and how you own it, and things will go much more smoothly for them as they deal with your estate.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Beyond Meat. The Motley Fool has a disclosure policy.