I know, it's bad to time the market, but...

[laurencewill]

Put it in TIPS and tell her to enjoy the income (I think - do TIPS throw off income?). Wellesly is always an option, too.

What's the house worth? With a paid off house the need for capital growth is greatly lessened. Always have the reverse mortgage in case of emergency, or selling the house if long term care is needed.

EDIT: oops, TIPS are like zero coupon bonds, my bad.

[ats5g]

Originally Posted by laurencewill

Put it in TIPS and tell her to enjoy the income (I think - do TIPS throw off income?). Wellesly is always an option, too.

What's the house worth? With a paid off house the need for capital growth is greatly lessened. Always have the reverse mortgage in case of emergency, or selling the house if long term care is needed.

EDIT: oops, TIPS are like zero coupon bonds, my bad.

fyi - TIPS both distribute coupon payments and have a zero coupon component. TIPS pay interest every six months based on the inflation adjusted value of the underlying bond, which is adjusted up [inflation] or down [deflation] depending on the changes in the CPI. The good thing about the zero coupon nature of the changes to the bond's value is that the inflation adjustments compound on top of each other [i.e. compound interest]. The bad thing is that if you hold individual TIPS in a taxable account, you've got to pay taxes on the increases in the bond's value even though you don't receive the increases until you sell the bond or the bond matures. TIPS mutual funds pay out both the coupons and increase in value of the underlying TIPS.

[ats5g]

Originally Posted by WM

Thank you all again for the thoughtful replies.

Let me see if I can provide a clearer picture:

- mortgage is paid off (same house for 30+ years) and no other debts, aside from a modest car lease, which she's very happy with and I'm not going to touch.

- assets are 22K in a rollover IRA (partial payout from FIL's pension) in Vanguard's bond index, plus the 60K that we need to decide what to do with. She will also be able to add to this pot between 5-10K per year while she's working (at least 3 more years). Probably 10K will sit in a MM for emergencies.

- when she's 66, she can retire from her job and collect a pension. In combination with FIL's pension and SS, we expect this will be enough to cover her expenses and there may even be some left over. She lives very modestly and is all about LBYM.

Initially, I was thinking that if she doesn't need any of the invested money for at least 10 years, and in the meantime she can add to it, then it will accumulate to a decent amount by the time she'd start to tap it. But that didn't take into account a serious drop or slump in the market, not to mention that I don't personally have a grasp of what it means that the problem this go-around is too much debt - how does that affect stocks vs bonds? (I know, that's a whole other thing.)

Passing the decision to someone else would be my brother-in-law, who is a good guy but would have signed her up for a variable annuity per the advice of his in-laws and his financial advisor. After that near-miss, I'm ok with giving her advice even if it turns out to be less than optimal.

WM,

Here's a good primer on asset allocation close to retirement from Rick Ferri. See also, Paul's Investing Essentials Blog, especially max equity exposure table:

Max Equity Exposure....... Max loss
20%.......................................5%
30%.....................................10%
40%.....................................15%
50%.....................................20%
60%.....................................25%
70%.....................................30%
80%.................................... 35%
90%.................................... 40%
100%........................... ...... 50%

I wouldn't concern yourself with how the subprime blowup is going to affect stocks and bonds because (1) you're not likely to understand much of it, (2) you're probably even less likely to know what do with MIL's portfolio if you did understand it, and (3) the market has likely already incorporated the subprime fiasco into the prices of stocks and bonds.

I would try to explain to your MIL that the main goal now is to try not to screw up too badly, or get too complicated - the simplest solution is probably going to be the best solution. For example, 100% stocks is probably not the best choice, as is 100% in a savings account. Keep your investing costs low - meaning brokage fees, taxes, and expense ratios. To quote Warren Buffet:

It's better to be approximately right than exactly wrong

-Alec

[haha]

Originally Posted by ats5g

the market has likely already incorporated the subprime fiasco into the prices of stocks and bonds.

If this is true, how does one explain these giant air pockets being hit every day by stocks thought to have no connection whatsoever to the trouble in the sub-prime markets?
Best to remember what Will said:

There are more things in heaven and earth, Horatio,
Than are dreamt of in your philosophy.

Ha

[Spanky]

There are a lot of morons professed as investors reacting to news.

[WM]

Originally Posted by ats5g

Here's a good primer on asset allocation close to retirement from Rick Ferri. See also, Paul's Investing Essentials Blog, especially max equity exposure table:

I wouldn't concern yourself with how the subprime blowup is going to affect stocks and bonds because (1) you're not likely to understand much of it, (2) you're probably even less likely to know what do with MIL's portfolio if you did understand it, and (3) the market has likely already incorporated the subprime fiasco into the prices of stocks and bonds.

I would try to explain to your MIL that the main goal now is to try not to screw up too badly, or get too complicated - the simplest solution is probably going to be the best solution. For example, 100% stocks is probably not the best choice, as is 100% in a savings account. Keep your investing costs low - meaning brokage fees, taxes, and expense ratios. To quote Warren Buffet:

Ok, this all seems very reasonable

She definitely likes simple, so I think she'll be ok with reducing the equity exposure and I'll look into some more bond funds, maybe ones that stick with govt bonds.