market advice for elderly parents

[steady saver]

I can handle the stress of seeing my own portfolio sink well enough, but yesterday my 89 year old dad called b/c the market was dropping and my 82 year old mom was telling him to sell everything...
At the time (I was walking out the door for an appointment) I told my mom that panic selling was the worst selling, to hang tight, not watch the news, etc.

But I am honestly at a loss as to how to advise them today.

Here's their financial situation:
They are able to meet their living expenses through a combination of SS, pension, and an annuity at roughly $5K a month. If my dad passed, it would drop to roughly $3K a month.

They have roughly $105K in CDs.
$42K in money market.

In their Vanguard brokerage account, they have:
1600 shares total of VWEHX (high yield corporate fund investor shares - essential junk bonds of which I know nothing about) - current value (changing by the minute...) - $87K
600 shares of Southern Company (SO) - roughly $31K
Dad has 100 shares of PPL - $2600

Mom's health is good though I'm starting to see some signs of aging/dementia
Dad's health not so good. They're absolutely fine unless he needs to go in a skilled living facility. Right now they have a companion sitter come in 15 hours a week. They own a patio home outright.

I tried to get Dad to give me guardianship over his finances a couple of years ago. He'd only give me access to his Vanguard account at the time. I tried to get him to change things up 18 months ago but he was stuck on those dividends, even though he was losing money on the principal. I am the executor of his estate when he passes.

What would you advise that I advise? He's willing to listen now but the cow's already out of the barn. I don't have a crystal ball and I can't make it all better.
I don't know if telling them to stay the course is the wisest thing but I don't know how to advise at this point.

Thank you.

 

[njhowie]

Don't sell everything/anything. Take some cash and buy stuff that has been beaten up. Yesterday may have been the bottom.

Tell mom to calm down, and not look at the markets for a month.

 

[steady saver]

That's what I'm doing for sure. I just needed to hear if you all think that's still good advice for my parents.

Thanks.

 

[travelover]

They can't afford to lock in those losses. Currently their expenses are met and they have a $147K in cash reserves. There is absolutely no reason to sell any stocks now. When one of them dies, the other will need the value of those stocks to make up the lost income, so don't sell!

 

[FANOFJESUS]

Look at Vanguard LifeStrategy Income fund or LifeStrategy Conservative Growth. Both funds have higher quality stocks and bonds than what you have right now. I think both of these funds lost less than your parents did. You could do what they call a sideways move the same day. Just an idea. Run the numbers.

 

[ERD50]

Check into the cost basis. VWEHX or PPL may very well have a long term loss (they've paid out divs, but NAV has dropped).

VWEHX pretty much acts like 50% stocks 50% bonds. So if you have a loss there, you could sell an equivalent amount of SO/PPL. And probably more, some amount of LTCG are taxed at 0% rate.

That would get them out of much of their current investments, and then you could look into getting them to an appropriate AA without being concentrated in any one stock/sector. And those new investments would have a cost basis of zero right now. So selling a bit in the future if needed to support spending should not incur a big tax hit.

50/50 VTI/BND?

-ERD50

 

[DrRoy]

Don't sell everything/anything. Take some cash and buy stuff that has been beaten up. Yesterday may have been the bottom.

Tell mom to calm down, and not look at the markets for a month.

I would not advise any action. No one ever knows where the bottom is except in the rear view mirror. If you take an action that is wrong in either direction, it feels much worse than not trying to outsmart the market.

 

[Dtail]

Don't sell everything/anything. Take some cash and buy stuff that has been beaten up. Yesterday may have been the bottom.

Tell mom to calm down, and not look at the markets for a month.

Agree with most of the above statement, but unfortunately I don't believe we are at bottom yet.
There might still be an explosion of new cases in the USA.
Let's see if we can have 2 consecutive days of gains first.

 

[njhowie]

I would not advise any action. No one ever knows where the bottom is except in the rear view mirror. If you take an action that is wrong in either direction, it feels much worse than not trying to outsmart the market.

But we are almost 30% lower than the high. Who cares if you buy at the absolute bottom or if things may continue lower? A few weeks ago everyone was saying to keep buying and riding the market higher from that place 30% higher.

I'd consider buying more PPL for starters. It's off 30%, profitable, and is paying a decently-covered fat 6.25% dividend. I may just go buy some myself right now.

 

[foxfirev5]

Are you sure they hold 1600 shares of VWEHX? At $5.44/share it would be $8700 not $87000 in holdings. Furthermore if it is $87000 Vanguard would have moved the shares to Admiral class VWEAX. DW loaded up in '09 at $3.90-4.15 /share with about 15000 shares to get a similar $ amount. So they may or may not have a loss.

 

[bolt]

Nearabouts’ 85yrs old or sooner I plan to liquidate & buy an SPIA, or two to spread the risk, so my dwindling health and resources are fixed.

Good luck.

 

[pb4uski]

Well, to begin with... only 12.6% of their total assets are in the stock market. I would sell the SO and PPL... not because they are stocks but because of the concentration risk and lack of diversification.

Almost 1/3 of the portfolio in high-yield bonds makes no sense to me.

I'd probably sell all three... SO, PPL and VWEHX and reinvest in Wellesley. That would give them ~18/82 overall AA and much better diversification and less risk.

 

[steady saver]

Thank you all for your thoughtful advise. Sorry for the late response but I was "offline" here today. I had a memorial service to attend of a dear friend who died last week in a plane crash. Talk about putting things into perspective.

I so appreciate your advise and thoughtful responses. I am going to read through these all again tomorrow. Again, thank you for taking your time to share your insights. They are each very much appreciated.

 

[steady saver]

A correction - foxfirev5 - that was a typo on my part. They have 16,000 shares of VWEHX, not 1600. They each own 8,000.

Thanks for catching that error.

 

[DrRoy]

But we are almost 30% lower than the high. Who cares if you buy at the absolute bottom or if things may continue lower? A few weeks ago everyone was saying to keep buying and riding the market higher from that place 30% higher.

I'd consider buying more PPL for starters. It's off 30%, profitable, and is paying a decently-covered fat 6.25% dividend. I may just go buy some myself right now.

I was primarily referring to not selling. In the Great Recession, if you bought at -20 or -25 or -30%, you still watched you money go lower for a time and that hurts. I just believe in having an AA that you stick to.

 

[Markola]

Fortunately, your folks are not dependent on their portfolio. I’d keep reminding them of that. They also own their home outright, which is a major security blanket. And they have you and your help and assets/income. If I were you, I’d start every conversation reminding them that they are fine.

As for their portfolio, they’ve unfortunately cobbled together an unbalanced hodgepodge with no strategy, which is not serving them well in this swoon. My 80 year old dad is in the same boat after some investment charlatan who works their retirement community put him in a bunch of junk bonds and other crap.

I agree with the comment above that you should not attempt to console them that the market has hit bottom and will recover soon, because no one knows that. You want to maintain your credibility. Also, now is not the time to be making portfolio changes, because those would be emotion based decisions. I’d aim for a more achievable goal of “Let’s just see where we are on December 31st.” Show them how stock tumbles are temporary. In the meantime, get them focused on a Vanguard Life Strategy Income Fund or Wellesley or something else simple and low cost. That way, you start to give them a couple rays of hope and ways forward that are constructive vs. the fear-based and clearly bad decision of “sell everything.” Good luck!

 

[FANOFJESUS]

All of this could be put into LifeStrategy Income fund,LifeStrategy Conservative Growth or
Wellesley. That would make their life very simple. Then take out what they need each year. Maybe keep 25k in a money market fund.