My father got all his grandchildren an unrestricted (i.e. non college savings) e-trade account for their college. Unfortunately he put it all in gold and silver and mining. My daughter's account has gone from about 80k down to 20 k in the last 2 - 3 years. My dad was obsessed with these accounts and pretty much tended them as a full time job during my mother's illness and after her death. However, he now has a new girl friend, gotten happy and has basically neglected taking care of the trading. We are now in charge of it. I don't know whether to just sell it, cut out losses and get an index fund (sell low) or just ignore it and hope for the long term.
Any advice appreciated.
Thanks
Here's what you need to look at:
Taxes:
For your father
What happened on the gifting side of the initial transaction, in effect what your father did at the time was to gift above the annual limits. This would impact your father and is worth checking in on- based on what he did.
For your kids
If they are owners of the asset then they can certainly capture a capital loss. Capital losses can be used to offset capital gains to the extent of the gain - therefore if they have any other investments that have appreciated (other assets in brokerage accounts) it would be good to sell both the losing mining stuff and the appreciated other stuff, allowing them to capture the profit without tax.
Also, capital losses from such transactions can be used to offset regular income up to $3000 per year. Therefore, assuming that they captured a $60K loss from selling the assets and if they never had any capital gains they could reduce their salary by 3K per year for 20 years, making it similar to the impact of a Traditional IRA on their tax burden.
EG they earn 24K, they would deduct the 3K and then be liable for taxes to the tune of 21K.
So all is far from lost.
As for reallocation...that depends on your plans but I personally would go for an index fund, avoid bonds. I would suggest putting it in 100% stock allocation, in just one fund such as Vanguard Total Stock Market. Rather than diversify into more than one fund I would suggest diversifying by investing 50% of the amount today and another in some months from now creating a dollar cost hedge (IE if the market tanks tomorrow you can top it up with the money in reserve).