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Need Financial Advice for Parents
Old 09-05-2007, 06:03 AM   #1
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Need Financial Advice for Parents

I need some financial advice for my parents. After yet another financial advisor problem, my parents have decided to have me become their financial advisor. The first guy had them neck deep in CISCO, despite their request for a moderate portfolio. The last guy had them in class A mutual funds at 5% fee. I have been trying to tell them about Vanguard, index funds, and details for years, and they are finally listening.

They have good pensions, social security, and rental income, and they tend to live below their means. They definitely have the millionaire minds. Their IRA nest egg is in the high six figures, and they really don't use or need the income from it. They basically look at is "their life savings", and an insurance policy against the other sources of income. So I am thinking something fairly conservative for volatility, just to keep my father's blood pressure in check.

Any suggestions for opening up a Vanguard account with a solid mix? I am thinking of a target of about 8% historical return.

Thanks in advance for anyone's help!
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Old 09-05-2007, 07:22 AM   #2
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Wellington has 10 year and historical returns over 8%. It is a conservative balanced fund of around 65% mostly value oriented stocks and the remainder bonds. Not without some fluctuations but should be a relatively comfortable holding for your parents. If require even less volatility consider Wellesley (see thread below) although it does not meet your target return goal.
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Old 09-05-2007, 08:00 AM   #3
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If this is a tax-deferred account (i.e. IRA) why not a Target Retirement fund or balanced fund (Wellington, Wellesley, Balanced, LifeStrategy, etc). Just don't pick 2010 since your folks already have retirement covered. Pick one with the asset allocation that fits with their temperament and their other investments. A 60% equities, 40% fixed income is probably just fine for them. These criteria give you lots of single funds to choose from. They will all probably do about the same, but I would make sure that the equity portion has both US and foreign as well as large cap to small cap.
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Old 09-05-2007, 03:14 PM   #4
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ok, thanks, I will look into it
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Old 09-05-2007, 03:15 PM   #5
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LOL, Good advice, thanks
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Old 09-05-2007, 03:18 PM   #6
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I have been trying to tell them about Vanguard, index funds, and details for years, and they are finally listening.
This is a "be careful what you wish for thing." Now you are responsible for how well it goes.

I agree with LOL. For the good of your relationship, choose, together with them, a single life strategy or target retirement fund that matches their goals, and put the money there.

Good luck.
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Old 09-05-2007, 06:33 PM   #7
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This is a "be careful what you wish for thing." Now you are responsible for how well it goes.
Al, my thoughts exactly. I went through a similar thing with BIL last year, so that is why they have some confidence. He was loaded with 90% in his company stock. It is a little scary. However, I would rather have feel this way than the sick feeling I have had with their past dealings.

Thanks for the advice!
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Old 09-05-2007, 07:10 PM   #8
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This is how the cycle goes with me.

1. Your relative (sister, parent, etc), mentions that they use an adviser, and the funds they mention are load funds.

2. You mention that they are spending a lot of money on the adviser and the loads, and that load funds generally don't do better than no-load funds. At this point, you expect them to say "oh, wow" and go off and read some books, do research, and switch to index funds. Instead, they defend their adviser, who has become a personal friend, and tell you that he or she says that you get what you pay for.

3. You can't stand that they are being misled, so you print out some articles from the Internet, showing them that they could save a lot of money. At this point, you expect them to say "oh, wow" and go off and read some books, do research, and switch to index funds. Instead, one of two things happens:

a. They ignore your advice
b. They want you to tell them exactly what to do.

IOW, it kind of escalates. But I think that one is morally obligated to at least take step 2 and maybe step 3.
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Old 09-06-2007, 05:56 AM   #9
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TromboneAl, sounds VERY familiar. It is easier to do 3b, if 2 and 3 turn out poorly. Interesting about the moral obligation, too, although, each situation is different. A balance between the influencing, escalation, and the value of the relationship.

On a similar note, I had a friend last week say that he turned all of his 401k money over to Finanancial Advisor. He said that he could then make regular withdrawals. I said that anyone could do this, and he said, "SEE, THAT'S WHY I NEED A FINANCIAL ADVISOR!".
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Old 09-06-2007, 08:25 AM   #10
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First- I talk about investing with friends and family all the time. I even mention some of the funds I own and at times the other mention what they own.

But I never preach "my way is better"... as that could put pressure on me to help them make choices which might strain an otherwise sound friendship.

That being said, my advice for a high 6 figure portfolio would be 3 fold

1) maintain purchasing power (keep up with inflation)
2) growth with moderate performance (6% is return I would shoot for)
3) show a tax strategy with the above

If this is an IRA, when do RMD's kick in?
If this is in a taxable account, consider a tax efficient strategy or dividend strategy to take advantage of lower dividend tax rates.
If this is a combination of IRAs and taxable accounts, show how to cap out the RMD to highest income in tax bracket, and convert this RMD to a Roth.

Then explain the advantages of a Roth.

bonds go into IRAs, balanced funds too
stocks/dividends should be in taxable accounts (until the tax laws change).
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Old 09-06-2007, 06:59 PM   #11
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Originally Posted by jIMOh View Post
advice for a high 6 figure portfolio would be 3 fold

1) maintain purchasing power (keep up with inflation)
2) growth with moderate performance (6% is return I would shoot for)
3) show a tax strategy with the above

If this is an IRA, when do RMD's kick in?
If this is in a taxable account, consider a tax efficient strategy or dividend strategy to take advantage of lower dividend tax rates.
If this is a combination of IRAs and taxable accounts, show how to cap out the RMD to highest income in tax bracket, and convert this RMD to a Roth.

Then explain the advantages of a Roth.

bonds go into IRAs, balanced funds too
stocks/dividends should be in taxable accounts (until the tax laws change).
Thanks for the details! My Father will be visiting this weekend, so I will discuss with him.
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Old 09-10-2007, 06:05 AM   #12
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Mom and Dad decided to go with the Target 2015. Wellesley was a close second. I got the impression that Dad is preparing for possibly not being here in 5 years, so he wanted Mom to have something in auto-pilot for her. They had another guy hitting on them with free dinners, promising 20 - 30% returns. Two red flags were that he was bankrupt at one point, and his biggest holdings are latin america index, and a couple other more volatile areas. Seems too risky for my parents at their age.

Thanks for the help!
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Good Choice
Old 09-10-2007, 06:45 AM   #13
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Good Choice

"Two red flags were that he was bankrupt at one point, and his biggest holdings are latin america index, and a couple other more volatile areas."

Ouch. You should really feel proud for helping your folks out. Have been retired for 7 years and still get regular invites to these dinner time seminars.
I've always followed my father's advice; "decide what you need and go buy, don't let someone sell you what they need".
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Old 09-11-2007, 05:47 AM   #14
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Thanks, WilliamG. It does feel good.
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