Win the battle, Lose the war

[Sundance Kid]

Sorry, poor subject :

Momma, has decided that she is tired of earning 1.5%, on her MM investment, of a medium six figure account, in a local bank investment. Wants to take the whole enchilada and put it in another MM acount, paying 4.0%. She doesn't understand or trust, mutual funds or the market, she thinks CD's tie up her money in case she needs it and is reluctant, to budge from her opinion.

If she had her way, she'd move her money monthly, from bank to bank; to whomever paid the most guaranteed interest , at the time. Course, it's all gotta be FDIC insured. : I'm pretty conservative as well. My idea is a staggered ladder of CD's. I've been retired for 2 years; she still works full time and just hit the BIG 62; So , I'm dependant on her income and the amount of assets is her entitlement, which she is entitled to. I just can't get her to consider any alternative, other than keeping it all in a sock, under the matress.

Got any suggestions or solutions? Had a similar situation?? I'm married to this lovely gal but, damn, sometimes her concept of finances leave alot to be desired. What to do?

 

[JPatrick]

Explain the concept of inflation and how being safe might make you poor.  Especially important if this stash has got to last 20-30 years.

That would be a good step one I would think.

 

[cute fuzzy bunny]

Open an account with Emigrant Direct. FDIC insured, linked to your regular checking account, almost always pays the highest available money market rates. Takes a couple of days to EFT money between the checking account and their money market.

 

[cute fuzzy bunny]

By the way, putting it into "target retirement income" at vanguard would probably be the 'best' idea under the circumstances, but the above beats 1.5%...

 

[astromeria]

Does she trust the gummint? Does she mind paying taxes on all that interest? She might be a candidate for i-Bonds, which she can cash out any time after the first year. She could buy i-Bonds gradually and in small amounts.

Was this money earned by her or inherited? If inherited or an insurance settlement upon a loved one's death, she might feel too emotional to do anything that would lose any of the loot that represents a bond to her loved one. If earned, is she afraid she won't be able to earn any more? Does she have any retirement accounts? Is she expecting a pension? Is she worried about health care expenses? Maybe she just needs to do some reading on basic asset allocation, like the Coffeehouse web site or the Boglehead Guide or some such.

 

[haha]

Got any suggestions or solutions?  Had a similar situation??  I'm married to this lovely gal but, damn, sometimes her concept of finances leave a lot to be desired.  What to do?

This is a situation where I at least would tread very lightly. None of us can know what is around the corner. If you come in with a "Mr. Financier" pitch and sell her on investing in equities, you will in a bad spot if things go badly. This might be true even if they only go badly for a while, on the way to going well later. You may never get to later.

I saw this happen in the early 70s to buddy of mine. He wisely was stocking up on very cheap stocks, against his wife’s judgment. Unfortunately, good buys became even better buys, and it was “Get rid of those damn stocks or I am getting rid of you.” He was in his mid 50s, and retired. He rally had no good options. In fact, it was hard to decide which option was the less bad one.

Ha

 

[mb]

Sundance,

My mom grew up in the depression and had similar prejudices.  She eventually became more comfortable with stocks after watching some of the stocks that my dad invested in go up and down for a few cycles and realizing that although they did go down they were making more money in the long run than the bank account.  Maybe some similar could work for you?

(Unrelated story of mom and an FA:  I agree with the board consensus on financial advisors but I do know that there is a least one "honest one" out there.  A few years ago my mom had a CD mature and asked about mutual funds.  I suggested she put some of the money in Wellesley and some in D&C Stock fund which she did.  A short time later she got a pitch from an FA that went to her church.  She showed him what I had recommended and she told me that his comment was, "I can't do any better than that!  You don't need me!"  Surprised the heck out of me.  I was preparing my FA lecture as soon as she brought it up and didn't even need to use it.)

The "our money and her money" jokes aside I assume that you have some input with regard to your joint money or have money or "your own."  I suggest opening a Vanguard account with the minimum $3k investment in say the TM Index and let it ride for a while and see if you can get her more comfortable with that.  If that works you might want to target say a modest stock allocation of say 15-20% since it doesn't sound like she will every want to take a lot of risk.  If not maybe you'll  maybe you'll have to stick to the MMs 

MB

 

[Texas Proud]

Sundance....

I can not believe that there are people who have that much fear of 'losing' money... she can get 4% at Vanguard MM Prime.... and nobody has ever lost money in a MM account at a major fund company (I believe never ever, but will just stick with the major ones)... People have lost money at the MAJOR BANKS... not if it was below the insurance level, but if it is higher...

BUT, like someone else said, inflation is the enemy of her. Just trying to keep the money 'safe' is the worst thing around..

And tell her this is from someone who works at a bank!!

 

[Outtahere]

Texas, I'm constantly battling with my husband, he freaked when I signed up with Emigrant Direct. He wants a brick and mortar building to go to, he doesn't trust the internet. I've told him there is no difference, he insists that with a local bank he walk up and get his money, my comment is ...not if the doors are locked!!!

It's hard changing someones way of thinking, they have a comfort level and to move them out of that is difficult if not impossible.

 

[SteveR]

Sundance....

I can not believe that there are people who have that much fear of 'losing' money...  she can get 4% at Vanguard MM Prime.... and nobody has ever lost money in a MM account at a major fund company (I believe never ever, but will just stick with the major ones)...  People have lost money at the MAJOR BANKS... not if it was below the insurance level, but if it is higher...

BUT, like someone else said, inflation is the enemy of her.  Just trying to keep the money 'safe' is the worst thing around..

And tell her this is from someone who works at a bank!!

My mother is 83 and grew up with the memories of the Depression and losing the house and farm. My father grew up in a family of sharecroppers so neither had much during their formative years. Memories of bank failures, stock market failures and no money are not easy to forget. My father was "afraid" of the stock market and a slick FPA screwed him big time with his 401k rollover so he and my mother were very cautious about investing in anything. My mother just sold her house and gave me the task to look over her equity until she needs it to pay for her assisted living expenses. Her rules were simple. Don't lose any of it. Inflation discussions and "making" money fell on deaf ears.

I have it in Vanguard MM for now. This will cover three years of living expenses so it is critical to not lose any of it. The trick is to cover inflation in her living expenses so the MM return will need a boost to keep her at least even with the inflation game. I just can't tell her what I am doing. I am looking at some creative but conservative funds at Vanguard to move some of this into for a couple of years. What she does not know will not hurt her and will actually help her meet her financial needs better.

 

[Texas Proud]

Steve,

My mother is 86, so I know what you mean. It has been many years of work to get her educated. But, now she is saying why can I not have MORE money in equity as that GNMA funds is so bad compared to the rest!!! She see where the equity part of her portfolio made about 15% per year the last three and wants more..

My comment was "diversification works even if you do not want it to". That is what saved your a$$ in 2000 and 2001 when her portfolio broke even when most lost big time.

I do have to admit that my mom lives on almost nothing... she gets SS and a small teacher retirement and still saves money.

If you have the power, move some to an equity fund and show her what it does... it might mean that you will have to guarantee that she will not lose (what I did at the beginning), but it will at least start the process.

If you mother is in good health, she might be living another 20 years!!!

 

[TromboneAl]

Hey guys, he's talking about his wife, not his mother. He just calls her Momma.

 

[justin]

As you are probably aware, a "medium six figure" account only gets FDIC coverage for the first $100,000 of assets. You could play around with account titles to have multiple accounts, each with $100,000 of coverage.