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Old 07-03-2009, 11:38 AM   #21
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If taking any kind of risk is out of the question, I would go 100% with CDs personally. TIPS would be OK as long as you understand that their price and the income they throw off can fluctuate widly, even if they are riskless in theory. But, at her age and in her situation, I would not worry about inflation. Why take risk if you don't have to?
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Old 07-03-2009, 11:39 AM   #22
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We didn't discuss how to make all this tax efficient because you didn't say what her marginal income tax bracket was and other aspects of her financial life. It's possible that she is paying thousands of dollars in taxes on investment income that could be avoided.
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Old 07-03-2009, 12:17 PM   #23
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We didn't discuss how to make all this tax efficient because you didn't say what her marginal income tax bracket was and other aspects of her financial life. It's possible that she is paying thousands of dollars in taxes on investment income that could be avoided.
True, and that situation hits close to home.

I've been managing my mom's money since my dad died (she's 74) and in a somewhat similar situation to the woman whose situation is being discussed. She doesn't have $1M, but she does have well into 6 figures and doesn't need any of it to live on. About half of it is in an IRA and the rest is taxable.

Part of my "job" is to find reasonable investments for the taxable portion that don't generate a lot of taxes. Of course, these days CDs and money markets pay almost no taxable income, either....
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Old 07-03-2009, 12:56 PM   #24
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I'm a big fan of if it ain't broke don't try and fix it. If Govt bonds are what her husband decided would work for them, that is what I would continue with. Maybe you perhaps need to look at the situation through their eyes - their strategy is likely to preserve rather than your strategy of growing via investing.

I think they are dangerous waters you are treading. If anything you recommend does go bad, watch for those heirs to the estate coming after you.

If she sticks with the Govt. bonds, it's a strategy she knows and believes in. It is not like she needs a targetted % to live on, so why take any risk?

As to the tax planning estate, once again I would assume that her husband took a look at that aspect. I would not even consider setting up a strategy that takes that into account. I think this goes way beyond what the lady was asking of you.

It is a difficult situation you find yourself in. Trying to please your friend and at the same time respecting boundaries.
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Old 07-03-2009, 06:15 PM   #25
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I wish I knew more about CD's. I've done very little CD investing myself. When you put money into CD's that you see online and at bankrate.com do you actually send money to all the various vendors? Or is there some way to manage the CD's from one account? I'm uncomfortable having large amounts of money scattered all over the place. Especially at places that I've never heard of.
One possibility is to buy CDs via a broker like Schwab.....you deal w/ one place and you can get CDs from a number of different banks. For the convenience, yields will probably be something like 0.3% less than going outside on your own. For now FDIC coverage is 250K but it might revert back to 100K? so for safety, you might assume coverage is 100K and spread accordingly. Another option would be to have POD (beneficiary) accounts
where coverage increases........you'd have to worry about whether that would be in accordance w/ her inheritance wishes so might not be a good choice if not handled correctly.
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Old 07-03-2009, 08:24 PM   #26
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Thanks again for all the good information. I knew I'd get some "been there and done that" advice instead of the "broken record" that you hear from the financial pro's who often just repeat what they were trained to say; things like, "asset allocation", "diversity", etc, etc.

Some of you recommended my friend just stay with the plan that was already in place. That is, continue purchasing US bonds. That's not a bad idea. They do have a Treasury Direct account. But just so you'll know, that plan was the husbands plan, not my friend's. She had virtually no input into the family investments and didn't want any. It's not her thing. Her heirs aren't much better informed about investments either. That's how I got into the picture I think. If she had some idea what to do she wouldn't be asking me. I don't think she cares so much the type of investment I recommend as long as it's "safe". She doesn't know anything about the nature of bonds versus stocks, for example. The Bernie Madoff investment story is the what she knows about. And that's what she fears.

As far as risk is concerned she doesn't have a realistic concept of what risk means. She thinks of risk as "losing it all" I believe. As far as fluctuation in market value is concerned, she wouldn't relate to that. To her, the "market" is a high-class word for the grocery store.

Thanks again for the interesting discussion. I've been keeping up with all of it.
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Old 07-06-2009, 12:19 PM   #27
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Has someone already mentioned the death tax? I think the main focus should be on positioning the estate for transfer to heirs, after making sure she has bought every possible type of insurance for long term care etc.

The other risk to consider is inevitable dementia. Who has financial power of attorney? It should be the kids together. The other issue is how will this play out in terms of family unity after her death and making sure it is handled fairly.

if she is pointed to a financial advisor, please let it be a fee only advisor, and not one of these shoe salesmen graduates who took a 3 month financial course. Make sure the kids go along with her.

hows this for an idea. Cut away 100K and put it under joint management of the kids. See how they do. Give them a chance to screw up with small dollars and know what that feels like. Tell them the pot they manage will be added to subject to performance.

Gosh, if she is 80, the kids must be in their 50s.
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Old 07-06-2009, 12:36 PM   #28
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One possibility is to buy CDs via a broker like Schwab.....
Another possibility (and IMO the best) is to kick the ball on over to her kids or heirs.

Ha
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Old 07-06-2009, 12:52 PM   #29
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Another possibility (and IMO the best) is to kick the ball on over to her kids or heirs.

Ha
There's a lot of wisdom in this. Home cooking is often best, so if the roast burns, there is no chef to blame.
Tread carefully.

The lack of interest and experience with investing from both the 80 yo lady (and kids) is disturbing. I saw this myself with a family. With the exception of 1 heir who specifically asked me what to do, the rest of the beneficiaries did exactly what the father had done. They all signed right up to continue paying management fees and most likely continued portfolio churning on a per transaction commission basis.
I offered options and did a lot of teaching and hand holding, but never exact investment directions.
That 1 heir who solicited my advice is very happy I helped out. YMMV.
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Old 07-06-2009, 02:36 PM   #30
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The lack of interest and experience with investing from both the 80 yo lady (and kids) is disturbing..
I think the natural order of things is that maybe 3% of the population have the mental hardware and emotional discipline for serious investing, and the rest are sheep led to the financial slaughter.

old money is a rare thing indeed.
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Old 07-06-2009, 07:27 PM   #31
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Agree with some of the others. I would stick with treasuries and CD's (which I view as essentially equivalent to treasuries from a "risk" perspective). It is unlikely someone of her age and investment experience will truly understand and accept valuation changes in even a bond fund (If my parents are any example...I explained it dozens of times but I still hear about it when the statements come!) Sure, in the treasuries she has the risk of buying power erosion from inflation but that is unlikely to upset her as much as a decline in value on her statement.

I think your advice regarding a Vanguard consult would be perfectly suitable for someone much younger with a lifetime of savings ahead of them instead of behind them.

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Old 07-08-2009, 10:49 AM   #32
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The lack of interest and experience with investing from both the 80 yo lady (and kids) is disturbing.
Not that uncommon, most folks spend 6 times as much time planning their annual family vacations as thinking about retirement.........

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I offered options and did a lot of teaching and hand holding, but never exact investment directions.
That 1 heir who solicited my advice is very happy I helped out. YMMV.
I have seen more than one sibling get sued by another based on 'teaching and free advice", best to tread very carefully.......

There's a reason I have E&O insurance that I spend $1800 a year on......
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Old 07-08-2009, 10:50 AM   #33
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I think the natural order of things is that maybe 3% of the population have the mental hardware and emotional discipline for serious investing, and the rest are sheep led to the financial slaughter.
No, actually 99% of folks out there have the MENTAL hardware, only 3-10% have the EMOTIONAL discipline........
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