Please help with portfolio advice for my partner

[Bluemoon]

I would like suggestions about the portfolio I am going to set up for my partner. She has no interest or desire in handling a portfolio (when I'm not here to do it) so I am trying to make it as easy as possible for her (the less funds the better). My written advice to her would be that if I pass before her she should sell the stocks + Wellesley and put everything into Target Retirement.

She is 66, retired and lives off of her pension & SS. Her home is paid for and she has no debts or children. She has an emergency fund of 2 years living expenses.

My proposed portfolio is:

CDs - 28% (already owns)
I Bonds - 3% (will buy)
Ford - 2% (already owns)
GE - 2% (already owns)
Intel - 3%(already owns)
VG Wellesley Adm (VWIAX) - 32%
VG Tgt Rtrmnt Inc (VTINX) - 30%

Stocks 29%/Bonds/Cash 71%, E/R 0.18%

 

[Midpack]

Just a few preliminary questions/comments:

• Why hold small allocations in Ford, GE and Intel for someone who doesn't want to "handle a portfolio?"
• I-Bonds have merit, but a 3% allocation isn't big enough to have an impact, so why bother?
• Hopefully the CDs she owns have decent interest, current CDs have negative real returns (all I know of do anyway) and probably will out to 2014 if not beyond.
• Wellesley and Target Retirement are both balanced funds IIRC, IOW somewhat redundant. She could own nothing but one or the other (or both) and have good diversification, automatic rebalancing, an appropriate stock:bond asset allocation - a portfolio on autopilot. No need to sell Wellesley to buy Target Retirement, they're both solid funds.

 

[Gatordoc50]

I would like suggestions about the portfolio I am going to set up for my partner. She has no interest or desire in handling a portfolio (when I'm not here to do it) so I am trying to make it as easy as possible for her (the less funds the better). My written advice to her would be that if I pass before her she should sell the stocks + Wellesley and put everything into Target Retirement.

She is 66, retired and lives off of her pension & SS. Her home is paid for and she has no debts or children. She has an emergency fund of 2 years living expenses.

My proposed portfolio is:

CDs - 28% (already owns)
I Bonds - 3% (will buy)
Ford - 2% (already owns)
GE - 2% (already owns)
Intel - 3%(already owns)
VG Wellesley Adm (VWIAX) - 32%
VG Tgt Rtrmnt Inc (VTINX) - 30%

Stocks 29%/Bonds/Cash 71%, E/R 0.18%

I would consider selling some of the balanced funds to increase the stock allocation to 50%. Unless there are considerable taxable gains, I would sell the individual stocks for a stock fund. I agree on not bothering with I Bonds as VTINX has enough. With the CDs, they have about 8 years in cash assuming a 4% withdrawal. That is fine. Again, it all depends on the withdrawal rate. Not enough info to give a clear suggestion.

 

[Gatordoc50]

I would consider selling some of the balanced funds to increase the stock allocation to 50%. Unless there are considerable taxable gains, I would sell the individual stocks for a stock fund. I agree on not bothering with I Bonds as VTINX has enough. With the CDs, they have about 8 years in cash assuming a 4% withdrawal. That is fine. Again, it all depends on the withdrawal rate. Not enough info to give a clear suggestion.

I just read where she lives off her pension and SS. Sorry. Her portfolio is fine. Enjoy.

 

[REWahoo]

My written advice to her would be that if I pass before her she should sell the stocks + Wellesley and put everything into Target Retirement.

I question why she should wait, why not simplify now? The proposed portfolio adds little to diversification and seems to add complexity for little potential benefit.

 

[Koolau]

I'm the worst person to ask about AA, so let me come at this from 90 degrees. Have you analyzed her tax deferred status? IOW, have you determined whether using or converting (or perhaps not touching) her tIRAs, 401(k)s, etc. could be advantageous in the long run (when you might not be there)? Since she gets along fine with pension and SS, I'm with some others who don't think tweeking the AA is all that important. Being certain her future tax situation is under control could be a relatively easy thing to calculate and fix. There's little down-side to this exercise unless you don't buy into the theory that taxes rates will, at best, stay the same but more likely go up in the future (i.e., not down). If you do buy into that theory, it makes the calculations relatively simple.

By the way, I DO like I-bonds, although the gummint has taken most of the fun out of them by lowering the interest rates and limiting how much may be invested in them. My personal stack of I-bonds (in the safe-deposit box) "feels" like so many $1000 bills that happen to keep up with inflation (and earn a few percent interest). Using one or more at an opportune time is handy as only a portion of it is taxable - and I get to choose when! Very flexible. Too bad the gummint is trying to kill them. Seems suicidal in this era of massive Fed debt - but what do I know? Obviously, someone way smarter than I is running that show. YMMV

 

[LOL!]

She can start giving away shares of those stocks (GE, INTC, F) to charity instead of giving cash, so that she doesn't have to pay taxes on gains. If no gains, then sell to simplify.

 

[Bluemoon]

I really appreciate all of the replies & suggestions.

After reading the replies here is what I have come up with:

1. Stocks: Agreed, I can sell them and have the money transferred to her Rollover IRA with Vanguard.

2. I-Bonds: She doesn't own any at this time. I felt she should start to buy them every year. The funds still have a risk factor that the bonds do not.

3. CDs: She has a CD ladder that comes due in October 2012/13/14/15 (about 87k) they can be sold and the money put in to the mutual funds..

4. The mutual funds & stocks that she now owns are all tax deferred. The I-Bonds and any future mutual funds bought would be in a taxable account.

She is still legally married and will not be getting divorced for the forseeable future (long, complicated story). After this portfolio is established I don't foresee her selling anything so taxes are nothing I am concerned about.

5. I feel that holding both Wellesley & Tgt Rtrmnt Inc gives a broader ownership of bond types, domestic & foreign stocks.

6. Her current AA is:

Cash 52% (IRA CD making no money to be rolled over to Vanguard)
CDs 28% (taxable)
Stocks 8% (IRA)
Stock Funds 12% (IRA)

7. New planned AA:

I-Bonds - 3.6%
Wellesley - 52%
Tgt Rtrmnt Inc - 44.4%

U.S. - 27%
Int'l - 6%
Bonds/Cash 67%

Your comments are again welcomed.

 

[MichaelB]

Bluemoon, if your partner lives off pension and social security, the equity allocation looks low. Avoiding the risk of equity loss is important but so is avoiding the ravages of inflation. I would move 10% from fixed income to equities or 15% from fixed to Wellington.

 

[Bluemoon]

Bluemoon, if your partner lives off pension and social security, the equity allocation looks low. Avoiding the risk of equity loss is important but so is avoiding the ravages of inflation. I would move 10% from fixed income to equities or 15% from fixed to Wellington.

I kind of agree with you but I think the max I would go is 40% equities to stick to the conservative side. There is no need to add more risk to the portfolio and I want her to be comfortable with what I am doing.

 

[Finance Dave]

Just a few preliminary questions/comments:

• Why hold small allocations in Ford, GE and Intel for someone who doesn't want to "handle a portfolio?"
• I-Bonds have merit, but a 3% allocation isn't big enough to have an impact, so why bother?
• Hopefully the CDs she owns have decent interest, current CDs have negative real returns (all I know of do anyway) and probably will out to 2014 if not beyond.
• Wellesley and Target Retirement are both balanced funds IIRC, IOW somewhat redundant. She could own nothing but one or the other (or both) and have good diversification, automatic rebalancing, an appropriate stock:bond asset allocation - a portfolio on autopilot. No need to sell Wellesley to buy Target Retirement, they're both solid funds.

My thoughts exactly. THe one thing that worries me most is inflation...so I'd have at least 10-15% in TIPS. And I'd sell those pesky small individual stock accounts.

One watchout...if you sell the stocks, don't do it between the ex-div date and the declaration date, or you'll end up with tiny fractional shares and you'll end up selling again. Wait till the dividends are paid out, then sell.

 

[Bluemoon]

My thoughts exactly. THe one thing that worries me most is inflation...so I'd have at least 10-15% in TIPS. And I'd sell those pesky small individual stock accounts.

One watchout...if you sell the stocks, don't do it between the ex-div date and the declaration date, or you'll end up with tiny fractional shares and you'll end up selling again. Wait till the dividends are paid out, then sell.

Thanks for the advice.