suggestions for my risk-averse mom

[kevink]

I never thought the day would come, but my 76 yr. old mother is finally asking for investing help. She's in frail health, has always lived very cheaply, has few assets. Owns her 100K condo outright, otherwise mostly lives off interest from a few CDs (a 100K one due to mature that's at 6.82%, couple small ones at 4.78%).

She's one of those "spend only the interest, never touch principal" folks like so many of her generation. I've been slowly introducing the basics (i.e. inflation, spending principal as she ages) but am meeting a wall of resistance. I think she wants to leave something to us kids even if it means eating Ramen and beans for the rest of her life.

Have been thinking about steering her towards parking it all in something like Vanguard Conservative Growth fund. Otherwise, a CD ladder is about the best idea I've been able to come up with. Any thoughts?

[MasterBlaster]

For someone who is 76, has few assets, and is risk averse I think some CD's or a CD ladder is appropriate.

Any mutual fund with the word Growth in it would be inappropriate for someone such as your mother. If you have to put her in a fund, she should be in an income fund such as Vanguard Wellesley Income Fund.

[brewer12345]

Unless she could afford the hit to income that would come with moving the money into 5 year TIPS, its hard to imagine you could do a whoe lot more than CDs.

[Sam]

Quote:

Originally Posted by kevink She's one of those "spend only the interest, never touch principal" folks like so many of her generation. I've been slowly introducing the basics (i.e. inflation, spending principal as she ages) but am meeting a wall of resistance. I think she wants to leave something to us kids even if it means eating Ramen and beans for the rest of her life.

I think you're doing the right thing in trying to convince her on spending down principal with age. To be successul, I think you and your sibblings have to prove to her beyond any doubt that you have absolutely no need, no want of her money. One way to do that is to send her a monthly or quarterly check.

[Bikerdude]

In her case I would do a five year CD ladder and forget it. Have them pay interest quarterly if she needs/wants the extra money. Online CD's are paying mid 5's which is not bad IMHO.

[LOL!]

My mom is also 76 years old, but quite a contrast to your mom. My mom has her portfolio 100% in equities with about half in funds and half in individual stocks. She also still has a mortgage on her house. She is living off of SS and a small pension, so she feels she can take on more risk with her investment portfolio.

For your mom, maybe one of those Target Retirement funds would be just fine? I see that Vanguard has TR 2005 and 2010 funds with mostly fixed income in them and a smigdeon of equities to try to beat inflation.

[kevink]

Great advice all around; thanks!

Most likely we'll go the CD ladder route, but I'll explore the other funds with my mom and sister in the interests of overall family financial education. Wellesley is great, of course, but I like the measured exposure to intenational and TIPS of Target Retirement 2005 as well. All great suggestions.

[haha]

I side with the CD and T-Bill crowd. There is no quicker way into a parent's doghouse than to make some highfalutin' suggestion which then goes south.

Don't forget, this whole asset allocation, spend down principle theory is just a theory. A theory created by academics that don't have to be right, only convincing and "rigorous", whatever that might mean in this context. And then it was conveniently forgotten that this theory is untested by real time experience and it was sold as established fact by all manner of entrepreneurs- "retirement writers", mutual fund marketers, "financial planners" and other respectable fraudsters.

I would let her do what she is comfortable with, and subsidize her later if it is needed.

Plenty people have parents taking stupid risks with money or marriages or spending.

Be happy that Mom is only maybe a bit hyper-conservative.

Ha

[Goonie]

My Mom's 80, and she's real comfortable knowing her CD's are earning mid-5% interest. She's not very risk tolerant, so CD's are a good match for her.

I went to the bank to get some pocket change the other day, and Mom rode along to cash in a CD that had matured. The teller asked her if she'd like to take out another CD, and Mom asked her what the % rate was. The girl told her, and my Mom said "Is that as high as I can get here?" Girl replied with "Well, yes. And we have the highest rate in town!" My Mom said "Well, thats not very good! I can do MUCH better with my internet bank!"

After we got our running done, and she got home, she went online and opened another CD at ING.

[jnojr]

This would be a terrible time for a 76 year old to get into anything that has to do with the stock market.

And one $100K CD + two "smaller" ones... let's say $200K. With CDs, she'd be living on $10K per year, roughly. Ouch. Is that really all she has? How is it possible that she isn't eating beans and Ramen now? She really ought to be spending down some principle to have a decent standard of living.

[haha]

Quote:

Originally Posted by jnojr This would be a terrible time for a 76 year old to get into anything that has to do with the stock market. And one $100K CD + two "smaller" ones... let's say $200K. With CDs, she'd be living on $10K per year, roughly. Ouch. Is that really all she has? How is it possible that she isn't eating beans and Ramen now? She really ought to be spending down some principle to have a decent standard of living.

Well, pretty much everyone in America has SS. She owns her apartment. She may also have a pension that wasn't mentioned.

Ha

[clifp]

My mom's 82 I have her invested in 50% stocks mostly index funds, 40% bonds, mostly GNMAs, and 10% cash/CDs. Her situation is a bit different than your mom's in that my mom has enough money that she will probably leave a modest amount to her kids. I tell her (jokingly) that her stock funds are for us and everything else is for her spend.

I started gradually taking control of my mom's investment when she was in her early 70s, and consolidating the mismash of funds, inherited stocks, and bank CDs.

Your mom likely has 15 or 20 years left (hopefully more) so a pure CD approach isn't the greatest approach. I think part of the money invested in the Wellesley fund (if you rollover the 100K CD you could qualify for Admiral status), would be a good approach. If she spends the annual cap gains distribution would give her more income than CDs.

[Bikerdude]

Quote:

Originally Posted by clifp Your mom likely has 15 or 20 years left (hopefully more)

Dude, PM me the name of your dealer. Go back and read the first post again.

[clifp]

Quote:

Originally Posted by Bikerdude Dude, PM me the name of your dealer. Go back and read the first post again.

Well according to the CDC a white 75 year old female has a life expectancy of 12.8 year and that rate is climbing about 1 year/decade. I can't find the statistic but I am guess she has approximately 25% of lasting 20 years.
Why do you think planning for 15 years qualifies me for smoking dope?:confused:
http://www.cdc.gov/nchs/data/hus/hus06.pdf#027

I'd have described my grandmother as frail at 76, and she lived to be 96. Unless his grandmother is suffering from some life threatening illness, better to be conservative of planning for life expectancy, and more risky with investments than the other way around.

As for Wellesley, I'll surrender to CFB.

[cute fuzzy bunny]

Quote:

Originally Posted by clifp As for Wellesley, I'll surrender to CFB.

I have no facilities to house prisoners, so you'll have to take this ankle bracelet and be released on your own recognizance.

[Bikerdude]

Quote:

Originally Posted by clifp Well according to the CDC a white 75 year old female has a life expectancy of 12.8 year and that rate is climbing about 1 year/decade. I can't find the statistic but I am guess she has approximately 25% of lasting 20 years. Why do you think planning for 15 years qualifies me for smoking dope?:confused: http://www.cdc.gov/nchs/data/hus/hus06.pdf#027 I'd have described my grandmother as frail at 76, and she lived to be 96. Unless his grandmother is suffering from some life threatening illness, better to be conservative of planning for life expectancy, and more risky with investments than the other way around. As for Wellesley, I'll surrender to CFB.

OK, I'll admit maybe your stash is not THAT good. However, I think one has to determine the difference between "frail health" and just being “frail" but otherwise healthy. Ultimately that task is up to the relatives to determine.

Based on the information provided in the original post, I stand by the CD ladder recommendation.

[clifp]

Quote:

Originally Posted by Bikerdude OK, I'll admit maybe your stash is not THAT good. However, I think one has to determine the difference between "frail health" and just being “frail" but otherwise healthy. Ultimately that task is up to the relatives to determine. Based on the information provided in the original post, I stand by the CD ladder recommendation.

Are you kidding? We have Maui Wowi over here. A couple of my friends smoked a joint from their son's stash (a recent college grad who finally left the nest), and they said that pakalolo, was way more potent than it was in the old days, a few hits and they were both knocked out My stash of course is safely in the hands of others, until I have medical needs.

I don't disagree that a CD ladder is fine choice, but I don't think my suggestion of a conservative income fund is a bad one either.

[Helena]

Your Mom should stay in FDIC insured CDs.
She will sleep better and so will you.

[cute fuzzy bunny]

Pssst....Wellesley.

Heh heh heh...

[chris2008]

My mom is 78 and has always rejected stocks, funds and the like because of the "risk" - even though she has a good pension to cover more than her expenses.
Why argue? She would feel uneasy each day and night and it would spoil out good relationship if she believes that I want to push her into risky investments.
Like any investor she needs to understand her investments. Mechanics of finds or of the stock market are nothing she even wants to understand. But she saved the capital, so it is her right to decide which way to go.