Advice to my brother?

[jazz4cash]

Clarification: yes, I should have said Medicare, not Medicaid (I told you I am not good at this). Yes, his money is currently with Fidelity, not Vanguard. I thank all of you for taking the time to respond to my post. In a day or so, I plan on printing off this entire thread and going over it with him and his wife. Any further advice or food for thought would be welcome. I simply am not expert enough about finance to give him sound advice, therefore, I turned to you folks.

That’s a great idea. Glad you found the responses useful. I wanted to echo the sentiment above wrt your brother having done a great job accumulating retirement assets.

 

[dirtbiker]

First off, let me state that I make a point of never giving financial advice. I simply don't know enough about investing, and I feel that there are those out there who are in a much better position to advise. This case is different, the person asking my advice is my older brother, whom I love dearly, and who I am afraid may be an easy target. Plus, he specifically asked me, so so I am not giving unsolicited advice. My brother recently retired at 65 from a blue collar job. His wife is also retired. They have no children. Their condo mortgage is paid off. Both know nothing about investing. They will soon be joining me in Florida where they own a paid off condo. With his pension, and their combined Social Security, they can easily cover their monthly cost of living such as food, homeowner fees, entertainment, cable, etc. What they cannot cover with this income is annual costs such as car insurance, life insurance, medical costs over medicaid, and any surpirse major expenses such as the need for a new car, etc. They have about $410,000 in an IRA with Fidelity (my sister in law's 401k). This money is currently parked in a no risk money market account until they can figure an investment strategy. My question is, how should they invest this $400,000+ in order to be able to meet the above mentioned annual costs (which should come to about $8,000 a year, not counting medical or the eventual need for a new car, etc) with the least risk and least maintenance possible. My advice would be to invest a portion in some stock funds, and perhaps a simple fixed annuity. My brother is being bombarded with calls from Edward R. Jones reps, people offering free steak dinners along with a "financial review", and similar offers. I don't want him to make a mistake or be taken advantage of He is an honest, straightforward man, who has always lived simply and frugally. I did suggest a fee only financial advisor and he was lukewarm on the idea. May I ask for suggestions as to how you would advise him to invest this money?

It sounds like they're in a fairly good financial situation if they come up $8k short per year after fixed income, with $410k in the bank. A 4% WR on that sum would give them double the amount they are short per year, so if they continue living frugally, their net worth will grow with nearly any reasonable asset allocation plan. Maybe a 30/70 AA in stock and bond ETFs?

And you mention them joining you in FL soon where they have a paid-off condo. Do they have a paid-for house where they're currently residing? Will they be selling that to increase their nest egg?

 

[Walt34]

While it is not popular with self-directed investors (like most on this forum), this sounds like a good situation for Vanguard Managed Payout Fund.

I would put it all in Vanguard managed payout VPGDX. At the 4% payout it will be a bit more than the $8k you need. This would be the least maintenance option, but not the least risk.

This would be good.
Personally I would suggest 1/2 in Wellesley and 1/2 in Wellington fund.
<snip>

Going with EJ would be like shooting himself in the foot, every year....

I think any of these suggestions is worthy of consideration since they're all close to a "set-it-and-forget-it" solution which is probably what he's looking for. So is a "couch potato fund" at either Fidelity if he'd prefer to stay there or Vanguard.

While I'm certainly no fan of Edward Jones your brother could do worse. At least EJ isn't flat-out criminal (without debating whether they should be...) and he would probably at least get some returns from them. But really, that's a last resort before investing with a "financial advisor" found in the yellow pages.

 

[Elbata]

The comments here pretty much say the same thing. Lots of good ideas. Have your brother read the thread and discuss it with you, along with your thoughts.

 

[pb4uski]

While I'm a big fan of Vanguard, I'm sure that Fidelity offers balanced funds similar to Wellington or Wellesley so I don't see any need to move their money to Vanguard.

Two alternatives. Fidelity has a money market fund that pays around 2% as I recall. They could put it all in that and take money out as they need to. Alternatively, they can put the money in a balanced fund. Or a combination of both

 

[NW-Bound]

While I'm a big fan of Vanguard, I'm sure that Fidelity offers balanced funds similar to Wellington or Wellesley so I don't see any need to move their money to Vanguard.

Two alternatives. Fidelity has a money market fund that pays around 2% as I recall. They could put it all in that and take money out as they need to. Alternatively, they can put the money in a balanced fund. Or a combination of both

+1

A balanced fund is the simplest way to go.

I just looked. Fidelity's FBALX has been running neck-to-neck with Vanguard Wellington. Can't be simpler than that.

 

[mrfeh]

I have not crunched numbers, but the first thoughts that popped into my head were Wellesley or an SPIA, or perhaps a combination of both.

 

[kjpliny]

Vanguard Wellesley (VWINX) is a 40/60 balanced fund; which is a pretty conservative mix being nominally 60% fixed income, with the 40% in equities to help offset inflation concerns. Put it all there, set up to pay dividends out to him rather than reinvested, and tell him to enjoy retirement.

+1

 

[pjigar]

First off, let me state that I make a point of never giving financial advice. I simply don't know enough about investing, and I feel that there are those out there who are in a much better position to advise. This case is different, the person asking my advice is my older brother, whom I love dearly, and who I am afraid may be an easy target. Plus, he specifically asked me, so so I am not giving unsolicited advice. My brother recently retired at 65 from a blue collar job. His wife is also retired. They have no children. Their condo mortgage is paid off. Both know nothing about investing. They will soon be joining me in Florida where they own a paid off condo. With his pension, and their combined Social Security, they can easily cover their monthly cost of living such as food, homeowner fees, entertainment, cable, etc. What they cannot cover with this income is annual costs such as car insurance, life insurance, medical costs over medicaid, and any surpirse major expenses such as the need for a new car, etc. They have about $410,000 in an IRA with Fidelity (my sister in law's 401k). This money is currently parked in a no risk money market account until they can figure an investment strategy. My question is, how should they invest this $400,000+ in order to be able to meet the above mentioned annual costs (which should come to about $8,000 a year, not counting medical or the eventual need for a new car, etc) with the least risk and least maintenance possible. My advice would be to invest a portion in some stock funds, and perhaps a simple fixed annuity. My brother is being bombarded with calls from Edward R. Jones reps, people offering free steak dinners along with a "financial review", and similar offers. I don't want him to make a mistake or be taken advantage of He is an honest, straightforward man, who has always lived simply and frugally. I did suggest a fee only financial advisor and he was lukewarm on the idea. May I ask for suggestions as to how you would advise him to invest this money?

You need just one balanced fund. And try to move some money (at zero tax rate or any tax rate lower than what they would have once RMD starts) in to Roth until he hits RMD.

 

[splitwdw]

OP, Your 1st post sounds like they have 2 paid off condos. Are they selling 1 condo and moving to the other paid off condo in Florida? Is this the money that your brother wants advice about investing?

The Fidelity 401K is your sister-in-law's BUT does she want help investing it? You don't mention her except to say that the account is hers.

Someone else mentioned 2 pensions but it's only 1, right?
I wouldn't print out this thread because most of it has references to Vanguard not Fidelity where her account is located.

 

[RobbieB]

I'd go Fidelity over Vanguard. Easy.

 

[Oz investor]

to the OP ,

first i would get your brother to educate himself ( financially )

i have discovered a prime requirement in investing is COMFORT ( not spending hours worrying in a crisis , or downturn )

it will also help them decide what is good advice ( for them ) when they hear/read it .

also in my biased opinion there is no such thing as 'risk free' cash that is managed by someone else even in the safe at home is risky enough ( but earns no interest )

 

[jIMOh]

While I'm a big fan of Vanguard, I'm sure that Fidelity offers balanced funds similar to Wellington or Wellesley so I don't see any need to move their money to Vanguard.

Two alternatives. Fidelity has a money market fund that pays around 2% as I recall. They could put it all in that and take money out as they need to. Alternatively, they can put the money in a balanced fund. Or a combination of both

I looked at some FIDO funds earlier, I was not impressed with the balanced fund selection- I saw some 80-20 and 60-40 funds, nothing 20-80 or 40-60

 

[pb4uski]

These looked reasonable to me.

		Annualized returns				Value of $10,000
		3 year	5 year	10 year		3 year	5 year	10 year
Vanguard Wellington	VWELX	9.37%	7.49%	9.92%		13,083	14,350	25,749
Fidelity Puritan	FPURX	9.22%	7.13%	10.07%		13,029	14,111	26,103
Fidelity Balanced	FBALX	9.08%	7.12%	9.95%		12,979	14,104	25,820
Vanguard Welllesley	VWINX	6.31%	6.08%	8.19%		12,015	13,433	21,972
Fidelity Asset Manager 40%	FFANX	5.78%	4.59%	6.82%		11,836	12,516	19,343
BlackRock 40/60 Target Allocation	BAMPX	6.01%	4.70%	7.88%		11,914	12,582	21,351

 

[mrfeh]

These looked reasonable to me.

		3 year	5 year	10 year
Vanguard Wellington	VWELX	9.37%	7.49%	9.92%
Fidelity Puritan	FPURX	9.22%	7.13%	10.07%
Fidelity Balanced	FBALX	9.08%	7.12%	9.95%

Those all have 50-70% in equities, which may be on the risky side for this particular situation.

 

[pb4uski]

Those all have 50-70% in equities, which may be on the risky side for this particular situation.

I added a set that were more like 40% equities.

 

[Toocold]

When my father passed away, I helped my 76 year old mother better understand her financial situation. I found out that a year prior, a financial adviser had suggested and moved their investments at fidelity into 7 life insurance company products so that it could be "safe." She complained that she was getting bombarded with all these statements every month that confused her.

I used that opportunity, based on death benefits, to move 6 out of 7 life insurance products into Vanguard Wellesley. I'll move the 7th once we go past the surrender charge next year. To her, keeping it simple and conservative were the most important criteria.

Now only if we can get those "advisers' to stop calling her....

 

[Jerry1]

Discussing risk tolerance with your brother is, IMO, your number one task. I don’t follow them, but it was either Wellesley or Wellington that suffered some losses recently. Not that it made it a bad choice, but imagine how you’d feel if your brother really didn’t understand the risk and then the fund takes a significant hit. If he doesn’t really understand risk, then I’d just put the money in a money market account and wait for a better day to make any other moves. Maybe take $50K and put it in a blended fund to see how he reacts when it goes down. Everyone’s willing to take risk until they actually experience a loss. I suggest some testing of the waters unless you’re sure about his risk tolerance.

 

[pb4uski]

No Jerry, there were no losses.... there was a pricing glitch that was promptly corrected.

 

[Jerry1]

No Jerry, there were no losses.... there was a pricing glitch that was promptly corrected.

I remember that anomaly, but like most other investments, both funds took a hit in late 2018. I think they even came out negative for the year. The point is that brother needs to make sure he understands that there is risk and how it will be handled.

 

[Brat]

If he is at Vanguard - Wellsley, if at Fidelity - consider their Balanced fund. I have both. Their returns are comparable.

 

[Finance Dave]

While I'm a big fan of Vanguard, I'm sure that Fidelity offers balanced funds similar to Wellington or Wellesley so I don't see any need to move their money to Vanguard.

Two alternatives. Fidelity has a money market fund that pays around 2% as I recall. They could put it all in that and take money out as they need to. Alternatively, they can put the money in a balanced fund. Or a combination of both

I have FIDO and the two funds to consider in the "guaranteed" category are SPAXX and FZDXX. FZDXX pays slightly more, but not sure if they'll let you use it as your "core" account...so may actually need both funds and just keep minimum in SPAXX.

 

[pb4uski]

I remember that anomaly, but like most other investments, both funds took a hit in late 2018. I think they even came out negative for the year. The point is that brother needs to make sure he understands that there is risk and how it will be handled.

That they came out negative for the year 2018 is not particularly relevant.... there are loads of balanced funds that came out negative for 2018... it wasn't a good year... but not a good reason to avoid balanced funds or Wellesley or Wellington.

 

[pb4uski]

I have FIDO and the two funds to consider in the "guaranteed" category are SPAXX and FZDXX. FZDXX pays slightly more, but not sure if they'll let you use it as your "core" account...so may actually need both funds and just keep minimum in SPAXX.

I don't think you can use FZDXX as a core fund.... just SPAXX or an FDIC insured account.

 

[NW-Bound]

That they came out negative for the year 2018 is not particularly relevant.... there are loads of balanced funds that came out negative for 2018... it wasn't a good year... but not a good reason to avoid balanced funds or Wellesley or Wellington.

The problem is someone not versed about investing would not know this.

The brother may later say "I thought this is something that could only go up. If it did not go up a lot, at least it would go up a little or stay the same. Now, I have lost money".

Be sure to print out a return chart covering at least 20 years, sit him down in front of it and explain how things work.