Author Topic: Older investors - looking for advice for my dad  (Read 5090 times)

SailorGirl

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Older investors - looking for advice for my dad
« on: April 30, 2016, 10:45:36 AM »
I just found out that my 80 year old father has close to $200,000 in savings and checking accounts.  He has no debt and retired from the military 30 or so years ago.

He isn't adverse to investing but doesn't want anything too risky.  He'd also like to be able to use the money if he chooses to fund some travel.

I suggested Vanguard bond funds of some sort and he's mulling that idea over.

Better ideas?

Another Reader

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Re: Older investors - looking for advice for my dad
« Reply #1 on: April 30, 2016, 10:59:36 AM »
Laddered CD's might make sense.  Close to bond fund yields with no risk of losing principal.  That's important to most 80 year old folks.

For rates look at www.depositaccounts.com.

bacchi

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Re: Older investors - looking for advice for my dad
« Reply #2 on: April 30, 2016, 11:00:52 AM »
Does he need this money? Or is he doing ok with a pension and SS and this is just gravy?

SailorGirl

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Re: Older investors - looking for advice for my dad
« Reply #3 on: April 30, 2016, 11:44:21 AM »
Does he need this money? Or is he doing ok with a pension and SS and this is just gravy?

Somewhere in between.  My mom had been ill for several years and they spent most of their time at home.  She recently passed away and he'd like to start traveling more so he doesn't *need* it but might start using it as explores the travel idea.

GizmoTX

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Re: Older investors - looking for advice for my dad
« Reply #4 on: April 30, 2016, 12:01:41 PM »
Bonds don't protect principal unless they're prepaid. At 80, you want ZERO threat to principal. However, keeping a too high balance in a checking account is a terrible idea. An online savings account for future short-term spending pays 1% & can easily transfer to a checking account in days. For the bulk of his savings, there are 5 year CDs available online that earn 2%, with a provision that makes them effectively 1% if cashed in after a year. You should check out online banks like Synchrony, Ally, or CIT, which all have FDIC coverage.

Catbert

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Re: Older investors - looking for advice for my dad
« Reply #5 on: April 30, 2016, 01:43:16 PM »
Another option would be to put half of it (100K) in a stock market mutual fund (S&P 500 or Total Stock Market) and keep half more safe and at least semi-liquid (CDs, on-line saving accounts).  This only works if he won't look at the mutual funds and freak-out every time they go down.

Be careful of bond funds.  If interest rates go up (they will eventually, right? I've been saying that for 5+ years!) the value of bond funds goes down.  Don't put all his money in bond funds.

For stock and bond funds direct him to Vanguard or Fidelity that specialize in index funds.  Keep his out of the cluches of his local stock broker who will sell him on expensive products.

GizmoTX

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Re: Older investors - looking for advice for my dad
« Reply #6 on: April 30, 2016, 02:08:31 PM »
Again, age 80 cannot afford to lose any principal. Stocks are going to correct, sharply.

Nords

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Re: Older investors - looking for advice for my dad
« Reply #7 on: April 30, 2016, 02:39:17 PM »
I just found out that my 80 year old father has close to $200,000 in savings and checking accounts.  He has no debt and retired from the military 30 or so years ago.

He isn't adverse to investing but doesn't want anything too risky.  He'd also like to be able to use the money if he chooses to fund some travel.

I suggested Vanguard bond funds of some sort and he's mulling that idea over.

Better ideas?
I'm my father's conservator.  He's 82 years old and has been living with Alzheimer's since 2008.

When I took over his finances in 2011, he was living on about half of his income (pension, Social Security, dividends).  His asset allocation was 85% equities and 15% bonds.  I cashed out the individual stocks and the most aggressive equity funds to get him to 50% cash, 35% equities, and 15% bonds.  The cash gives him a buffer to pay for his long-term care expenses while the equities give him a reasonable amount of growth with a reasonable amount of risk.

If your father's response of "mulling that idea over" means "No thanks", then I'd suggest putting all $200K into a three-year CD ladder at NFCU or USAA.  (He's eligible for membership in both.)  That gives him over $65K each year to spend or roll over into another CD, and he doesn't have to worry about liquidity.  If he's keeping his spending sprees under $30K then he could even build a seven-year CD ladder for 2.35% APY, but he'd feel stupid if interest rates spiked when he was only 2-3 years into that commitment.

If he's worried about inflation but doesn't want to take a risk of loss of principal then he could put most of the $200K into a Vanguard TIPS fund.  However you could point out that his military pension and his Social Security income are already indexed to inflation, so if he wants to take more risk then he could easily invest in a short-term bond fund.  If he truly doesn't need the money then he could invest in a passively-managed equity index dividend fund like the Dow ETF (ticker symbol DVY) but I don't think he has any reason to put up with this much principal risk for just a few more percentage points of return. 

He's also effectively self-insured for long-term care expenses.  If you two are getting along well with each other then it's time to have that discussion.
http://the-military-guide.com/the-pitfalls-of-your-parents-finances/

doggyfizzle

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Re: Older investors - looking for advice for my dad
« Reply #8 on: April 30, 2016, 02:44:02 PM »
I'd suggest looking into market-linked CDs.  Wells Fargo offers FDIC-insured CDs with participTion rates in certain indices (S&P, Dow 30, etc) based on the start date of the CD.  No principal risk if markets drop over CD duration, and I think you can earn up to 70% of the market index return.  If the market drops and you get all your principal back, you're really no worse off than if you had kept your money in a regular CD (at current low, low rates).

Gary123

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Re: Older investors - looking for advice for my dad
« Reply #9 on: May 01, 2016, 08:41:00 AM »
Park it in a Vanguard money market fund.  He can preserve principle and access it whenever he needs it by linking it directly to his checking.  Trying to squeeze a little more interest out through time delayed CD's makes about much sense as buying him green bananas. 

Huskie87

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Re: Older investors - looking for advice for my dad
« Reply #10 on: May 02, 2016, 09:21:34 AM »
The only way to answer this question is with another question.  What is this money for?  You mentioned travel.  Is that the only expense that will be pulled from this account or does he rely on this to cover other living expenses.  The more dependent he is on this money for meeting basic needs, the less risk he should take with the money.

Also, has the topic of assisted living been discussed?  If this money is going to be used for that purpose, that should also be incorporated into the investment recommendation.

Based on the response to these questions we can determine the necessary rate of return that will meet your Fathers needs.

SailorGirl

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Re: Older investors - looking for advice for my dad
« Reply #11 on: May 02, 2016, 09:44:51 AM »
Not needed for living.  He's super frugal (made a deer fence out of old CDs and still has a plastic colander that I remember from my childhood, for example) but has given in to spending money on things that make life easier (maid service, lawn service, bigger car). 

There's an almost zero chance that he would end up in assisted living.  I'm living here now and my brother is considering selling his house and moving in when I leave so Dad won't be alone.  That's just the way my family works.

I'll suggest the USAA CD ladders.  That sounds like the gentlest suggestion as it doesn't involve changing banks.

Thanks for all the suggestions; we'll talk about them today.