Conservative mutual fund for a 70-year-old relative's IRA?

[Amethyst]

Hi, we have a relative, 70, who is trying to preserve his small IRA ($38k) so he can leave it to his son. Relative has a modest income from SS.
I think his IRA is in a Schwab fund that has done horribly despite the bull market. He knows that CDs are vulnerable to inflation. He asked us to help him pick a mutual fund.

I suggested Vanguard due to low costs, but don't know which fund would be almost as conservative as CDs, but have a better chance of beating inflation.
It looks like their ETFs all require a $50K minimum investment.

I have most of my non-TSP IRAs in Wellington, but my situation is different from his, so I don't know if VWELX would be too risky for his situation.

What would you all suggest?

 

[MBAustin]

Wellesley is managed similarly to Wellington but more conservatively. It's certainly not as conservative as CDs but may be a reasonable choice. Reviewing the annual performance for each of the last 15 years may give you (and him) a feel for whether or not he's comfortable with that level of risk.

 

[richardsok]

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EGRIX / EGRAX

A chart that dreams are made of.

 

[ERD50]

If the plan is to leave it to his son, it should be invested at an AA appropriate for his son. That assumes that the current 70 YO won't need it, but if he is relying totally on SS, that might not be the case. Any unexpected expense above SS could have him needing to dip into it.

 

[Amethyst]

If the plan is to leave it to his son, it should be invested at an AA appropriate for his son. That assumes that the current 70 YO won't need it, but if he is relying totally on SS, that might not be the case. Any unexpected expense above SS could have him needing to dip into it.

You are correct - he has had to do so already and may need to do so again.

 

[ERD50]

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EGRIX / EGRAX

A chart that dreams are made of.

Looks like a nightmare to me! Grossly underperforms the S&P, even if I cherry pick the worst point for SPY (1/1/202, 1/1/2022)...

https://testfol.io/?s=e54O98RXcyW

 

[ERD50]

You are correct - he has had to do so already and may need to do so again.

OK, then I'd suggest the goal should be stated differently - he needs to preserve it for himself. If there is any left for his son, or not, so be it.

 

[rk911]

Nothing will be safer than an FDIC money market or a CD ladder. But the Vanguard S&P 500 Index Fund VOO is about as safe as you can get without the FDIC insurance.

 

[Steelpony]

Hi, we have a relative, 70, who is trying to preserve his small IRA ($38k) so he can leave it to his son. Relative has a modest income from SS.
I think his IRA is in a Schwab fund that has done horribly despite the bull market. He knows that CDs are vulnerable to inflation. He asked us to help him pick a mutual fund.

I suggested Vanguard due to low costs, but don't know which fund would be almost as conservative as CDs, but have a better chance of beating inflation.
It looks like their ETFs all require a $50K minimum investment.

I have most of my non-TSP IRAs in Wellington, but my situation is different from his, so I don't know if VWELX would be too risky for his situation.

What would you all suggest?

PIMIX/PONAX 72% positive returns over time which is pretty high in my experience, a multibond. 38k at a pretty steady 5% yield on reinvestment compounds out to around 80k in 15 years. PIMCO managers are tops.

 

[COcheesehead]

If capital preservation is the primary goal nothing beats an investment with a par value because it is virtually guaranteed to return to par. There are some preferred shares paying close to 6% right now. So preferreds, individual bonds, CDs.

 

[COcheesehead]

Looks like a nightmare to me! Grossly underperforms the S&P, even if I cherry pick the worst point for SPY (1/1/202, 1/1/2022)...

https://testfol.io/?s=e54O98RXcyW

View attachment 61051

It beat it last year. 20% vs 17.75% Standard deviation for EGRAX is under 4. S&P is 12. Enough to give a 70 year old a heart attack in a big market drop.

 

[richardsok]

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Each 2 'is own, ERD. Our charmin' Amethyst asked for conservative, and conservative I offered. I didn't suggest EGRIX when it was doing very little ten years ago, I mention it NOW that its pace has picked up considerable.

I note your chart correctly shows SPY's sharp and deep bear pockets -- which can come at any time -- and any one of which might spook a nervous oldster into selling at the worst possible moment. (Are you suggesting SPY as a conservative investment fund for some old guy who's already been "investing poorly")
.
If we want to play "which done gone up the mostest" there's TOPT or DDM, which beat SPY nicely over the last year or two .... but I'd never suggest 'em to a nervous nellie.

If EGRIX / EGRAX are too tame, my second choice would be a trio: NML (a CEF) for 8% MLP pipeline income steady as hell and liked by analysts + GGN 6% yield with gold and natural resources + good ol' PTY. Nice 3-way assured income, plus protection against inflation with gold and only loosely compatible to equities. When the kid inherits, he can go as bullish for stocks as he likes. Youngsters have the TIME to make up for mistakes.

But hey, that's me. Talk to my ex-wife. She'll tell you all about my opinions.
.

 

[Amethyst]

OK, then I'd suggest the goal should be stated differently - he needs to preserve it for himself. If there is any left for his son, or not, so be it.

My conclusion, too.

 

[jazz4cash]

You are correct - he has had to do so already and may need to do so again.

In that case It seems a bit unrealistic to plan around leaving it to an heir. I have a cousin that has life insurance policies w her grands as beneficiaries. I recommended that she could not afford these policies but it is important to her so I just leave it be. I think they are Colonial Penn type policies.

 

[pb4uski]

If capital preservation is the primary goal nothing beats an investment with a par value because it is virtually guaranteed to return to par. There are some preferred shares paying close to 6% right now. So preferreds, individual bonds, CDs.

I would agree that capital preservation should be the goal since $38k isn't a lot and he may need those funds. Rather than individual bonds, I would suggest a 5-rung ladder of Blackrocks iBond Corporate target maturity bond funds. Current yield is 4% and there is no interest rate risk if held to maturity and negligible credit risk due to diversification. If you want a little spice, put 80% of so in the ladder and 20% in PFFA whose underlying assets are high quality preferred stocks as I recall.

 

[richardsok]

Agree, pb4. I have a bunch of PFFA. Right around Thanksgiving it was yielding equal to a lot of Pimco CEFs -- plus the added bonus that I actually understand how it earns payouts. Still tossing off 9.5% A worried investor could do worse.

 

[COcheesehead]

Agree, pb4. I have a bunch of PFFA. Right around Thanksgiving it was yielding equal to a lot of Pimco CEFs -- plus the added bonus that I actually understand how it earns payouts. Still tossing off 9.5% A worried investor could do worse.

What’s funny is Fidelity wants you to have an aggressive portfolio profile designation for PFFA, but not for bond CEFs. Go figure.

 

[Mr_Pink]

From Barron's Roundtable this weekend, Sonal Desai discussed a number of conservative options. One of interest in this case is The Franklin Income fund, or FRIAX which, according to Desai consistently delivers a steady but unexciting return. It is built for a somewhat uncertain market, and is a good option for investors lacking conviction on market direction. It can take advantage of periods of volatility.

 

[engineernerd]

My first thought was TIPs or I Bonds, but TIPs require attention to be paid because they don't automatically reinvest themselves (AFAIK), and you can't buy I Bonds in an IRA.

My second thought was short-term bond funds. Looking at Vanguard's offerings in this category I noticed VTIP, which marries my two thoughts and has an expense ratio of 0.03%.

If he doesn't want that or his account custodian doesn't offer it, my general recommendation would still be a short-term bond fund with a low expense ratio. Or a money-market fund.

 

[Dash man]

JAAA pays 5.3% and is made up of AAA rated consolidated loan obligations. Dividends pay monthly.

 

[Amethyst]

What do you think of VSCGX? With a low expense of .12%, it seems to straddle the line between conserving principle and having some growth.

Am I right to recommend that he can get into a fund of some sort, while their NAVs are still low following December payouts?

 

[Phroig]

Wellesley is managed similarly to Wellington but more conservatively. It's certainly not as conservative as CDs but may be a reasonable choice. Reviewing the annual performance for each of the last 15 years may give you (and him) a feel for whether or not he's comfortable with that level of risk.

I like the idea of Wellesley but would favor a globally diversified fund. You could look at Global Wellesley (VGWIX) or, if you like index funds, Vanguard LifeStrategy Conservative Growth Fund (VSCGX).

 

[Finance Dave]

It beat it last year. 20% vs 17.75% Standard deviation for EGRAX is under 4. S&P is 12. Enough to give a 70 year old a heart attack in a big market drop.

I agree, the S&P does not seem fitting for what the OP asked for. OP...just keep in mind that anytime you "reach" for higher returns, you're going to take on some risk.

One method would be to select a "safe" fund such as some others have offered. Another suggestion would be to buy some of the S&P, but keep it at a relatively low % of the portfolio...and keep the rest in CDs or Treasuries or similar. I like RSP instead of IVV (market-cap weighted S&P) for a situation like yours. It is an equal-weighted ETF that doesn't have as much volatility as IVV. The S&P performance today is so heavily influenced by a few companies (all tech-related) that if the sector goes south, it will suffer. So even though the S&P contains 500 companies, 7 of them make up 32% of the holdings. RSP is equal weighted such that each company is given .2% of the total...much less volatile. So one option would be to have say 70-80% of the money in CDs/Treasuries and the remainder in RSP.

 

[Koolau]

Wellesley is managed similarly to Wellington but more conservatively. It's certainly not as conservative as CDs but may be a reasonable choice. Reviewing the annual performance for each of the last 15 years may give you (and him) a feel for whether or not he's comfortable with that level of risk.

Yeah, we still have a pssst! Wellesley fund in our portfolio.

 

[GBcycling]

VSCGX is still 40% equities. The fund lost 11% in 2022. If your relative has dipped into his IRA in the past, how will he feel if his $38000 turned into $35000 later this year.

It seems to me IF this is the only account he has beyond his checking account, equities should be a smaller allocation than 40%

For my own parent, I have most of her equity exposure in VTI. I agree JAAA might be a solid offerring for the balance if you were willing to have 2 funds

If he is not familiar with trading, will someone be available to assist removing funds invested in markets?