What investments do most of you have in ER?

[myself]

I'm just curious if you hold a portion say 10%-30% of your retirement accounts in higher risk investments to help during these decent bumps up in the market or do most of you do a combination of dividend payers and bonds?

I ask because I think that my mother-in-law should invest some (about 1/3) of her total retirement assets in growth types of investments as opposed to the money market account earning 0.12%, and a 9 month CD that's currently earning 0.3%. Only because I kind of have a fear that her money isn't coming close to keeping pace with inflation and thus she's having to tap it more and more for ongoing medical expenses. She is however 84 years old, so keep that in mind. She's also "petrified" investing in the market in any way, even though I've tried suggesting 1/3 - 1/2 in a dividend stocsk like VZ, CBRL, and PG.

Any thoughts and considerations are appreciated.

[ERD50]

1/3 to 1/2 in a single stock? No way.

Would need to know a lot more about her income streams and expenses to make any sort of suggestions. Is all of her money in MM and CD? If so, getting to a 40/60 AA might make sense, but she would need to be on board, and then I'd probably do it gradually over a year or two. But into well diversified index funds.

-ERD50

[myself]

Nah, not a single stock, but perhaps split across 2 of them. She doesn't have much (about $50k total). All her money is in the MM and CD (and about 1/4 in checking for ongoing costs. Her income is simply SS and a very small pension. Her expenses are pretty much Medicare Advantage to help keep costs of prescriptions and doctor's visits down to a reasonable level and $15/month that she pays for the Italian channels on Sling TV, and food that she picks up every week or two. All in all her monthly expenses are now about 80% of her income since she now lives with us and doesn't have the extra expense of a house/homeowner's insurance/utilities.
I should also note that she chewed through about $10k due to a hospital stay almost a year ago too - which was after the insurance paid. If she has one or two of those, she'll be dangerously close to $0.
I'd actually consider a decent Vanguard fund (like VFINX) that could kickoff more money than the sub 1% stuff she's getting now.

[nash031]

At 84 and living off of 80% of her income, I'd be minimizing her exposure, particularly in a "high" market.

[myself]

Thanks ERD50 and NASH031!

[NW-Bound]

At 84, her horizon is not as far away as that of someone in the 60s or even 70s. It sounds like she needs that money soon.

And being as skittish as she is, she would not handle a market drop well, and nobody can guarantee that it will not happen in the next few years. If she makes 10%, that extra $5K may not make her that much happier, but if she loses $5K, she will never forgive you for it.

[Starsky]

DW and I are feeling very nervous about the market, so we have about 20% in bonds and slightly less in cash. Needless to say, I'm not digging it.

I just had a very interesting meeting with my broker who turned me on to a type of bond investment that pays in the mid-to-high 2% range (it varies by bond and investment amount) for a 7-year bond, is guaranteed to never lose any of the initial investment for any reason, and can be withdrawn at any time in the 7-year period with a declining penalty on the interest as you get closer to maturity.

The kicker is that there is a penalty waiver that allows for penalty-free withdrawals at any time if the holder becomes incapacitated or requires daily assistance with a certain number of activities of daily living. Since I handle affairs for my elderly mom who is in in a memory care facility, she already qualifies for the waiver, so it kind of acts as a long-term CD. For the near term, I'm strongly considering putting her bond assets into this fund at 2.75% after rebalancing her stock and ETF assets to a more comfortable level. It looks like a no-brainer.

I will be going back tomorrow to sign some papers and will be getting more information. I am also considering holding my own cash and bonds there for a while for security sake.

Across all of my wife's and my investment/retirement accounts [because we're nervous about the current market] we try to keep about 15% in cash, 20% in bonds and the rest in ETF's and 3 stocks (mostly Domestic ETFs). About half of the stock is company stock from our careers and the other half is in Google shares.

[ERD50]

Quote:

Originally Posted by Starsky ... I will be going back tomorrow to sign some papers and will be getting more information. ...

Hopefully not in that order.

I dunno, I wonder about the any ifs-ands-buts, but mid to high 2% isn't some crazy high rate, but still high for anything 'guaranteed' these days. Seven year treasuries are ~ 2.3% now, so how can this pay mid-high 2% and provide penalty free withdraws under some cases? I'd proceed with caution, but it might be OK?

https://www.treasury.gov/resource-ce...spx?data=yield

-ERD50

[myself]

Quote:

Originally Posted by NW-Bound At 84, her horizon is not as far away as that of someone in the 60s or even 70s. It sounds like she needs that money soon. And being as skittish as she is, she would not handle a market drop well, and nobody can guarantee that it will not happen in the next few years. If she makes 10%, that extra $5K may not make her that much happier, but if she loses $5K, she will never forgive you for it.

Very true! She is very skittish and with good reason. I think the market is a bit overheated myself, but since I'm much younger and have a longer horizon I have more of a sense of desire for growing my money more as opposed to inflation eating it all up and then some.

I truly appreciate your input. I don't think she'd ever go for it anyway, but I always appreciate additional points of view!

[myself]

Quote:

Originally Posted by ERD50 Hopefully not in that order. I dunno, I wonder about the any ifs-ands-buts, but mid to high 2% isn't some crazy high rate, but still high for anything 'guaranteed' these days. Seven year treasuries are ~ 2.3% now, so how can this pay mid-high 2% and provide penalty free withdraws under some cases? I'd proceed with caution, but it might be OK? https://www.treasury.gov/resource-ce...spx?data=yield -ERD50

This sounds great, but out of curiousity, what if one was nearing retirement age and purchased dividend stocks (now and along the way), that produced enough to provide for all of one's expenses without touching the principle?
After all, the stock can go up and down as long as the dividends don't change, and there are quite a few dividend producers that have paid stationary or ever increasing dividends for 10-40 years.

[calmloki]

If nothing else, maybe shift her savings into something like Discover bank paying 0.85%. I've been happy with them and TIAA-CREF.

https://www.discover.com/online-banking/

There are other higher yield accounts out there that beat .3% easily.

[Sunset]

Quote:

Originally Posted by myself Nah, not a single stock, but perhaps split across 2 of them. She doesn't have much (about $50k total). All her money is in the MM and CD (and about 1/4 in checking for ongoing costs. Her income is simply SS and a very small pension. .... I'd actually consider a decent Vanguard fund (like VFINX) that could kickoff more money than the sub 1% stuff she's getting now.

.

You can boost her return easily and totally risk free:
https://www.ally.com/bank/online-savings-account/

And you could do even a little better by buying a bunch of $5K CDs for terms like 18 months, 3 yrs. Remembering to keep say $20K in the 1% savings account for the next hospital visit.

I agree, that at her age and nervousness of the market, any investment would be viewed as risky by her.

If any stock consideration was done, I would literally limit it to $10K total and only put it in broadbased funds or ETF's, and personally I prefer VTI to VFINX as VTI is more broad based and lower fees.

[Starsky]

Quote:

Originally Posted by ERD50 Hopefully not in that order. I dunno, I wonder about the any ifs-ands-buts, but mid to high 2% isn't some crazy high rate, but still high for anything 'guaranteed' these days. Seven year treasuries are ~ 2.3% now, so how can this pay mid-high 2% and provide penalty free withdraws under some cases? I'd proceed with caution, but it might be OK? https://www.treasury.gov/resource-ce...spx?data=yield -ERD50

I work with Schwab, so I'm sure it's not the most risky thing in the world, but it's not unusual for investments to guarantee to protect the principal, CDs do it all the time. My rate is for 7-year investments over $100K for a start. It's not a slam dunk for me because of the W/D penalties, but for my mom and her exemption I can't find a more secure, liquid, interest bearing place to store her low-risk capital. I suspect that these are underwritten by large insurers that are expecting treasury rates to continue to rise. I'll find out for sure tomorrow.

[brucethebroker]

Quote:

Originally Posted by Sunset . You can boost her return easily and totally risk free: https://www.ally.com/bank/online-savings-account/ And you could do even a little better by buying a bunch of $5K CDs for terms like 18 months, 3 yrs. Remembering to keep say $20K in the 1% savings account for the next hospital visit. I agree, that at her age and nervousness of the market, any investment would be viewed as risky by her. If any stock consideration was done, I would literally limit it to $10K total and only put it in broadbased funds or ETF's, and personally I prefer VTI to VFINX as VTI is more broad based and lower fees.

+1 to Ally.
Been very happy with their 1% on liquid funds, all things considered.

[exnavynuke]

Buying individual stocks is for people with tons of time and tens of millions of dollars imo.

Index funds.... it's all about the index funds.

[LOL!]

I have about half of my equities in just four high risk investments:
IJS, VBR ... these are US small-cap value index funds
VSS, DGS ... there are foreign small-cap index funds

So my point is that INDEX FUNDS can be HIGH RISK.

The above investments are unlikely to lose all my money in them. That is, it is unlikely that their prices will go to zero, but they could lose half their value and have done so in the past.

[ERD50]

Quote:

Originally Posted by myself This sounds great, but out of curiousity, what if one was nearing retirement age and purchased dividend stocks (now and along the way), that produced enough to provide for all of one's expenses without touching the principle? After all, the stock can go up and down as long as the dividends don't change, and there are quite a few dividend producers that have paid stationary or ever increasing dividends for 10-40 years.

If I were to take that approach, I'd find a fund focused on divs. I would not want to take specific stock risk, I want to be diversified. Some of these div funds are paying not that much more than SPY (SPY ~ 2%, these funds in the 2-3% range). Volatility is similar, but a somewhat more muted version of SPY.

But also check the divs over those times. I don't think you can assume they won't drop.

-ERD50

[nun]

Quote:

Originally Posted by myself Very true! She is very skittish and with good reason. I think the market is a bit overheated myself, but since I'm much younger and have a longer horizon I have more of a sense of desire for growing my money more as opposed to inflation eating it all up and then some. I truly appreciate your input. I don't think she'd ever go for it anyway, but I always appreciate additional points of view!

Your mother-in-law does not need growth now, she needs safe income. Her perspective sounds very different from yours so I don't think you are the right person to be giving her advice.

[CaliKid]

If she's happy I'd leave it exactly where it is. The small potential return is not worth her not sleeping well.

[ExFlyBoy5]

Quote:

Originally Posted by nash031 At 84 and living off of 80% of her income, I'd be minimizing her exposure, particularly in a "high" market.

+1 on this. You also mentioned that she is skittish, so I don't think she would enjoy watching market corrections. My dad is 89 and has a good amount of cash (about 30% of his net worth) that is earning a paltry .50% but it's liquid and it gives him peace of mind. Now that I in the process of taking over as his financial fiduciary, I will probably move a big chunk of that into Ally or a CD that at least returns more than .5%!

For me (as a FIRE'd individual), my investments reside in: TSP (L2030 and C Funds/ 11% of assets), Vanguard (all in VWELX/ 32% of assets) and rental property (28% of assets). I recognize that I am heavy on real estate (primary home and rental apprise of 57% of assets) but that is from the rapid rise in home values. I looked into selling the rental, but I am not in favor of paying the capital gains and the rental income is netting me 10.5% on the money, so for now I am keeping it. I should also note that I have a very generous pension that more than pays for our day-to-day expenses.