Author Topic: Parents Do Not Want To Invest!  (Read 5779 times)

RingofFire

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Parents Do Not Want To Invest!
« on: June 28, 2016, 03:05:13 AM »
My parents have combined nearly a million dollars in cash not invested in either bonds or equities. I try to convince them to invest in something as risk free as US government bonds on treasury direct or diversify in an index fund but they find it too risky. Trouble is, this has been going on for years as their savings depreciates due to inflation and they retire in approximately 20 years. Pretty sure their 401k is entirely in cash as well.

Any ideas on how to convince them? The only positive is that these savings will be invested in my education as I head off onto college this Fall however, the combined tuition and living expenses is only $35K. In 4 years they still will have an excess of cash and probably even more given our family's savings rate.

Fishindude

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Re: Parents Do Not Want To Invest!
« Reply #1 on: June 28, 2016, 05:38:01 AM »
Your parents don't have a problem, they are doing great.
$1 mil in cash, plus 20 more years to retirement might next them another $1 mil saved?   

Wasn't all that long ago that all these investment and stock market opportunities weren't available to the average Joe.   
You just saved your money in the bank, getting whatever interest you could get and built a nest egg to work from.

If you are truly concerned and want to help their situation, pay for some or all of your college yourself and don't burden them with that expense.

Jack

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Re: Parents Do Not Want To Invest!
« Reply #2 on: June 28, 2016, 05:51:34 AM »
Wasn't all that long ago that all these investment and stock market opportunities weren't available to the average Joe.   
You just saved your money in the bank, getting whatever interest you could get and built a nest egg to work from.

The difference is that back then, you could get reasonable interest rates (e.g. >5%) from a bank!

Gin1984

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Re: Parents Do Not Want To Invest!
« Reply #3 on: June 28, 2016, 06:28:31 AM »
Might want to point out that banks are more risky than the federal government, and FDIC insurance is through the federal government.  Might at least get them to invest in Ibonds that way.

boarder42

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Re: Parents Do Not Want To Invest!
« Reply #4 on: June 28, 2016, 06:31:04 AM »
yeah i dont know how you convince someone to invest if they are that against it.  you could try JL collins stock series. 

Axecleaver

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Re: Parents Do Not Want To Invest!
« Reply #5 on: June 28, 2016, 10:09:29 AM »
This is understandable given some of the negative events in their lifetime. It sucked living through the .com meltdown and subprime crash. Cognitive bias for loss aversion is strong.

You may want to show them an excel spreadsheet or future inflation calculator of what their million dollars will be worth in terms of earning power in 20 years. Assuming inflation of 3%, it will be worth roughly 550k.

If they're interested in very safe investments, see if they'll consider TIPS, long term corporate bonds from blue chips they believe will be around forever, or dividend-producing utilities. Get them interested in committing a small amount (10%) to start, that experience may help loosen the hold of loss aversion.

RingofFire

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Re: Parents Do Not Want To Invest!
« Reply #6 on: June 28, 2016, 12:04:56 PM »
This is understandable given some of the negative events in their lifetime. It sucked living through the .com meltdown and subprime crash. Cognitive bias for loss aversion is strong.

You may want to show them an excel spreadsheet or future inflation calculator of what their million dollars will be worth in terms of earning power in 20 years. Assuming inflation of 3%, it will be worth roughly 550k.

If they're interested in very safe investments, see if they'll consider TIPS, long term corporate bonds from blue chips they believe will be around forever, or dividend-producing utilities. Get them interested in committing a small amount (10%) to start, that experience may help loosen the hold of loss aversion.

Well it's not really loss aversion but a "cash" only culture from the soviet era. They are from the USSR where buying a car required years of savings by multiple family members. The only exposure to capitalism was in the late 90s and 2000s of America. 90s Russia didn't help either.

I think they will like TIPS since it is inflation protected by CPI? Are there any currencies that typically don't depreciate over time as much as the US dollar?

rothnroll

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Re: Parents Do Not Want To Invest!
« Reply #7 on: June 28, 2016, 12:14:28 PM »
Why not pay for your own college, if you are concerned about their finances?

Axecleaver

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Re: Parents Do Not Want To Invest!
« Reply #8 on: June 28, 2016, 12:35:18 PM »
Quote
Are there any currencies that typically don't depreciate over time as much as the US dollar?
No modern currency has zero inflation. Monetary policy is set to inflate our way out of government debt and affect employment rates. The Fed inflation targets are around 2%, and change as consumer pricing data changes. I believe they use CPE vs CPI. Source: https://www.federalreserve.gov/faqs/money_12848.htm

I think what you're looking for is low volatility investments. TIPS or bonds are often used for this purpose. If you go the way of bonds, make sure you understand the tax implications. Muni bonds may be a better bet for them in taxable accounts.

Zamboni

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Re: Parents Do Not Want To Invest!
« Reply #9 on: June 28, 2016, 09:54:18 PM »
My mom is the same way. I don't really know what to tell you other than don't worry about. It sounds like they are saving more annually than they are losing to our very low current inflation.

Can you ask if they have spread out their deposits over multiple banks? FDIC will only insure each bank for up to $250K per person, so if the banks fail that would be all they would get back even if they have an entire million in one place.

They are adults, you are not really (yet), and it is their money. If you pressure them to invest, they do, and the stock market takes a sudden dip, then they might panic and suddenly pull it all out. In that scenario they will have just lost money, reaffirming their investment paranoia. Probably better just to leave them to their own devices at least until you have a degree in economics.

Choices

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Re: Parents Do Not Want To Invest!
« Reply #10 on: June 29, 2016, 08:38:32 AM »
The good news is that they're great at savings. The bad news is that they're losing some money to inflation and there's not much you can do about it. Leave the door open, talk about what has worked well for you, and maybe someday they'll ask for your opinion or suggestions.

If there's someone they like and respect who isn't their child, you might consider talking with this person to see if he can gain your parents' attention and interest about investments, but it seems like you've done your best and the answer is "No."

nobody123

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Re: Parents Do Not Want To Invest!
« Reply #11 on: June 29, 2016, 09:40:59 AM »
It's their money, not yours.  If they're comfortable with it in the bank treading water, so be it.  Whatever they've been doing to accumulate $1M is obviously working for them, so why pressure them to change it?

I agree with a previous poster, if you care that much about their finances then find a way to take less than the $140K for college, or pay them back for it.  They are going to lose more purchasing power paying for your college than they will from inflation.


bop

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Re: Parents Do Not Want To Invest!
« Reply #12 on: June 29, 2016, 09:58:08 AM »
Can you figure out what types of investments they might be comfortable with?  For example, is real estate something they're interested in?   

FIKristen

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Re: Parents Do Not Want To Invest!
« Reply #13 on: June 29, 2016, 10:19:17 AM »
I am surprised by all the negative sounding comments here - his intentions are good and he's trying to help his parents out.  You don't need a degree in economics to know that cash loses value over time. Snarky comments about someone's age and/or needling about college expenses seem inappropriate to me.   Kudos for caring, and for trying to help them find a way to stop losing money to deflation.  Even if your efforts prove futile, you at least are on the right track and may be able to help them out if needed when they're older.


LouLou

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Re: Parents Do Not Want To Invest!
« Reply #14 on: June 29, 2016, 09:01:39 PM »
I am surprised by all the negative sounding comments here - his intentions are good and he's trying to help his parents out.  You don't need a degree in economics to know that cash loses value over time. Snarky comments about someone's age and/or needling about college expenses seem inappropriate to me.   Kudos for caring, and for trying to help them find a way to stop losing money to deflation.  Even if your efforts prove futile, you at least are on the right track and may be able to help them out if needed when they're older.

I think it's far to point out that the parents are about to spend $140,000 on OP when OP is concerned about their finances.

OP, the best you can do is explain your point of view.  Your parents are adults, and will make their own decisions about money.  All you can do for them, or for anyone really, is give your advice.  Whether they take it is their decision.

Zamboni

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Re: Parents Do Not Want To Invest!
« Reply #15 on: June 30, 2016, 08:08:54 AM »
It's important to respect the risk tolerance of other people. OP obviously has high risk tolerance for investments, which makes sense given his cultural background and age. His parents have very low risk tolerance, so low that it seems irrational to many here, but it's not at all irrational given their life experiences. Their low risk tolerance should still be respected.

Understanding individual risk tolerance and designing a plan that respects that risk tolerance is the first step that good financial advisors take (even Vanguard's online system does it as a first step to setting up new portfolios), and OP wants to give financial advice to his parents.

This is why I don't try to pressure several of my family members into investing more in the stock market . . . they have low risk tolerance and would just panic at the first downturn, sell low, and end up losing money. Other people decide to try investing and end up getting scammed by "professional advisors" who sell them funds with large front end loads and giant account fees they lose tons of money right on the first day they invest (I once got duped by this before I was interested in learning about investing, and the guy was slick and didn't mention the giant fees until after I got my statement. Thankfully I didn't have that much money to lose, but it was painful to lose such as large percentage when I was young because they has cost me $$$ in compound interest.) Indeed, lots of investors actually do these types of things to themselves in the real world rather than doing their research on funds and fees, balancing their portfolios, and then staying in for the long haul. So, investing in stocks, bonds, or real estate is not always a winning scenario for everyone. Something to keep in mind.

I get that he wants to help, and that is very noble, but some boundaries between children and their adult parents should be respected.

redbird

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Re: Parents Do Not Want To Invest!
« Reply #16 on: June 30, 2016, 12:10:35 PM »
This is understandable given some of the negative events in their lifetime. It sucked living through the .com meltdown and subprime crash. Cognitive bias for loss aversion is strong.

I agree, but my 401k equivalent (TSP) went through the subprime crash. It MORE than made up all of the losses it took since 2008. Plus I got 5% employer matching (free money) during all the time I worked. If I had just thrown the same amount of money I contributed to my TSP myself into some savings account instead, I'd have far less money in my TSP than I do right now.

I didn't start investing my non-retirement funds money for a long time. It was not as much as Drakenish's parents currently hold in cash, but it was still 6 figures' worth of money and it was also in "cash" (regular bank savings accounts) by the time I got into it. I regret not getting over my investing fears sooner, because my stash would be worth a lot more if I had.

The big trick to investing is to not let yourself get scared. As an example, I "lost" money in my investments over this past weekend because of Brexit fears. Not only did I not sell any stocks, but I in fact bought some more since they were "on sale". I will more than make up that money, and in fact gain more, over time thanks to compounding.

patchyfacialhair

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Re: Parents Do Not Want To Invest!
« Reply #17 on: June 30, 2016, 01:27:14 PM »
Let's not forget that OP is probably 17 or 18 years old. I used to think I was very smart as a high school senior, and by most metrics, I was. Yet, I knew nothing (you might argue I still know nothing). It's not too far fetched that OP's parents simply don't care to listen to the advice of a teenager.

Lanthiriel

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Re: Parents Do Not Want To Invest!
« Reply #18 on: June 30, 2016, 01:45:59 PM »
Any ideas on how to convince them? The only positive is that these savings will be invested in my education as I head off onto college this Fall however, the combined tuition and living expenses is only $35K. In 4 years they still will have an excess of cash and probably even more given our family's savings rate.

The bold is mine, but I think OP is saying they plan to shell out $35k total for college (which seems super reasonable to me), so I'm not sure why they're getting flamed for asking their parents to lay out $140k.

OP, you have to realize something: you cannot change your parents' actions. I have a mother that I am probably going to have to be financially responsible for some time in the next 10-20 years. There are significant changes she could and (I think) should make in her life to set herself up better for the second half of her life. She is unwilling to make these changes and unwilling to talk to me about them. You should just feel lucky that your parents are in a healthy financial position and clearly know how to tighten the purse strings to stretch a dollar. It's not worth jeopardizing your relationship with them over this. Best of luck in college!

Jim2001

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Re: Parents Do Not Want To Invest!
« Reply #19 on: July 02, 2016, 01:57:01 PM »
Might want to point out that banks are more risky than the federal government, and FDIC insurance is through the federal government.  Might at least get them to invest in Ibonds that way.

They are well over the FDIC maximums.  If the bank they have the money in fails, they're toast! 

Dicey

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Re: Parents Do Not Want To Invest!
« Reply #20 on: July 03, 2016, 11:54:47 AM »
Inflation is a serious concern, but if they will be drawing SS or a pension in retirement, that should offer sufficient protection.  Make sure they are not over the FDIC limits and then butt out. Your parents have done something really impressive without your help. (FWIW I am a millionaire, but I didn't actually save a million individual dollars.)
Focus on your studies for the next few years to give them the most bang for their hard-earned dollars as possible.

whodidntante

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Re: Parents Do Not Want To Invest!
« Reply #21 on: July 04, 2016, 09:40:59 PM »
You don't need stocks if you have a whole lot of cash.  Stocks are for people who are accumulating a stache. 

MayDay

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Re: Parents Do Not Want To Invest!
« Reply #22 on: July 05, 2016, 07:32:36 AM »
My MIL is like this.  She has ~700K worth of rental houses, that do NOT make very good returns at all.  Plus take a ton of time.  But she refuses to put that money in the stock market, because its "too risky" so I guess the rental houses are better than just sitting on the cash. 

 I didn't know about her refusal to put money in the market and tried to convince her once to sell them and live off the interest, but she was not interested.  Oh well, her life!  If she wants to spend it dealing with crappy tenants, who am I to complain?

RingofFire

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Re: Parents Do Not Want To Invest!
« Reply #23 on: July 19, 2016, 12:18:47 AM »
Thanks for all the advice. The money is spread between different bank accounts, 401ks, etc. so, they are FDIC insured. I agree that I should leave them to their own decisions about their finances. Ruining family relationships over money is silly and sounds too feudalistic. I should feel privileged to have a paid for education as well as a frugal outlook towards life. Again, thanks for all the advice.

chesebert

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Re: Parents Do Not Want To Invest!
« Reply #24 on: July 19, 2016, 01:48:40 PM »
OP, your parents are doing fine. I wouldn't worry about it; not your money.

boarder42

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Re: Parents Do Not Want To Invest!
« Reply #25 on: July 22, 2016, 02:26:01 PM »
Thanks for all the advice. The money is spread between different bank accounts, 401ks, etc. so, they are FDIC insured. I agree that I should leave them to their own decisions about their finances. Ruining family relationships over money is silly and sounds too feudalistic. I should feel privileged to have a paid for education as well as a frugal outlook towards life. Again, thanks for all the advice.

you should also look to help them by maximizing your own financial aid.