Feedback on Moms Allocation of 200k

[bearkeley]

Helping mom invest 200k (a big chunk for her) and wanted a sounding board before we pull the trigger. Thanks in advance:


78 years old, goal is to maximize distributions to add to her Social Security income which is 850 per month.

Current invested assets:

100k in 5 CD Ladders (approx 5% return)
25k in VWELX
25k in VWINX
50K in individual stocks (her 'play money')
40k cash

Other Assets: 500k in Real Estate (currently for sale but multiple properties internationally, so probably 1-5 years timeframe)


We are thinking of investing the 200k in:

10k for more individual stock (she really enjoys it.)
25k Wellington
25k Wellesley
25k VYM high dividend yield EFT
25k VGSLX Real Estate Index Fund
90k VWEAX high yield corporate bond fund (she likes monthly deposits)

Any thoughts or help would be appreciated.

 

[pb4uski]

Consider preferred stocks. There are a lot of investment grade, quality preferred stocks that trade below stated value and have good yields.

Below is a screener from Schwab of 55 preferred stocks that are investment grade, are trading below call price and yield 5.5% or more. Bolded tickers are amongst my holdings. Underlined are issuers that I hold but a different preferred series.

And since they are trading way below call, if they get called away then you get a bonus. YMMV.

Symbol	Description	S&P Global's Credit Rating	Moody's Rating	Current Yield	Regular Call Price	Last Close
USB/PRA	US BANCORP DELDEP PFD SER A	BBB	Baa2	7.58%	1,000	880.00
USB/PRH	US BANCORP DELPFD B 1/1000DP	BBB	Baa2	7.25%	25	21.44
BML/PRH	BANK AMERICA CORPPFD 1/1200SER2	BBB-	Baa2	7.12%	25	21.66
BML/PRG	BANK AMERICA CORPPFD1/1200 SR1	BBB-	Baa2	7.07%	25	21.86
BML/PRJ	BANK AMERICA CORPPFD DP1/1200 4	BBB-	Baa2	6.98%	25	22.46
TFC/PRI	TRUIST FINL CORPDEP PFD 1/4000 I	BBB-	Baa2	6.92%	25	21.90
MET/PRA	METLIFE INCPFD A FLT RATE	BBB-	Baa3	6.86%	25	23.83
BNJ	BROOKFIELD FIN I UK PLC / BROO4.5 PER SUB NTS	BBB	Baa2	6.85%	25	16.43
MS/PRA	MORGAN STANLEYPFD A 1/1000	BBB-	Baa3	6.77%	25	23.21
BML/PRL	BANK AMERICA CORPPFD 1/1200SER5	BBB-	Baa2	6.76%	25	22.12
ATH/PRA	ATHENE HOLDING LTD6.35%DEP 1/1000	BBB	Baa3	6.69%	25	23.72
ATH/PRA	ATHENE HOLDING LTD6.35%DEP 1/1000	BBB	Baa3	6.69%	25	23.72
ATH/PRD	ATHENE HOLDING LTD4.875% DEP PFD D	BBB	Baa3	6.55%	25	18.62
ATH/PRB	ATHENE HOLDING LTD5.625 DP SH PF B	BBB	Baa3	6.47%	25	21.74
ATH/PRC	ATHENE HOLDING LTD6.375 DP PF C	BBB	Baa3	6.42%	25	24.81
BC/PRC	BRUNSWICK CORP6.375 SR NT 49	BBB-	Baa2	6.39%	25	24.93
BNH	BROOKFIELD FIN INCSUB NT 80	BBB	Baa2	6.37%	25	18.14
MGRB	AFFILIATED MANAGERS GROUP INCJR SUB NT 60	BBB-	Baa1	6.28%	25	18.91
MGR	AFFILIATED MANAGERS GROUP INC5.875 NT SB 59	BBB-	Baa1	6.28%	25	23.40
HWCPZ	HANCOCK WHITNEY CORPORATION6.25% NTS 60	BBB-	Baa3	6.27%	25	24.93
BAC/PRE	BANK AMERICA CORPPFD PER1/1000E	BBB-	Baa2	6.23%	25	23.25
MGRD	AFFILIATED MANAGERS GROUP INCJR SUB NT 61	BBB-	Baa1	6.21%	25	16.92
AXS/PRE	AXIS CAP HLDGS LTDDEP SHS PFD E	BBB	Baa3	6.20%	25	22.16
AFGD	AMERICAN FINL GROUP INC OHIO5.625% SB DEB 60	BBB-	Baa2	5.98%	25	23.51
SREA	SEMPRAFXD NT 79	BBB-	Baa3	5.92%	25	24.28
CMSD	CMS ENERGY CORP5.875 NTS 79	BBB-	Baa3	5.92%	25	24.81
CMSC	CMS ENERGY CORP5.875 JR NT 78	BBB-	Baa3	5.92%	25	24.82
RNR/PRF	RENAISSANCERE HLDGS LTD5.750% PFD F	BBB	Baa2	5.91%	25	24.31
MS/PRK	MORGAN STANLEYSH NONCM PFD K	BBB-	Baa3	5.91%	25	24.75
EQH/PRC	EQUITABLE HLDGS INC4.300% DEP PFD C	BBB	Baa3	5.91%	25	18.20
CFR/PRB	CULLEN FROST BANKERS INC4.450% DEP PFD B	BBB-	Baa2	5.89%	25	18.90
AFGC	AMERICAN FINL GROUP INC OHIO5.125% FXD 59	BBB-	Baa2	5.88%	25	21.78
BAC/PRK	BANK AMERICA CORP5.875 NCM PFD HH	BBB-	Baa2	5.88%	25	25.00
RZB	REINSURANCE GRP OF AMERICA INCSB DB FX/FL56	BBB+	Baa2	5.83%	25	24.64
CMSA	CMS ENERGY CORP5.6% JRSUB NT 78	BBB-	Baa3	5.79%	25	24.30
EQH/PRA	EQUITABLE HLDGS INC5.25% DPRP PFD A	BBB	Baa3	5.78%	25	22.69
PRE/PRJ	PARTNERRE LTD4.875% RED PFD J	BBB	Baa2	5.77%	25	21.11
JPM/PRD	JPMORGAN CHASE & CO5.75% SHS PFD DD	BBB-	Baa2	5.77%	25	24.92
AEFC	AEGON FUNDING COMPANY LLCNT 49	BBB-	Baa2	5.77%	25	22.11
BAC/PRM	BANK AMER CORP5.375 DP PFD KK	BBB-	Baa2	5.73%	25	23.46
WRB/PRE	BERKLEY W R CORP5.70% SB DB 2058	BBB-	Baa2	5.73%	25	24.88
DUKB	DUKE ENERGY CORP NEW5.625% JR SB DB	BBB-	Baa3	5.67%	25	24.82
PRS	PRUDENTIAL FINL INC5.625% JR SB NT	BBB+	Baa1	5.67%	25	24.82
TBC	AT&T INC5.625% NT 67	BBB	Baa2	5.65%	25	24.88
ENO	ENTERGY NEW ORLEANS LLC1ST MTG BD 66	BBB	Baa2	5.65%	25	24.34
MET/PRF	METLIFE INC4.75% DP PFD F	BBB	Baa2	5.63%	25	21.10
TFC/PRR	TRUIST FINL CORPDP SH RP PFD R	BBB-	Baa2	5.62%	25	21.12
BAC/PRN	BANK AMERICA CORP5% NCUM PFD LL	BBB-	Baa2	5.62%	25	22.24
AFGE	AMERICAN FINL GROUP INC OHIODEB SUB 60	BBB-	Baa2	5.61%	25	20.06
STT/PRG	STATE STR CORPDEP SHS PFD G	BBB	Baa1	5.61%	25	23.85
TFC/PRO	TRUIST FINL CORP5.25 DP SH PF O	BBB-	Baa2	5.59%	25	23.48
USB/PRP	US BANCORP DELDEP PERP PFD K	BBB	Baa2	5.58%	25	24.64
TBB	AT&T INC5.35% GLB NTS 66	BBB	Baa2	5.54%	25	24.15
NRUC	NATIONAL RURAL UTILS COOP FIN5.5% SUB NT 64	BBB	A3	5.50%	25	24.98

 

[donheff]

Consider preferred stocks. There are a lot of investment grade, quality preferred stocks that trade below stated value and have good yields.

Below is a screener from Schwab of 55 preferred stocks that are investment grade, are trading below call price and yield 5.5% or more. Bolded tickers are amongst my holdings. Underlined are issuers that I hold but a different preferred series.

And since they are trading way below call, if they get called away then you get a bonus. YMMV.

I don't hold any individual stocks so I pay little to no attention to them. I have a widowed sister in law who is sort of in the OP's situation. She too has SS and a small portfolio that see left in cash for years. She can't afford much volatility and is OK with current MM yields, but needs to be prepared to make changes. Can you describe how these stocks work. For example, what does Morningstar mean by yield?

 

[Closet_Gamer]

Helping mom invest 200k (a big chunk for her) and wanted a sounding board before we pull the trigger. Thanks in advance:


78 years old, goal is to maximize distributions to add to her Social Security income which is 850 per month.

Current invested assets:

100k in 5 CD Ladders (approx 5% return)
25k in VWELX
25k in VWINX
50K in individual stocks (her 'play money')
40k cash

Other Assets: 500k in Real Estate (currently for sale but multiple properties internationally, so probably 1-5 years timeframe)


We are thinking of investing the 200k in:

10k for more individual stock (she really enjoys it.)
25k Wellington
25k Wellesley
25k VYM high dividend yield EFT
25k VGSLX Real Estate Index Fund
90k VWEAX high yield corporate bond fund (she likes monthly deposits)

Any thoughts or help would be appreciated.

If I'm reading your post right, that results in $60k of play money? I'm glad she enjoys it, but that seems like a lot for this sized portfolio.

I think this keeps $140k of guaranteed principle in the portfolio (CDs + Cash). At 78, I might want a bit more in positions that can't fluctuate in value. A down market + extended nursing home stay could get ugly. With CD yields continuing to be OK, I might continue to build out the short end of a CD ladder. That will deliver cash and (provided you buy the right CDs) allow you to exit with a penalty of a few months interest.

My $0.02. YMMV

 

[Closet_Gamer]

One more thought: My Mom is 90 and I'm just keeping some of her stash in a money market fund. It's paying more than 5% and she can have the cash in 24 hours.

God willing, you Mom and has a lot of runway in front of her so inflation and other risks are more substantial, but given where MM yields are its not a bad thing to just stay flexible right now.

 

[pb4uski]

I don't hold any individual stocks so I pay little to no attention to them. I have a widowed sister in law who is sort of in the OP's situation. She too has SS and a small portfolio that see left in cash for years. She can't afford much volatility and is OK with current MM yields, but needs to be prepared to make changes. Can you describe how these stocks work. For example, what does Morningstar mean by yield?

Preferred stocks are a hybrid security that IMO are more bond-like than common stock. Similar to a bond, the issuer promises to pay dividends at a stated rate to the holder, usually quarterly. Unlike bonds though, each dividend distribution needs approval by the issuer's board of directors, though approval is routine. However, if the issuer is in financial difficulties then the dividend might no be approved but if preferred dividends are not approved then the issuer can't pay dividend to common shareholders either. Preferreds are much less volitile than common stocks as a result. If you go to Portfolio Visualizer and plot out Total Stock, Total Bond and PFF (a popular preferred stock fund) then you'll see that the price volatility are more bond-like than stock-like.

So higher risk than similar credit bonds but also higher returns. One thing to keep in mind is that because preferred dividends can be passed on or deferred, the credit rating i generally two notches lower than debt issued by the same company.

 

[OldShooter]

... 50K in individual stocks (her 'play money') ... 10k for more individual stock (she really enjoys it.) ...

Nothing wrong with play money but it is almost certain that if she is not actually losing money over time, she is not keeping up with the market average.

I would segregate the play money into a play money account. Going forward, don't add or remove money from the account.

Then whatever the play money balance is on day one, buy the same amount of a total US market index fund in one of her other accounts, divs and interest reinvested, and never touch the position going forward.

That index fund is her benchmark. Her play money account balance should (if she's very good) roughly track the index fund value.

 

[Evee]

If it were me I would limit the play money to 10% I have 0%
I would put everything in Wellington. Over many years Wellington will average about a 7% payout between capital gains and dividends.
On 400k that is 28k a year.
For less risk she could put everything in Wellesley. Over many years Wellesley will average about a 6% payout between capital gains and dividends.
On 400k that is 24k a year.
I think both of these ideas have less risk than what you are thinking about.

 

[FI_RElater]

OP

For that amount and age, I'd be staying in CDs, treasuries, and money market.... stability.

What I would focus on: SELLING that 500k in Real Estate !!! What you make in the equities market isn't that much higher for far more risk, and getting out of the risk of real estate (especially foreign) makes more sense. Once those sales are realized, then more can be placed into longer term investments (I keep my maturities at/under two years for my fixed in these market conditions).

 

[pb4uski]

..... For example, what does Morningstar mean by yield?

I was rushed and forgot to answer the last part. Yield is annual dividends divided by price. So if a 5% rate $25 stated value preferred is trading for $20 the yield would be 6.25% [(25*5%)/20].

 

[Route246]

I recommend 3-month zero-coupon ladder until you figure out the end game. Currently yielding 5.3% and 100% safe.

 

[bearkeley]

Thanks for all the great feedback. We will continue to do more research, but given the feedback from the group, we are now leaning to a more conservative approach. Here's where we are now:

*Selling 500k in Real Estate is a definite priority but it will be challenging given the international location. Fortunately, if it comes down to it, we can front the 500k if she needs it before her properties sell. Our long term care plan for her will be for us to temporarily relocate to a desirable place for us in the Philippines and have her move in with us. Hiring a private nurse and a full time care giver in the Philippines is much more affordable than in the US.

* "Play money" is at about 14% of her investible assets (outside real estate). It is a lot, but it's what makes her happy. She has agreed to implement measures so it doesn't get commingled with her other investments (she has been adding to her principal on a whim)

* With the remaining 400k we are now thinking of the following:

- 50k in cash (we will try to shift more into interest bearing accounts /mm if possible)
- 100k in CD Ladder (existing)
- 175k in Wellington (or Wellesley) Admiral
- 87k in a High Div Bond Find
- 46k in Vanguard Total REIT Fund
- 42k in High Dividend Stock Fund (might be too high of an exposure to stocks so researching further. Fund is easier to manage than preferred stocks as recommended)

Although asset preservation is important, having income to supplement her SS to fund her 3k a month spend is our goal so she can enjoy her life now. We are hopefully that as the Fed begins to slowly lower rates
, bonds should preform well. The REIT fund gives her good diversification and a nice yield.

 

[Evee]

Just keep in mind these two are as risky as 100% stocks.
- 87k in a High Div Bond Find
- 46k in Vanguard Total REIT Fund
Be careful you don't get to much risk going after yield.

 

[bearkeley]

Just keep in mind these two are as risky as 100% stocks.
- 87k in a High Div Bond Find
- 46k in Vanguard Total REIT Fund
Be careful you don't get to much risk going after yield.

As risky, based on non diversification, right? Since bonds and reits and stocks move differently, it would add a level of diversification to reduce overall risk? (I would put all of it in Wellesley or Wellington but mom is hesitant to put all her money into one at this point). Am I missing something else? Thanks!

 

[Evee]

As risky, based on non diversification, right? Since bonds and reits and stocks move differently, it would add a level of diversification to reduce overall risk? (I would put all of it in Wellesley or Wellington but mom is hesitant to put all her money into one at this point). Am I missing something else? Thanks!

Back test your ideas using 2008 returns. Back test Wellesley using 2008 returns you will understand what I am talking about.
use this link https://finance.yahoo.com/quote/VBIAX/performance?p=VBIAX