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Best Way To Invest 10K... that is not mine.
Old 04-27-2011, 03:12 PM   #1
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Best Way To Invest 10K... that is not mine.

Long story short:

My Uncle, who does not live in the US and recently received a nice severance package after being laid-off with (30+ years working for the same employer), doesn't know what to do with this sum in order to generate a modest but semi-safe income.

Traditional investment strategies do not apply where he lives (South America) and CD's and other "safe" options pay next to nothing, just like in the US. Plus, inflation runs rampant and he'll never be able to catch-up if he stays in cash, with a currency that is extremely devalued against the US dollar. Real estate is also out of the question. Prices are ridiculous (lots more than in the US, even when the average salary is considerably less), and that market will probably crash soon.

He can not open an account in the US because he is not a resident. So he gave me about $10K US to invest, under MY name, in whatever shape or form I trust is the most convenient.

What would you more experienced folks do?

Could anybody suggest a semi-conservative portfolio? He doesn't expect to collect any profits right away. Instead, he sees that as a "deposit and forget for a few years" emergency money. If he visits me in the future, he'll cash-in.

My only concern is the tax situation. How would that affect me, other than raising my income level if the investment does turn a profit, of course? Is there something I need to consider before opening an account under my name with money that is not mine?

If anybody else here was in similar shoes, I would appreciate any input. Thanks in advance.
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Old 04-27-2011, 04:07 PM   #2
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What do other people in your uncle's country do with their money?

I'm seeing things like this: http://www.schwab-global.com/public/...outside_the_us that look like something your uncle could use--you could contact Schwab and ask.

Good luck!
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Old 04-27-2011, 09:54 PM   #3
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I'm thinking something like an all-world equity fund/ETF. Simple and defensible, no need to worry about it.

I'd be sure to keep the 10k in a separate account, withdrawing any taxes from it as you pay them. Run your taxes with and without this account and that's what it owes.
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Old 04-27-2011, 10:09 PM   #4
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Funny, my mother-in-law gave us $10K a few years ago and said to invest it for her. My DH put it in GABUX, Gabelli Utilities. It swooned during the crash, but has recovered. It kicks off a nice Yield (12.88%) according to Morningstar. Expenses 1.43%.

GABUX Gabelli Utilities AAA, mutual funds, quote, price - Morningstar
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Old 04-28-2011, 10:08 AM   #5
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Psst!...Wellesley https://personal.vanguard.com/us/fun...FundIntExt=INT

DD
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Old 04-28-2011, 10:19 AM   #6
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What's the upside to helping people invest...
If they make a billion or two you might get a polite thank you and a Christmas card every year.

But if they lose gobs of money you'll hear about it for decades from them and all of the other relatives. The story will get twisted about how you cheated "the family" out of money.

Consider pointing your uncle towards a low-cost advisor and let them make an investment decision.
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Old 04-28-2011, 10:21 AM   #7
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..........But if they lose gobs of money you'll hear about it for decades from them and all of the other relatives. The story will get twisted about how you cheated "the family" out of money ................
+1 No good deed goes unpunished.
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Old 04-28-2011, 10:39 AM   #8
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Consider pointing your uncle towards a low-cost advisor and let them make an investment decision.
I would agree. Without knowing the details, I personally would not make a suggestion.

For instance, does this money represent 1% of his retirement assets? Then there would be little risk to his retirement if the entire amount is lost.

However, if it represents 10% (or more), I would not want to be in the position to take on the "responsibility" of the possible loss. Sure, you could pick a winner but I doubt if you would get the same amount of praise if the returns were positive, vs. a major loss.

In this case, I would gently suggest that he pay an advisor for advice.
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Old 04-28-2011, 10:42 AM   #9
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Quote:
Originally Posted by Karloff View Post
Long story short:
Quote:
Originally Posted by Karloff View Post

[snip] doesn't know what to do with this sum in order to generate a modest but semi-safe income.
[snip]
Could anybody suggest a semi-conservative portfolio? He doesn't expect to collect any profits right away. Instead, he sees that as a "deposit and forget for a few years" emergency money. [snip]


I've seen people jump in here with some suggestions and so far they mostly seem to point towards equities. I've cut down your post and bolded the parts I thought relevant.

"Semi-safe" "semi-conservative" and "few years" to mean means zero equities. If your uncle wants to cash out in a "few" years (2?), heck if less than 5 years then putting the money into equities is aggressive, not semi safe or conservative.

As others have suggested, your best bet would be to avoid being the middle man and help your uncle find a way to invest directly. If you can't do that then I'd spend the time to really understand what your Uncle's goals and risk tolerance is. There is a reason that all the online calculators don't use words like conservative and safe. Rather they ask you questions like how much single year loss could you withstand with specific examples? Words like "safe" and "conservative" are way to ambiguous at the end of the day.

Is your uncle going to be ok if his investment looses money in the 2-5 years before he withdraws it?
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Old 04-28-2011, 10:56 AM   #10
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Originally Posted by PaddyMac View Post
Funny, my mother-in-law gave us $10K a few years ago and said to invest it for her. My DH put it in GABUX, Gabelli Utilities. It swooned during the crash, but has recovered. It kicks off a nice Yield (12.88%) according to Morningstar. Expenses 1.43%.

GABUX Gabelli Utilities AAA, mutual funds, quote, price - Morningstar
This may be its payout, but it cannot be its yield. The worst junk in existence today does not yield that.

Much of your "yield" is likely to be return of capital. Kind of like recycling your own money, or in this case MIL's money.

Ha
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Old 04-28-2011, 01:26 PM   #11
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Yes, it was late last night, I should have checked Wells Fargo and gotten exact numbers. (I'm still getting my head wrapped around what DH has bought over the years.)

WF says "Current Yield" = 12.785%
The account is today at $12,166. Last month it kicked off $132.62 and we get income monthly which we reinvest.

WF says 2011 "estimated income" = 1,555.54

For 2010, I added up the income to $1,482.

Maybe I'm missing something, but I don't think that's half bad.

GABUX's historical returns is that it's made the same distribution thru out the years, even thru the crisis. It's a tradeoff though, as if you have to sell the NAV may be less. The NAV has been going up since the crash..

To clarify, this is but one component of our entire income portfolio, which currently stands at around $450K. It kicks off a steady 8.25% using a mix of utilities and preferred stocks and MLPs. We like the preferred stocks because you are guaranteed to get the face value of the stock (unless the company goes completely kaput). We have PF in Ford, Wells Fargo, Deutsche Bank, Credit Suisse, Bank of America, and all are qualified dividends with the exception of Ford (which we bought at half the face value during the crisis). All are trading at more than their face value now.

One site DH found useful when researching income investments & preferred stocks is Quantum Online.

By the way, the $3100 we get in income each month from this account pays our 4.65% mortgage (currently we have over $400K balance) plus our property tax and more. When the mortgage is paid off, we'll still have the income portfolio to live off of when retired. (We're not paying off our mortgage early as we use the tax deduction; being self-employed it's even more valuable when 33% of your home is office space and self-employment tax is actually higher than the federal tax...ouch.)

Some others you might want to look at for income are Master Limited Partnerships (not tax efficient though and require extra paperwork, but are there for diversity):
Amerigas Partners (APU) - 5.996%
Energy Transfer Partners (ETP) - 6.609%
Suburbn Propn Partners (SPH) - 6.007%

Energy Income & Growth (FEN) is also in our account: 6.273%

If you have $10K to invest, and want to safeguard it, you would probably not to want to put it all in one pot, but use 2 or 3 different options.
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Old 04-28-2011, 04:52 PM   #12
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Originally Posted by PaddyMac View Post
Yes, it was late last night, I should have checked Wells Fargo and gotten exact numbers. (I'm still getting my head wrapped around what DH has bought over the years.)

WF says "Current Yield" = 12.785%
The account is today at $12,166. Last month it kicked off $132.62 and we get income monthly which we reinvest.

WF says 2011 "estimated income" = 1,555.54

For 2010, I added up the income to $1,482.

Maybe I'm missing something, but I don't think that's half bad.
Only you can determine if you are missing something, but here is what I was referring to:

From the 2010 GABUX AR:

“Monthly Distributions – $0.07 per share
Currently, The Gabelli Utilities Fund has a $0.07 per share monthly distribution policy. Shareholders should be aware that, a portion of the distributions may represent a non-taxable return of capital.
Distributions of capital reduce the cost basis of your shares if you hold them in a taxable account. Continued distributions at levels in excess of earnings and total return are unsustainable. Such distributions should not be considered as the dividend yield or total return of the Fund.”


The tax character of distributions paid during the year ended December 31, 2010
was as follows:
Year Ended Year Ended
December31,2010
Distributions paid from:
Ordinary income . . . . . . . . . . . . . . . . . . . . . $ 19,750,110
Return of capital . . . . . . . . . . . . . . . . . . . . . $135,620,788 ————–——— . ................ Total distributions paid . . . . . . . . .. . . . . . . $155,370,898 ————————––—————— ——————––——————

So, of every $1000 you get in dividends, $150 is actual income, the rest is just the money you paid for the shares coming back to you. And for this you pay a management fee of roughly 1.5%.

I am no mutual fund maven, but this wouldn't get me excited.

Ha
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Old 04-28-2011, 11:36 PM   #13
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I appreciate your reply, but I guess I'm not as down on ROC as you are. I look at total return and whether the NAV is appreciating, in which case continued distributions are sustainable. We also took $60K of tax loss harvesting in 2008, so we're not worried about selling with capital gains to pay; that may not suit everyone of course.

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CEF Return of Capital: The Good and Bad - Seeking Alpha

The OP was looking for alternatives to CDs paying a pittance. I still think Utilities and/or Preferred is a good choice for income. Or even merge the two - Utilities Preferred:
Sleep at Night Investments: Utility Preferred Shares - Seeking Alpha
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Old 04-29-2011, 05:42 AM   #14
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What's the upside to helping people invest...
If they make a billion or two you might get a polite thank you and a Christmas card every year.

But if they lose gobs of money you'll hear about it for decades from them and all of the other relatives. The story will get twisted about how you cheated "the family" out of money.

Consider pointing your uncle towards a low-cost advisor and let them make an investment decision.
+1. No upside at all - think twice before you do this.
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Old 04-29-2011, 06:15 AM   #15
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...As others have suggested, your best bet would be to avoid being the middle man and help your uncle find a way to invest directly. ...
Yes, and info in the link I posted above ( http://www.schwab-global.com/public/...outside_the_us ) looks like OP's uncle could use Schwab-Global directly from his South American country.
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Old 04-29-2011, 12:23 PM   #16
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Thank you all for the advise. I am travelling back home from South America at the moment. Will digest your comments over the weekend and report back soon. Thanks again.
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