Retirement Investments Question

cactuscatieJanuary 19, 2012

My mom, who is retired now for 10 years, lost a ton of money when the market took a dive a couple of years ago.

Can I get suggestions on where her retirement money should be invested. Since it is her retirement money, what are the conservative, rather than agressive, ways she should be invested in order to be safe in the event of another market dive.

Thanks to all.

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You might also check out the Household Finances forum.

Many companies have online tools that help guide you. For example, Schwab has some great articles in their magazine, and so does Consumer Reports. I checked Schwab recommendations for a typical portfolio for a moderately conservative portfolio, and it looks like 40% in equity funds, 50% in income funds, and 10% in cash. Even a very conservative portfolio will show a position in equities for just keeping up with inflation.

Don't know how much your Mother has, but Schwab and Vanguard and Fidelity all offer no cost funds with good guidance as well.

    Bookmark   January 20, 2012 at 12:43PM
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>>but Schwab and Vanguard and Fidelity all offer no cost funds with good guidance as well>>

I would question the definition of "good" here. "Good" to a brokerage and a non-certified financial advisor means "profitable to them, less so to you" because they only have to meet the Suitability standard, an almost legally meaningless term with virtually no consumer protection.

If your mother has sufficient assets to meet the minimum portfolio requirements for a private advisor, all brokerages have a department with Certified Financial Planners who have a Fiduciary responsibility to only recommend investments in the CUSTOMER'S best interest, not the brokerage or broker. Note that not all of these in-house CFPs are independent. I don't know about Vanguard or Fidelity but Schwab's Private Advisor service is, in fact, independent of Schwab itself. This is always preferable; you want to know precisely how your advisor receives compensation, registered/certified or not. In Schwab's case, they vet the CFP's and have very high standards (I knew the woman who ran this program for several years).

Your advisor should also want to know your mother's time horizon for how long her assets need to be estimated to last; what the acceptable success rate is (how willing to risk running out of money); legacy/inheritance issues; in addition to the issue of an appropriate asset allocation mix based upon what income needs she has now and will be estimated to have in the future (inflation considerations). She and the advisor should also discuss any health issues that might require setting aside funds for home healthcare services or long-term care facilities in future years.

The RIA or CFP should also have insurance certification to discuss the use of specific types of insurance policies to mitigate the larger identifiable risks your mother faces as she ages. If they are fiduciaries they must give you the pros and cons of such risk mitigation to allow your mother (and you, if you're her legal/healthcare agent) to make an informed decision as to whether the cost value proposition is worthwhile in her situation.

If your mother does not meet the minimum portfolio requirements for such advisor referrals, then she has a different problem. The basic law of investments is "Low Risk/Little Gain, Higher Risk/Higher Return". At a 2% inflation rate she could be very safe in CDs and Treasuries but if she's healthy and stands a good chance of living into her 90's or beyond - my MIL is one of these women, she has a better than 50% chance of outliving both DH and I - in 25 years her assets will have shrunk drastically, perhaps just at the time when her health requires greater expenditures. 80% of healthcare costs come in the last three years of life, by some studies.

The CFP firm we use for her portfolio has four different portfolio scenarios, depending upon risk profile. They tweak the specific funds used, and early 2010 added new asset classes for further diversification. Equity percentages range from 25% to 85%.

Depending upon whether your mother has a small or large percentage of taxable assets, you would want to diversify her portfolio not only according to her risk profile, but also taking into account management fees, trading commissions, and tax efficiency.

Unfortunately, in investing there is no 'one size fits all'. Everyone's situation is unique; and investing is only part of an overall complex situation that is constantly changing as we age.

    Bookmark   January 20, 2012 at 4:27PM
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jkom51 & sushipup, I appreciate your responses. My mom has her money handled by a local CPA. And, as jkom51 stated, I am worried that he has invested according to his profit.

It is going to be hard to convince mom to move her money. I just thought if I had some specific information, like she should be investing in bonds or certain money markets or stocks, I could be somewhat knowledgeable when talking to the CPA, in the event mom doesn't want to change.

Thanks again.

    Bookmark   January 20, 2012 at 6:56PM
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Having typed a long message and then lost it (god, I HATE Win7/home edition!!) let me try this again....

First of all, a CPA has fiduciary duty to your mother. If he has breached his fiduciary duty he is legally liable.

Second, if you do not have financial and healthcare power of attorney for your mother, you need to arrange for this NOW. Without it the CPA can rightfully refuse to speak to you about your mother's affairs.

You say the CPA 'handles' her money. What does that mean? Is he the financial agent? Or does he have a Series 7 license (some CPAs take this route to certified financial planning, as opposed to the CFP/RIA career path)? Is the agreement with her money discretionary or non-discretionary? Do you understand the difference? Does she? If the account is non-discretionary but she approved all the transactions that lost her money, she doesn't have a legal leg to stand upon. Unless the CPA has a Series 7 broker license and made the sales commissions on the trades, she might only be the victim of bad advice, not fraud or greed.

Did your mother ever fill out a risk profile questionnaire? Do you have a copy of it? Can you get a copy of it? If you and she were to do it over, what would be changed?

I can take the easy way out and say that a very conservative portfolio would be 25% equities spread over at least three or four sectors; 50% bond funds/Treasuries in varying terms; 10-15% cash depending upon her short- to medium-term needs (MMA, short-yield bond funds, CDs); and the remainder in alternative investments.

But actually? I think there are other issues which need to be settled, and a lot of research and reading to do to familiarize yourself with not just investment, but elder law and elder care. And after that, some serious discussions with your mom!

    Bookmark   January 20, 2012 at 11:50PM
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jkom51, reading your post I realize I am not educated at all about investing, elder law/care, etc. Yes indeed there is alot of research on my part. However, your questions are a start. Thanks so much for your help.

    Bookmark   January 21, 2012 at 2:04PM
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Glad to be of help. If you have any other questions, post 'em here or email me off-line.

It's a complex world, and when one is trying to help an elderly relative, there are a lot of issues to deal with. It's never easy, or as simple as we would like it to be. And I say that, even with a MIL who lives with us, is a sweet-natured person who tries hard to please, and allows us to help with all financial, legal, and medical decisions on a day-to-day basis in addition to our having the legal docs if necessary to use. But she has a mild case of dementia, and it's an uphill battle all the time.

    Bookmark   January 21, 2012 at 10:37PM
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Thank you forr sharing your wisdom, jkom51.

ole joyful

    Bookmark   January 28, 2012 at 2:04PM
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Thanks, ole joyful. Nice to see you back on the boards, we've missed you!

    Bookmark   January 28, 2012 at 7:42PM
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Greetings cactus catie,

The problem that many folks who invest have is that when the value goes down a little, they don't get too worried ...

... but when it's gone down quite a lot - they get scared ... and sell.

Some investors set rules for themselves - when a fairly non-volatile stock goes down 10% - they sell.

Once it's gone down quite a lot, if it's a quality stock, sometimes/frequently it may be a time to buy more, rather than selling.

As one mutual fund manager used to tell us mutual fund sales guys/gals, some years ago - he liked to get a Dollar for 60 cents ... that is, a stock where the value he assessed, after some investigation, to be worth a dollar, that he could buy after a market drop for about 60 cents.

A stock that I bought 45 years ago for $4.15 - 20 (paying about 10 - 12 cents annual dividend) had gone up, down and sideways for many years, and the dividend had usually been between 3 - 4%.

In about June of '07, I could have sold it, paying annual dividend of $3.08, for $107.00 or so ... and in the summer of '07 they increased the dividend to $3.48.

That bank was substantially involved in the meltsdown of the U.S. financial fiasco, and the share price dropped to about $40.00.

I shoulod have been watching it closer and have sold it after a slight drop, but didn't.

Didn't buy more at about $40.00, either ... and it has since recovered to about $75.00 or so ($76.84 at today's close). I've been considering buying another Canadian bank ... but haven't, yet.

I'm not too enthused about mutual funds - as many of them, despite their claims of their managers' superior skill at investing, don't produce any better results than the segment of the investment systemm in which they operate.

Part of the reason is that they buy and sell quite a lot, with fees payable each time ... and they charge a management fee of usually 1.5% per year, sometimes more, as long as they manage their clients' money - and in Canada, most of them charge about 2.5% (or more) a year.

While I paid a commission to buy that stock, 45 years ago, I haven't paid anyone a cent to manage it, since.

Big difference!

Having lived in 22 places in my 80+ years, and for a number of those years having lived in accomodation provided by my employer, I've never owned a home.

While I may be over 80, I feel comfortable having something like 80%, sometimes more, of my assets in common stocks of (mostly) quality companies.

Part of the reason being that I feel that I should finance my retirement to age 100 ... in that they tell me that most folks would rather run out of days before they run out of money ... rather than theother way around.

When I was 70, I thought that to be six blocks of five years each.

And, as most of us need a larger fund for probable health care and possible retirement or nursing home accomodation, I'd probably have a greater need for money later in that period ... and inflation means thatthe pricedes of things go up, which owuld mean a larger need for money, later.

So _ I'd better stretch the eating of that first five-year block to 10 years ... which would mean 5/6 (83% or so) of my assets intact after 10 years.

As many advisors suggest that many well-chosen, quality stocks tend to develop growth, despite interim fluctuations, over 10-year or longer periods, I like the prospect of possible growth in the number of my invested dollars ... and when I pay tax at regular rate on only half of that growth ... andnot until I sell - I like that scenario.

Much of the increase comes in theform of dividends, to keep me afloat in the meantime ... and in a number of situations, I pay a low tax rate on them, but interest income is taxed at top marginal rate.

That should be enough for now - and the library closes in (now, under ) five minutes.

Good wishes for increasngly skilled investing.

ole joyfuelled (with a bit of help from a dollar or two,, here and there)

    Bookmark   March 15, 2012 at 7:51PM
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I would get a second opinion with an independent financial advisor for a full review of your mother's retirement plan.

Its always good to get the plan reviewed by another person and see if it meets with goals and needs of your mom.

    Bookmark   April 17, 2012 at 12:42PM
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