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A little help with parental situation please
Old 05-29-2014, 01:39 PM   #1
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A little help with parental situation please

My parents (mom specifically) just inherited approx. 100k after taxes.
They are meeting with a FA next week.
The typical investment strategy for my family for generations has been to put all of their money into bank CD's.VERY conservative. VERY scared to put principal at any risk what so ever.
Now they are meeting with this FA next week and I am worried that she will steer them toward a high fee and super conservative vehicle like annuities.

Background

Both parents are late 50's
My father is retired with a teacher's pension (health insurance not covered in pension) so basically his pension pays for his and mom's insurance with not a ton left over.
He also has a farm that he inherited and at this point he has reinvested any farm income back into the farm as it had fallen into disrepair with his father died. That should change pretty soon as the major farm upgrades are complete. That being said with farming income can fluctuate greatly from year to year, so I consider that more a (hopefully) self sustaining hobby than an income source for him at this point.
Mom has worked management in a grocery store for the last 10 years. Odd jobs before that and a short stint as a public school employee so she has no retirement plan and until this windfall nothing stashed away.

They have, I would estimate 100k stashed away in laddered CD's.

Mom: wants to use a portion of the money for home repairs upgrades like finishing the basement or adding a large deck and is unsure what to do with the remainder.

Dad: if left entirely to him it would go into CD's for the next 10 years and he would complain about the interest rate on those CD's for the next 10 years.

I have been invited to this meeting with the FI with them. My intentions are to just sit and listen during the meeting and then when we are alone try to steer them toward some Vanguard funds. To keep it simple I was thinking Target Retirement 2020.

I would like some help from the collective wisdom of this board for how to approach the subject and convince them to A: for mom not to blow this money on un needed home upgrades and B: for dad to invest in something other than CD's which is all he knows because that's all his parents and his parent's parents ever did.
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Old 05-29-2014, 01:56 PM   #2
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My mother has about 50K sitting in a FDIC money market saving account paying virtually no interest (rate = 0.03% currently). She also annually deposits her RMD check into this account and then proceeds to spend the RMD.

This has caused her "boy friend" (they are in the 80s, so I chuckle using that term) to point out to her several times that the money could be more productive for her. She has a significant inflation adjusted pension and social security.

One idea that the boy friend had was to move some of the money to the low balance Vanguard account that I setup for her a few years ago AND have the dividends paid out to her quarterly (as opposed to reinvested).

I think this just might be the carrot that she needs. Regular money coming in from her money (where before there was none) and the amount will increase with additional transfers into Vanguard.

I had her make the phone call with me on the line to Vanguard to initiate the Dividend payout option to show her that it was easy and to convey to her that she is in charge of this money (keeps calling it my money to my chagrin).

Next step will to be to have her actually transfer some of the savings balance once she has seen at least one dividend check so that she will see how it increases after transfers.

-gauss
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Old 05-29-2014, 02:01 PM   #3
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If the FA is paid by commission I'd try to convince them to cancel the appointment pointing out his/her best interest is not theirs. Have a discussion with them about hidden fees in the different types of investments and the cost to them over the next 30 years. Include inflation in the discussion too .
However some people never listen to family. I'm 58 and have tried helping family members to avoid high fees without success. The strong market the past few years makes them think they're doing just fine so why change? Those with the CD only mentality are even harder to convince.
Good luck!
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Old 05-29-2014, 02:15 PM   #4
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ask your mother to read Scott Burns articles before investing anything.
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Old 05-29-2014, 06:27 PM   #5
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Well, good luck with that.

I am your parents' age. I am around your parent's age and my mind boggles at the idea of taking any advice from my kids (but mine are probably much younger than you are). That said, you may be fighting a losing battle and simply supporting your Dad's idea may be the safest.

That is, unless you parents have a lot of respect for your financial acumen, if you try to convince them to invest the money you may end up sending them into the arms of the FA. That is, if they decide to invest, they may think it "safer" to have a professional advise them than to have you advise them.

Given the options available to them, then simply putting the money into a CD may be the safest option. FWIW, I was never able to convince my own mother to invest in anything other than a CD.
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Old 05-29-2014, 08:00 PM   #6
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Where did the FA come from?

I agree with katsmeow that they don't seem to be unable to make their own decisions.
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Old 05-29-2014, 08:49 PM   #7
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IMHO

What's wrong with CDs? At least the money will be safe there while you start the Herculean task of convincing Dad that Vanguard has a better idea. Good luck with that.
Dad want to save it. Mom wants to spend it. I side with Dad. Maybe Dad wants the FA to side with him, too.

There is the real danger to their wealth, the FA. Need to get him out of the loop!
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Old 05-30-2014, 08:16 AM   #8
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Thank you all for the replies. I huge part of me wants to just be there for them but excuse myself from offering any actual advice. It is after all entirely their call.

Nothing is wrong with CD's. I have CD's in my wife's IRA. But CD's should be a part of your investment strategy not the whole strategy.

To answer your question Bestwife: the FA is employed by the investment company that partners with their personal bank.

And who knows, I don't even know what types of funds this company offers. Maybe they will be low cost and all my concern will be for nothing.

My age was referenced in an above post, so ... I'm 33 ... if it matters.

Thanks again everyone. and I totally understand the "not wanting to take advice from your kids" which is why I am hesitant to give it, even when asked for it.
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Old 05-30-2014, 11:08 AM   #9
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If your parents pension only covers their health care expenses, and they are not old enough to collect social security, and only have $100K in savings, how are they funding their annual living expenses? Is your Mom's income enough to pay their bills?
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Old 05-30-2014, 11:41 AM   #10
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Honestly I don't know the answer to that question. I can assume that Dad is taking small amounts of net income from the farm maybe on an "as needed basis" but I don't know that for a fact.

Also I actually can only ballpark what his pension is, but since I am in the same system I know how they pay out.When he retired he kept the same Group plan that the school system was previously paying 50% of. which cost him about 1700/month for the Family plan (brother is 22). I have since gotten him to switch to an individual family plan with the exact same coverage for about 800/month.

His bring home income may be around 2200/month from pension before any expenses.
They have a paid for home so no mortgage and they really don't spend a lot.
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Old 05-30-2014, 12:18 PM   #11
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Here's one piece of advice your parents might take: No matter what takes place at the meeting, make no decisions until they go home and have time to ponder the choices.
Not a guarantee, but if they agree to do this then cooler heads may prevail, and they will make a better-informed decision.
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Old 05-30-2014, 12:23 PM   #12
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Quote:
Originally Posted by mystang52 View Post
Here's one piece of advice your parents might take: No matter what takes place at the meeting, make no decisions until they go home and have time to ponder the choices.
Not a guarantee, but if they agree to do this then cooler heads may prevail, and they will make a better-informed decision.
+1
Excellent advice.
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Old 05-30-2014, 12:52 PM   #13
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Quote:
Originally Posted by nnkrealtor View Post
Thank you all for the replies. I huge part of me wants to just be there for them but excuse myself from offering any actual advice. It is after all entirely their call.
Not a bad move, especially, if you convinced your parents to invest in an equity fund and the stock market goes into a correction phase. This had happened to me before although eventually people appreciated my advice. During the period when their investment was under water, they looked at me as if I did something terribly wrong to them.
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Old 05-30-2014, 03:02 PM   #14
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Can you have a discussion with them about long time horizons? That they have time and should invest? As for mom and her home stuff, I don't know. That's an LBYM issue. As for the FA, forget it. Stick with Vanguard. They can DYI. They can. Maybe you can help.

Tell them about my mom and dad.

My mom and dad were in a similar position 30 years ago and went conservative with CDs. Recall back then CDs were paying 8, 9, or 10 percent. Life was good.

But not really. They let them ride down through the years. They missed all the equity market gains.

So here we are 30 years later and I'm controlling Dad's finances, trying to figure out if we can keep him comfortable in a good assisted living place for 5 years or more should he live to 95 or so. If he had kept some in equities like he was doing earlier in life (before age 70), he'd be really, really well off. Instead, we're sweating it out, wondering if he'll live out his money.

Siblings and I have taken a small amount and put it in Wellington out of frustration, more than anything. But it is really too late.
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Old 05-30-2014, 03:11 PM   #15
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My Mom and Dad both grew up in, and living during, the Great Depression, so they were extremely conservative, and the only thing they ever invested in was CDs.

After my Dad passed away, I did my Mom's finances, and would sometimes broach the subject of alternate investments, but she wouldn't have anything to do with it. CDs only.

She actually had so much in CDs at the same financial institution that it went over the FDIC insured limit, so at least I did talk her into spreading her money around between different banks so it was all insured.

But it was definitely an uphill battle, so be prepared for a parent who just will not invest in anything else. #1 thing in this scenario is to make sure they're as safe as possible - not listening to bad advice, paying fees where they don't need to, nobody else has access to their money, making sure it's all insured, etc.

Good luck!
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Old 05-30-2014, 03:59 PM   #16
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I would schedule meeting with more than one FA. there is nothing wrong with some competition. Perhaps a conference call with Vanguard if possible.
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Old 05-30-2014, 04:32 PM   #17
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I'm your parent's age. While their ultra-conservative investing approach would not fit me, I understand it as I have a friend who is similarly conservative and scared to put principal at risk.

My suggestions would be one of two alternatives.

The more conservative alternative would be to put it in an online FDIC insured savings account that would pay .85-.95% and then wait to see what PenFed offers in December if they do a CD special again (last year's was 3% for a 5 year CD).

The less conservative alternative would be Vanguard Wellesley.

I recently helped a friend get out of some fixed annuities. She is now in Wellesley and have set up an automatic transfer from Wellesley to her checking account and that cash flow helps with her monthly expenses.

Show your folks the growth of $10,000 for Wellesley and Vanguard Prime MM fund (that would be broadly comparable to investing in CDs).
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Old 05-30-2014, 08:03 PM   #18
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I would recommend putting $76K into a 10 year CD. Fidelity has a 10 year FDIC insured, brokered CD thru Discover paying 3.2%/year.
Put the other $24K in a low cost S&P500 Index fund. Invest $8K now, $8K on his birthday and $8K six months later.

In 10 years, the CD will be worth $100K. If the S&P goes bankrupt - you still got your $100K. Guaranteed - barring a meteor strike
If the S&P stays flat for 10 years, you've got a total of $124K.
If the S&P increases 5% per year you'll have $139K total.

I can't take credit for this strategy - a Money magazine editor posted it a few years ago. I like this conservative strategy, because it offer's a guaranteed investment without having to buy insurance.
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Old 06-01-2014, 08:14 AM   #19
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Just listening is a very good idea. Later you can help them analyze the total return of their investment. Show them the impact of taxes and inflation on the very low cd rates over the next ten years. For now, pb4uski advice provides a balanced approach.
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Old 06-02-2014, 02:50 PM   #20
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I have to agree with Katsmeow. I am 58 and would probably not take advice from a 33 year old -- no offence, your intentions appear to be the best -- it's just how it is.

Just for reference, I have siblings that are 5, 9, and 13 years my senior. Despite having a current net worth (not counting the house, ha) of about 43 times our annual budget (and DW has a little pension, and we will both get SS -- SS and pension will almost cover our annual budget after we start SS) my siblings think we are absolute morons that don't know sh!t from shinola. I am certain the age difference is a major factor. The one five years older kinda "gets it", but the other two don't have a clue. It's unfortunate, but because of this, I generally don't enjoy their company as much as I could. As best I can tell, we are ahead of all of them, but life is not about who accumulates the most.

If I look at nieces and nephews the story is the same but in the opposite direction. One married money, two of them just go whatever direction the wind blows, and the other two struggle paycheck to paycheck working hard raising families, investing in their kids -- very responsible but unable to accumulate much. If any of them offered advice, I would listen politely, then pour it out the other ear.

This will probably not be well received here, but I hear so much about Vanguard, it's getting a little old. I have nothing against Vanguard, but I think the low expense thing gets over done sometimes. It takes just a few big purchases (either voluntary or involuntary) to wipe out the 0.0007356% lower fees at Vanguard over other MF companies. I think it is more important to control one's spending than to go for the absolute lowest fees, but to each his own.
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