Help pick funds/strategy for my in-laws in their 70s

[jeromedawg]

Hey all,

So I got a little more information regarding my in-law's financials but no hard specifics - they have a bunch of savings accounts they've opened that I'm thinking we might recommend and help them consolidate at Vanguard and then invest. It's really not much, but those accounts, including hard cash and a joint account my wife and brother-in-law had opened probably totals somewhere ballpark $200k~ possibly more, if I had to guess.

Other than that they have equity tied up in a home they got back in '04. They have $240k~ left on the mortgage and roughly close to $360 in equity, based on current home prices.

They're in their early 70s now and run a restaurant with no retirement/end in sight (unless they can sell the restaurant, which doesn't seem too likely at this point as there has been very little interest despite it being listed by a couple brokers including their landlord's broker).

All that said, I was interested in helping them figure out what their allocation should be if we do decide to invest. I realize risk appetite is a big part of this but seeing how they've stashed/hoarded cash most of their lives, I'd say they're highly risk averse. What we're concerned about though is the little cash they have at their age - we want to help them at least grow what they have and "catch-up" as much as they can while they still can. I've read/seen how a general recommendation is to roughly invest in a percentage allocation of bonds that is close to your age (so in their case, somewhere in the ballpark of 70/30 bonds to stocks). Would this make sense for them given their situation? What else should we be considering here given all the facts of what we know?

Another option we have discussed (outside of investing) is "downsizing" both their business and housing situation. The house they're in is a 3 (could be 4) bed / 2 bath and they currently rent out two rooms to single renters. But they're over an hour away from us (including grandkids). Moving closer would be nice for everyone (we think) and if retirement isn't an option, then perhaps downsizing the business to a smaller place that's more mom & pop would be viable? Their restaurant is in a huge space they lease and have a staff of probably 10+ heads who they have to pay. They bring in OK business but it's not booming or anything....

[MDM]

So I got a little more information regarding my in-law's financials but no hard specifics....

You can get some comments/advice here (and I'll add my $0.02 below) but a comprehensive cash flow analysis is what should be done in this case.  In other words, take a close look at all income and expenses projected over the next 20 years and determine if the outlook is good, bad, or in between.

...somewhere in the ballpark of 70/30 bonds to stocks. Would this make sense for them given their situation?

That's actually the split I was thinking before reading this far.  Doesn't mean it is correct (see comment above) but it's at least defensible at first glance.

[jeromedawg]

So I got a little more information regarding my in-law's financials but no hard specifics....

You can get some comments/advice here (and I'll add my $0.02 below) but a comprehensive cash flow analysis is what should be done in this case.  In other words, take a close look at all income and expenses projected over the next 20 years and determine if the outlook is good, bad, or in between.

...somewhere in the ballpark of 70/30 bonds to stocks. Would this make sense for them given their situation?

That's actually the split I was thinking before reading this far.  Doesn't mean it is correct (see comment above) but it's at least defensible at first glance.

Thanks! I think I have your shared copy of the Cash Flow calculator you put out there, so I'll revisit that for their case. It's tough because not even they have an exact count on their money (particularly the hard cash they keep on hand).

[Heckler]

Friends and family - IMO don't mix in business.

What happens if you convince them to invest and then DT blows up NK and the S&P takes a dive?   They need to take the plunge on thier own accord - you can lead them to water (learning about investing), but I would not be making recommendations on this.  Especially at thier age and all cash risk tolerance level.

I have given people who ask me personally many links and blank spreadsheets, but will not tell them where or how to invest. I am not certified, and they haven't hired me.

Just my opinion.  Carry on.




80/20 BTW - they are very risk adverse at 70 and have never invested.  I would first help them reduce income taxes on the interest they are making in savings accounts if they are in taxable accounts.

[jeromedawg]

Friends and family - IMO don't mix in business.

What happens if you convince them to invest and then DT blows up NK and the S&P takes a dive?   They need to take the plunge on thier own accord - you can lead them to water (learning about investing), but I would not be making recommendations on this.  Especially at thier age and all cash risk tolerance level.

I have given people who ask me personally many links and blank spreadsheets, but will not tell them where or how to invest. I am not certified, and they haven't hired me.

Just my opinion.  Carry on.




80/20 BTW - they are very risk adverse at 70 and have never invested.  I would first help them reduce income taxes on the interest they are making in savings accounts if they are in taxable accounts.

True... it might be best to convince them to pay for an hour or two of a CFA/CFP's time. I don't think they'd ever be taking any plunge at this point.

In terms of taxes, I don't think they're even generating enough interest to be taxed in any of their taxable accounts...!

[Goldielocks]

We have had a strong run in the market for a while now.

They are 70.   Let's say that the plan is for them to work for the next 5 years, then start drawing down their money.  They want to keep 40k in cash for buying lump sum purchases (car, moving expenses, cruise, kids education) At best, you are looking at only 15 years of investment horizon x $200k before they have removed a sizeable chunk of it.

15 years, at 4.2% net invested in a 70%30% portfolio (versus 0.5% in a savings account?) x $200k...

They would be able to withdraw $17.5k instead of $14k per year for 15 years...  (roughly).  Is this worth the risk that they could lose money over a 10 year cycle before it comes back?     

Also, having the joint cash account is a great way around probate, or medical incompetence and urgent needs, if it comes to that.

[Mighty-Dollar]

They're in their early 70s now and run a restaurant with no retirement/end in sight.

70/30 bonds to stocks. Would this make sense for them given their situation?

70/30 is the lowest risk allocation according to Ibbotson. I don't believe they should be taking the lowest risk given the fact that they're only in their early 70's and they are still generating income. How much of their investment money are they currently spending per year (if any)? 4% - 5% or less?
120 - 70 = Invest at least 50% in a total stock market index fund and the rest in a total bond market index fund.
Invest in ITOT and BND.

BTW for all of the people warning that the stock market is going to crash soon, there are people saying that the market will continue upward. Either way it doesn't matter. You are diversified into bonds. Stocks and bonds balance each other out.

[Heckler]

I have watched my funds fluctuate up and down for the past four years of self directed management .  Events that I recall as "crashes" are:

Brexit
CAD/USD fluctuation
Trump but just for a moment
Alberta oil fires
China market crash
Grexit


I am mentally prepared for all of these, even scraping up a few thousand to try to time my contributions to low points.   My account value always goes down, but has always recovered.  I know I'm preaching to the choir, but a 70 year old who doesnt know a thing about it may panic and have dire consequences.

[jeromedawg]

My wife is very hesitant and apprehensive about investing for her parents. I think she just doesn't know enough about investing to know why it would be a good idea for them even at this point. I think she needs to get onboard first and understand why it would be a good thing, then bring it to her parents. I'm not gonna be the one who does that. All of this concerns me because I think there's going to be this indirect (or direct) expectation that we will help her parents when they run out of money... it's an Asian culture kind of a thing that can't escape us, unfortunately. I mean, many of their poor financial decision-making is a result of their own ineptitude but outside of that, it does seem kind of messed up to leave them hanging should things go further south.

I have a friend in a very similar situation but it's his parents (not in-laws) so he was able to convince them just to consolidate their accounts and invest primarily in IVV. Although, he's avoiding buying now due to stocks being at all time highs and all the stuff going on with Congress etc, so he's been having them just hold cash and says about half of what they have is in cash... sorta seems like timing the market to me but he seems to be confident in how he's going about it.

I'm wondering if it would be worth looking for a financial advisor who could spend a couple hours sitting down to review their situation and helping make a decision to keep things simple for them. I think there's so much stigma that they have and I wouldn't be the one to convince them otherwise. Surely they must have the connections to get hooked up with a *sound* financial advisor in their circle of friends. Of course, the CPA/friend they have who helps them with their business got mad at us for asking for some of their expenses previously and stated "let them enjoy their lives and do and spend on whatever they want" - you'd think, as a friend who is a CPA, he'd be looking out for their best interest in saving up money but apparently he thinks their best interest is for them to throw away and burn through their money