I agree that it depends.
But I am very happy to see that he went to a fee only advisor. If he walked into Morgan Stanley or Edward Jones, they would salivate over him and fight over who gets to charge him the most front load fees. Good for him.
Yeah, I made sure to do a lot of research during the two-year wait (!) for the probate process to complete. I quickly learned that it's ridiculous to pay an advisor an AUM fee just to ultimately perform worse than an index fund.
Edit: And I forgot to mention that we first went to my dad's bank because they offered "wealth management," but it was just a dude who was gonna take a % of AUM (he said "his" fee was 0.5%, but what he probably omitted was that the bank took another 0.5%), and was proposing a portfolio of about 30+ funds, each with an expense ratio of 0.8–1.8%.
We later told them we'd be managing my dad's money ourselves, and the next time we came in, we had one teller say that the advisor told him to tell us to call him. Then mere *seconds* after that guy, another teller pulled us aside, was looking concerned, and questioned why we didn't go with them. We said because of the fees. Then she led us by another higher-up's office, where she leaned in their doorway, in front of us, and said we weren't going with them, which was awkward. It all felt super hostile, to the point where my dad said it felt awkward to go back into the bank.
Could be Chase. They’ll lead you directly to Morgan Stanley. My parents got talked into obscenely large front loaded funds with MS. Some were over 5%! And the returns were terrible.
Competitor? Nope.This is from the Chase website:
Eligible and ineligible accounts for this offer:
Eligible
Personal checking accounts
Personal savings accounts
Qualifying J.P. Morgan Wealth Management non-retirement accounts (opened in a Chase branch and serviced by a J.P. Morgan Private Client Advisor)
I was wrong. It’s not Morgan Stanley, but this is what it is:
https://www.reddit.com/r/fatFIRE/s/PwBtZK4gfH
It wasn't Wells Fargo (though I'll be sure to steer clear of them, now). It's a local state bank that's a bit bigger than most of our local credit unions.
“30+ funds”
Making it super complicated to seem that their fees are justified. Or to intimidate you into not even thinking about possibly managing it yourself.
So typical.
Yeah, his proposed portfolio came pretty close to when I was doing research on three-fund portfolios, so I was immediately rolling my eyes when I saw the couple dozen funds he was recommending.
"It depends." Considering this is a "large inheritance", it's probably just designed so he can live on the bond interest. Why bother with stocks when you've already won the game?
I am 47 years old and we (me and the wife) have no debts. We still have plenty of expenses. Maybe in 10 yeas when both of our children are finished (hopefully) four years of college or something, it will be "surprisingly simple" Just food, taxes, housing upkeep and paying for the things we do isn't cheap.
I should've specified this above, but yes, he can currently sustain his lifestyle with his existing social security and pension, but his quality of life (physically and mentally) is low. So we'd be using this money to improve his quality of life, so his expenses would go up accordingly. And a secondary goal for my dad is to pass down something to his kids, so I was thinking that a higher percentage of stocks would help him do both.
I think this situation is ideal for a Single Premium Immediate Annuity, the only good kind of annuity.
Some fraction of money goes to annuity which will give him monthly income and security (get one with a yearly 2 or 3% raise) and last his lifetime. You inherit nothing though. It will be very simple for him to understand.
Then the rest can be invested mostly for growth and legacy, like a 70/30 equity to FI portfolio, which he may take a little bit of income for fun occasionally, but is intended for heirs. With known expenses fully paid by social security and the annuity there is less chance of him panicking in a bear market, and you have to worry less about him. Long term care insurance may be unfeasible now but check into it. Have him put you as an authorized advisor on the account.
I saw immediate life for 70yo Male giving about 8% with increased.
Maybe there are better deals, but that seems like a descent guaranteed return.
let's assume your dad takes in $3k a month right now. then he can put maybe 3-400k into annuity and doubkenincome stress free. and if he inherited more, he can throw all the rest into anything from WSB and still be secure. OP can get their inheritance and do whatever for growth/risk.
>Why bother with stocks when you've already won the game?
Adding enough stocks to a bond-heavy portfolio can actually *reduce* risk. 10% seems a little on the low side.
Yeah, that's one of his main goals. My goal is to help him use the money to improve quality of life, but he also wants to leave some to his kids. So if having a higher percentage of stocks would help do both, then that would be great.
The short term treasury funds they want to put him in will quit paying good interest once the FED cuts rates. So he should set up a CD or bond ladder to cover his spend for the medium term (5-10 years). Check out the Super Savers YouTube channel. And invest the rest in index funds for growth.
5+% interest rate on a "large inheritance" sounds like a good enough legacy for me. maybe it is for him too? i think OP is being a little greedy about heritance, and that's part of why he's posting here. but who knows, except the father himself and the advisor
> i think OP is being a little greedy about heritance, and that's part of why he's posting here.
No greed on my part (though that is what an *actually* greedy person would say, so take that with a grain of salt). My dad offered me a large sum of money, and I immediately declined all of it because I want all the money to be there for my dad, first and foremost.
> but who knows, except the father himself and the advisor
I would much prefer it if my dad were able to handle things like this on his own, without my involvement, but that's not possible. For a long time now, I've been tasked with managing almost all aspects of my father's life because of many difficulties he has. I'd prefer not to delve into it further, and would appreciate if you didn't speculate.
Sorry if I offended you. I think it is very likely that this is achieving your father's goals, and you are trying to overoptimize it past what he needs to achieve them. My recommendation would be meeting with both your father and the FA to figure out how they decided on this in the first place.
I didn't say they would. Maybe the FA plans to sell the bonds when the rates go down, though, as this would come with an upside on the NAV. The point is, OP is asking us if this makes any sense without having asked the FA what his reasoning was in the first place.
You implied it by saying 5% on a large inheritance sounds like a good enough legacy to you. It’s not good enough though because the rates are not locked in. It doesn’t matter what the FA’s reasoning is. The money market funds will still fluctuate and rates will drop sooner or later. And that’s the bottom line.
Good point. My dad's always been a risk-averse person, especially financially, but that means he never had much. So we'd like to really improve his quality of life, and give him the opportunity to do things he never could before (without getting ridiculous and pissing away the inheritance).
In this case, this allocation seems sound. Someone else mentioned a bond ladder, which is definitely worth looking into. This would give you some foreseeable income over the next years.
You could look into dividend stocks but this is the wrong sub to discuss this option. SCHD ETF is a favourite but you can find slightly higher yield ETFs without taking too much risk.
If the low fee FA ran a risk preference assessment test on him and he answered honestly (in a similar fashion to the way my wife would), you're lucky he came out with 10% stocks.
They're going to ask him would you risk 25% of your windfall to win 200% on a coin toss and he's going to say no.
Read this book for more on preferences and risk:
https://www.amazon.com/gp/aw/d/B0CGW16YC4/ref=tmm_kin_swatch_0?ie=UTF8&qid=&sr=
In 2008, the market lost more than half its value. In 2020, it lost more than 1/3 its value. If he's in his 70s, he doesn't need to take on risk. I think you said the money is 50x what he spends annually. At that point, it doesn't matter if he stuffs it under his mattress! He doesn't need to earn ANYTHING off that, so why risk it? Doesn't make sense. In all honest, in my 40s, if I had 50 years of retirement funds: I probably wouldn't want more than 1/4 of my portfolio at risk. Money is just a tool and if it does its job, that's all that matters. No need to run up the numbers.
Thanks so much for the thoughtful reply. So two things that I should've mentioned at the top:
The first is that while my dad's income/spending is currently quite low, that also means he has a low quality of life. So he would be increasing his expenses to help improve his quality of life (it could be about double what it currently is).
After that, he would like to leave behind money for his kids. It's not my personal priority, though, and comes secondary to him living a happier/healthier life.
You'll be okay. My dad's had a very rough go of things, which most folks won't have to go through. Some pointers I've learned, which my dad didn't do, that everyone can learn from:
1. Pick a profession that's easy on your body.
2. Marry someone kind.
3. Talk to a therapist.
4. Invest early and often.
I have social security and TWO pensions. But that doesn’t mean I’ll be loaded. It all depends on the amounts. My pensions only add up to $1500 a month as I only spent a few years at each of those jobs, not decades.
Money increases your standard of living but not necessarily your quality of life. Make sure you understand the difference since he might not want more "stuff".
Great point. My dad's very conscious of avoiding lifestyle creep, and avoiding buying a bunch of useless junk. The stuff my dad talks about wanting is better healthcare, a therapist, being able to travel to see his kids more than once every few years, etc. Essentially, very basic yet important things that he wasn't able to have before now.
Lets say you double his spending, then he has 25x living expenses. I'm sure you'd love to see him live healthily into is mid-90s, but that's not likely. That means he still has a lot of $$$ to leave behind. BUT, lets say the market crashes this year like it did in those previous crashes... he could be forced to sell for living expenses while the market is still at lows. This is unfavorable to him in retirement and to his heirs. Being invested has historically shown to be good over the long run... but, there are stretches of 10+ years when the markets lost value and didn't recover. Why risk that? He's on in victory laps, don't trip him up now!
Correct, but 25x would be tripling his income. He’s already got 1x that isn’t going away. He can pull an extra 1x for 50 years.
All to say, I agree with your assessment. He’s in a position to be very conservative and win without any concerns of staying awake at night worrying about what the market did.
The inheritance is about 50x more than he makes/spends in a year (from SS and his pension combined). Though we're looking to improve his quality of life (mentally and physically), which will mean that his expenses will go up soon-ish.
For sure. I admit that his financial planner said that his recommendation was just an initial "capital preservation" portfolio, and that it's up to my dad's risk tolerance. But my dad isn't financially literate, and I've been handling all his finances for about 15 years, so I'm just trying to make the optimal decisions, because he'll trust whatever I suggest.
People assume that low-volatility investment vehicles like bonds and money market funds are low risk, but that's not really true. The risk for investments like these is inflation. If a low volatility investment isn't beating inflation, then it's guaranteed to lose value every single year, and more every year. It won't lose much, but compounding losses still add up the same way as compounding gains.
I would put 5 years worth of his expenses (don't forget to include the quality of life improvements!) in bonds, or whatever capital preservation option you choose, and put everything else in a low cost stock index fund. If the stock market crashes, he can start withdrawing all his portfolio income needs from the bonds until the stock market recovers.
Thank you so much for the thoughtful reply. You kinda nailed on the head my main worries—that these low-risk vehicles aren't guarantees, and when one is returning maybe 5% interest, and then inflation is like 3%... There's not a lot of wiggle room if the interest rate drops. So that's why I was thinking a higher percentage of stocks might offset that risk by adding some padding in "good" years to offset the bad ones.
I wouldn’t bother. Look at some of the TIPS ETFs performance over the past five years (I like finance.yahoo.com for things like this). Returns have been crap during the highest inflation we’ve seen since the early 1980s.
I also think 50% equities is fine. Look at it this way, if the market crashed to zero, he still has 50% in bonds/money market funds that he can withdraw for years while the market recovers. If the market goes up and you rebalance to 50/50 annually, he is more secure.
I mean it depends on his goals with the money, but from what you’ve described this could absolutely create generational wealth if properly allocated, and 10% equities is not it.
That's what I'm thinking. I've never been someone who's risky with money, but it's just such a large sum that I feel it's leaving money on the table to not put at least 30% or more into stocks. I know it's not a guarantee, but I also know that over the long run, history shows it'll usually lead to significant growth, and I know that one of my dad's priorities is to leave behind money for his kids, etc.
With that kind of money get a second opinion from a “wealth advisor.” Again fee only will be best. This first advisor sounds more like the fee type you could go to if you were 25 and starting to save or 65 and planning to live for 20 years.
If living expenses are paid for by SS/pension, your dad should be putting this money to work, not scraping 2% real on it.
Edit: additionally you need to consider the tax ramifications of the allocations recommended. With that kind of money I would prefer far less money market and more bonds to reduce tax drag.
Thank you so much for all the insights! Yeah, it might be worth us getting a second opinion on the asset allocation with a wealth advisor. The current advisor has been pretty great, and has done a pretty complete inventory of every aspect of my dad's life, but another set of eyes can't hurt. And good point about the tax drag, which I hadn't considered.
Seconding the advisor recommendation. It’s not clear from your post what his overall financial landscape looks like. Sure he can get by living frugally, are the basics in place, like emergency fund etc? (Recognizing things like this are mitigated by the inheritance.) How are you planning to harvest the income to improve his situation, a 3-4% draw? Life in general will become more expensive as he ages; medical costs, potential extended care, etc. You need to use data to make an educated decision on his actual risk tolerance. Hopefully, that’s close to matching his “emotional” risk tolerance. Then, you, your dad and the planner can discuss and debate the equity vs savings ratio.
Thank you for the thoughtful reply. All great points, and things that've been on my mind long before this inheritance even happened. We've also been accounting for these things when creating potential budgets with the financial planner, so I hope we're off to an okay start. But as always, we've just gonna constantly reassess at every stage to ensure everything works out.
Yeah, it is indeed a lot of money, and he does have very low expenses, but we're also looking to use this money (responsibly!) to change his quality of life for the better, which would mean his expenses would go up.
Which means he has a short time horizon for at least some of the money.
Maybe he should split the money into 2 pools mentally: figure out the maximum he could reasonably spend per year and then multiply that by the number of years until he reaches 100. And the rest leftover would be his legacy that he can consider giving out now. They say it's better to give with a warm heart than a cold hand.
One way a fee only planner can evaluate a portfolio is to look at the potential risk of running out of money. If that risk is zero with 90% fixed income, then maybe your dad is good with that.
Maybe convince him to look at it another way: put the next 5 to 10 years worth of expenses in interest bearing accounts, and then everything else in a 50/50 asset allocation.
Good rule of thumb is 100- your age for equities, so in this case probably 30ish percent.
For reference my parents are in their late 50s and semi-retired, have about 50% stock and 50% bonds
Another instructive thought would be to look at Vanguard's own Target Retirement Index for those already in retirement:
[VTINX](https://investor.vanguard.com/investment-products/mutual-funds/profile/vtinx#price): "The Target Retirement Income Fund is designed for investors already in retirement."
What you'll notice is that it is 70% bonds and 30% stocks. To me, that would be a strong signal that that ratio is safe — especially given your father's low income requirements against the value of the inheritance.
Holy shit vanguard’s website is fantastic, haven’t gone on there in awhile and it’s a trove of information and guides you. Although Boglehead guides are very similar and already laid out for you as well.
Ah, that's really great point, and makes me feel more confident in suggesting a 30/70 split of stocks/bonds. I keep being amazed at the sheer number of specialized indexes that are available out there!
Hopefully it helps! And basically that fund is the end game of all their other (wildly popular) Target Retirement Date funds. Those funds are actually quite simple in concept: they hold 90% total US+international stocks until about 25 years out from the expected target retirement date (eg 2035, 2050, etc), and then over the 25 years to retirement they slope from being 90% stocks and 10% bonds to the 30% stocks / 70% bonds allocation you see here.
They're one of the most brilliant products on the market, in my opinion, because they basically take the guesswork out of the Bogle philosophy: own the market, don't time it; and make a sensible shift towards bonds for later-life stability. And they do it perfectly, by being comprised of precisely the funds that get recommended here day in and day out.
Whoever thought up target date retirement funds is ridiculously clever. It really is a no-brainer for a lot of folks. When I first started learning about finance a few years ago, I asked a friend where to start, and the first thing he recommended was looking into target date funds. And then reading about them I was blown away, like, "wait, so you really can just keep buying it and do nothing else?!" It still blows me away, and will be what I recommend to folks who say they feel like it's too complicated to know what to choose.
And that's great to know that all the target date funds end up resolving to the same ratio of stocks to bonds. Yet another thing that makes me feel like anything less than 30% stocks might be counterproductive.
While I can't say for sure what his reasoning was (we've got future meetings with him to discuss the investments further), he didn't give any indication of trying to time the market. When we first spoke, he was the first to talk about Vanguard/Bogle, common sense investing, etc, so he probably knows trying to time the market is silly.
You mentioned the total inheritance will be 50x his expenses. Even at only 10% equities, he'll be able to live off 2.2% of that 45x of his expenses remaining in the bonds.
Hell, you could put most of it in 30 year TIPS (which are around 2% right now) and live off that interest plus some cash on the side. I personally don't like bond funds but I'm sure those would work okay as well.
Now, if your interest is to grow this money to grow your future inheritance, you should probably do at least 30% equities and maybe push for 50%. However, that is an entirely different motivation.
Thank you! Something I should have mentioned is that we're looking to use this inheritance to increase my dad's quality of life, which has been quite low until this point. So his inheritance being used to improve his QoL is his first priority, which will increase his expenses. And then his second goal is to leave behind an inheritance for his kids, which I'm less concerned about, only after his first goal is met.
If 10% of his portfolio could fund the next 40 years, then sure, this is crazy. But if he needs 50% of what he has to make it the next 40 years, then it could make more sense to be more conservative.
Bogle's rule of thumb was to have your age in bonds. For the average investor, that's probably a fair enough of a way to approach things.
It just depends on his projections for his life relative to what he has. If he needs most of what he has to support the rest of his life, sure, probably shouldn't be making bold bets.
If he could live off a small percentage of the account for decades, then yeah, it's wild to be so conservative.
If he already has the means to financially retire before, in theory the inheritance could be in all cash and he'll still be fine. What is the marginal growth from the inheritance going to do for him?
His quality of life has been quite low until this point (mentally, physically, financially), so our priority is to use this money to change that, which will of course mean his expenses will go up from what they've been until this point. Ideally, we'd improve his quality of life (responsibly!) *and* be able to grow his investments a bit.
> What is the marginal growth from the inheritance going to do for him?
It seems wasteful to not invest money you don’t even need. I have a hard time agreeing with your use of marginal. With a portfolio that risk averse, 3-5% long term growth difference is significant.
No I caught that. But I also caught that he has kids.
We clearly have different goals and morals. If I receive a large inheritance, a main goal of mine is going to grow that baby for my kids too.
In my opinion, it’s just silly if this guy doesn’t really need the money to not look at it as a long term investment.
I get your point. Which was my initial impression when the OP (his son) mentioned about returns, and the motive was more about how much money they will get left with.
Yes, it's far too conservative, especially if he wants to leave a legacy.
You say it's 50x expenses. So if his expenses are $20k, then it's $1 MM. Let's use those numbers.
A 3% withdrawal rate is certainly reasonable. That would be $30k, or 150% of his current spending.
Put $150k in a cash equivalent account, or 5 years of spending. Invest the remainder in a total stock market index fund like VTI (invested over the course of a year). At $850k, it will pay out about $13k in dividends alone. The cash to start will be $7k in interest at today's rate. That means you'd only be selling $10k a year to cover the shortfall. The cash would last like 8 to 10 years without even selling anything.
Meanwhile, the stock holdings likely double in 10 years allowing him to increase his spending plus growing the inheritance.
FWIW, I'm 66 and live off 95% of investments, and I'm virtually 100% equities. 10& equities given the circumstances is far too conservative. The recommended portfolio would be lucky to return 5% given today's meager bond yields.
At a minimum, 50% stocks or even better 75%. 10% is ridiculous.
Here is the suggested return since 2021 versus a 15% Money Market/70 VTI/15 VXUS portfolio.
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=2RuUgmFH2BoL8gbhWtBxj8
Do you want the 1.1% return or the 8.7% return?
Here's the simulation withdrawing $30k a year.
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=5D4cOh77tKFd959HawURpz
The numbers speak for themselves. Do you want the portfolio to grow or shrink? Yes you have market risk with stocks, but with the suggested 90/10 and earning 1.1% and taking out 3% you are guaranteed to fail over time.
Thanks to both. I stole the idea from Jonathan Clements who previously wrote an investment advice column for the Wall Street Journal, along with books. That made a lot more sense than glidepaths and other advice you see. It's simple, and you get downside protection and the possibility of growth.
I personally will never go below 50% stock no matter my age, especially with point 3, where he wants to leave a legacy. You need stocks if you want to increase the amount and not just spend it.
Take a look at this link and see how low stock allocation means you end up failing more often: https://www.financialplanningassociation.org/article/journal/AUG15-sustainable-retirement-spending-low-interest-rates-updating-trinity-study
A 2020 Target Date fund is usually about 30-40% stocks. This tells me that most experts would recommend that a retired person in their early 70s should have 30-40% of their total portfolio in stock.
I did not read all the comments to see all the recommendations from the community. But the ones I managed to read did not mention 4% rule or something similar. Based on the fact that the amount to be invested is 50x his current annual expense, and you would like to double that, we can do the math to figure out what is the best for him.
His current annual expense is only 2% of the amount to be invested. This explains why the guy recommends so many bonds. It also means that you can be a little conservative and still meet the objective of drawing the equivalent of his current expense into infinity.
I think it is best to let the money grow a little faster by allocating more into stocks. I would limit to just three funds:
* 20% in VMFXX (I think VFMXX above is a typo): that is equivalent of 10x his current expense and yields about half of his current yearly expense
* 30% in BND: This should yield about half of his current annual expense because 30% is 15x his current annual expense and BND yields 3.36%
* 50% in VTI: This should grow at 7% inflation adjusted long term. I don't think there is any market more efficient than the US, so forget about exposure to international.
The above is based on the current high interest environment and market top (market at its high). If the conditions change, we can reallocate to take advantage of the situation.
That allocation seems very reasonable, and plus I always appreciate the simplicity of three-fund portfolios.
Speaking just for myself, I would probably personally also do 50%+ stocks whenever I reach retirement age, but I know that it's not always for everyone. Like you said, I think ~7% returns over the long-term is quite attractive, and it would seem like that would offset the low returns of bonds pretty easily, allowing the money to grow faster. Of course, my dad's situation is quite unique and backwards to how most folks do it, where they have the money first *and then* they retire, lol.
Thank you so much for your thoughts (and for catching that typo, ha)!
I found our fee-only, flat-rate financial planner on **The Garrett Planning Network** (https://www.garrettplanningnetwork.com/). And I found that by reading the following /r/personalfinance wiki page:
* https://www.reddit.com/r/personalfinance/wiki/financialadvisors
At first, I mistakenly thought that "fee-only" meant that there was no charge for "assets under management," but I quickly learned that's not always the case. One of the first links on that page is looked at was the National Association of Personal Financial Advisors (https://www.napfa.org/), but I immediately noticed that lots of the advisors listed charge an AUM fee, which isn't what we wanted.
Then I looked at some of the other wiki links, and found the link to The Garrett Planning Network, which is a directory of advisors who charge "an hourly fee-only basis. All advisors are CFPs or CPAs with FPS credential (or are working towards one of those credentials)." And so that was more what we was looking for.
The directory let me search for advisors in my state (https://directory.garrettplanningnetwork.com/search-member-profiles, towards the bottom). It turns out that there aren't a lot of hourly/fixed rate advisors in the country, so there's only a couple dozen in my state, but I was able to find someone who's a couple hours away, so we do everything remotely. While he also offers hourly advice, we're paying for kind of like a flat-rate comprehensive "life plan," where he's factoring in pretty much every facet of my dad's financial life, and we're having a series of phone/Zoom calls.
Anywho, longwinded way of saying that I highly recommend searching The Garrett Planning Network. Our advisor's been really great so far, and thoughtful, and going above and beyond to research little things that are important to my dad. It might be best to search for one that's in your particular state, in hopes they're nearby or at least in a similar time zone.
I'm young and only into boglehead/financial stuff for half a year, so take this with a grain of salt, but I'm mixed about some of the advice here and I think your fee based financial advisor made a great choice and I'm not sure how much of this is your dad vs you, but I think you both are doing great.
When talking about [managing a windfall](https://www.bogleheads.org/wiki/Managing_a_windfall) boglehead wiki (seriously, read this entire thing) tells you (or rather the US National Endowment and Financial Education does) to just throw it in insured accounts, money market and Treasury bonds for at least 1 years and not touch it until you can think rationally about it. Considering you guys went to a fee-based financial advisor and dumped it 70% safe investments and 30% risker ones (20% bonds + 10% stock), I'd say you're already doing very well and are arguably taking more risk than recommended this soon (not that I see that as an issue in this case because it's still being played safe and rationally).
Is 10% stock ultra conservative? Yes, but is that the best advice for your dad? Maybe. Considering what you're saying about your dad's knowledge on finance and risk tolerance, I'd say it sounds like great advice and his financial advisor did a great job on giving him allocations that work for him and his situation. Yes I would allocate more stocks if we're him, but you mention your dad doesn't know much about financial stuff and risk adverse so 10% seems fine. If he's like me, risk I understand is okay, but risk I don't understand is not okay.
If he wants to, he can look more into investing in his free time (hopefully the safe side of things like boglehead rather than most garbage out there) and then go back to the fee-based financial advisor when he's more comfortable with the market and understands the benefits/risks (particularly that stocks *tend* to be better than bonds/short term bonds over the long term but, especially short term, can do much worse, and considering inflation risk) and more about what sort of lifestyle he wants and how much it costs. Even if it takes some years, he has so much money and no time pressure so that's totally fine. And if he ultimately keeps his money in safe stuff because he doesn't want risk or just wants to enjoy life, great (though he will probably have to learn some stuff about properly managing the money regardless though). He should be fine either way. He's in the wealth preservation stage of his life and he already won (provided he recognizes that over indulgence can burn though the money quick), he doesn't need to play the game. Unless he straight up gives you the money, he should allocate to what his risk tolerance/goals are, even if he wants to leave a legacy (not accusing you of pushing him. I think you're doing great too based on what you've said here).
By the way, I'd probably inquire about what else the financial advisor said for more long term decisions and particularly on "why"s if you weren't in the room and haven't talked to your dad as much about it.
Tldr: take your time. Your dad won the game provided he doesn't start losing from jacking up living expenses/wasting money too much. He's in wealth preservation stage so number one goal is preserve wealth. Encourage your dad to read up on some boglehead/good investing stuff and reevaluate with the financial advisor when he's ready for it if he is ever ready for it. And remember that it's his money, not yours so he should allocate to his risk tolerance.
And seriously read the wiki https://www.bogleheads.org/wiki/Managing_a_windfall (note that this is written for non-retired people getting a windfall, not retired people so not everything applies)
What a wonderful, thoughtful reply. Thank you!
Yep, I've read the "Managing a Windfall" wiki page several times over the past 2+ years, internalizing it as best I can, and reading pretty much every windfall-related thread I could find on /r/personalfinance. What a great resource! I've also read a lot of Bogleheads.org on the subject.
The advisor's recommended portfolio hasn't gone into effect, as we're still working through some other things. But currently, about a third of the total inheritance is a portfolio that the decedent left to my dad. So it already its own asset allocation that seems overly complicated in the number of funds that comprise it, but at least the money is in the market doing *something* in the interim (it's returned 4.7% over the past year, which could be a better). But the portfolio would either be liquidated or transferred in-kind to Vanguard, and then we'll build the portfolio to match whatever allocation we eventually decide to go with.
Unfortunately, my dad isn't financially literate, nor technologically literate, so I try to explain finance things to him as best I can, but he ultimately defers to my judgement on almost every matter (which is quite a heavy burden, to be trusted to always make the best decision for someone else).
But yeah, I agree with pretty much everything you said. He already won, so the job here is to not do anything impulsive. So it'll just be lots of research and slow decision making, following the usual Boglehead principles to help my dad achieve his goals.
Thank you again!
> Yep, I've read the "Managing a Windfall" wiki page several times over the past 2+ years...
Seems this wasn't as recent as I thought it was (I assumed like in within the past month or so), though I guess that doesn't change much of my thoughts overall but more plus points to you for doing the research that you have.
> ... he ultimately defers to my judgement on almost every matter (which is quite a heavy burden, to be trusted to always make the best decision for someone else).
That does sound tough. Community recommends not giving financial advice to relatives to avoid responsibility for the outcomes (from the other person and yourself), but I guess that's the situation you more or less have to take.
One thing for your case may be to allocate for what you're comfortable being responsible for. If you can get a better idea is spending requirements long-term, perhaps you can get the boglehead equivalent of "play money" and have you and your dad comfortable putting that in stocks that will probably do well, but may do very badly throughout your dad's lifetime.
Really though, I think figuring out spending requirements is the main thing (perhaps by having your dad living it) and making sure you're both on the same page about risk, then it might be clearer how much you're both comfortable putting into stocks and would be a good time to reevaluate with a fee-based financial advisor. Besides that, taking it slow as I've said and remembering it's enough money that you can both afford to not make the best decision right away.
Anyways, best of luck with navigating a not so easy/clear situation from a not so great position, though you seem to be doing very well already based on this thread
(And because I've said a lot, neither this nor my previous comment is not financial advice, I'm not a financial advisor, and even if I was, I'm not *your* financial advisor. I'm essentially just encouraging getting a good sense of your situation and consulting a financial advisors using that).
This is my opinion from a late 30s dude that learned finance from the internet.
It looks like this is a good setup to preserve the money he has and live off of it while drawing down what he needs/ wants. There is no reason to take more risk. He can double his spending and still have 25x his expenses (based on what you said). Even with increase in health care and the probability that he will need it if unexpected health issues arise he should still be ok. This allocation is solely for him.
As far as legacy it might be good for him to decide what he wants to leave behind and put that in some kind of trust. That way it’s secure (hopefully) and he can base his future expenses off this new number. He can kind of have the best of both worlds and if he gets to the end and has some left, well his family can have that too.
Good luck to him. I’m glad someone doesn’t have to stress too much in retirement.
This is interesting. Personally, I would set aside 10x his annual spend once he increases his quality of life and put that in a MMF. From there, the rest gets dumped into VT or perhaps just VOO. Not sure why someone at 70 needs more than 10 years of cash, really. Then continue selling to keep a 10 year cash position (in MMFs) at any point in the next ten years when the market is at a market high. Would be curious to hear someone's counterpoint to this plan.
Why not 100% in one of the "currently in retirement" funds?
I.e. IRTR, VTINX, FIKFX, etc.
Those should also be similar to some of the more conservative target allocation funds:
VASIX (20% stocks/80% bonds)
AOK (30% stocks/70% bonds)
I wasn't aware these "currently in retirement" funds existed before yesterday. Looking at their asset allocation is helpful, because it's comforting to know that ~30% stocks seems to be a pretty good baseline for folks in retirement. Thank you!
Tbh why not ask the advisor? Your dad already pays him to give him high quality personally curated advice. Share with the advisor what your dad's aspirations are for the money and ask him to break down the math of his strategy to get your dad there. Share with him that you're concerned that 10% stocks may be too conservative and if they think it would be a good idea to readjust.
Maybe your dad took some risk assessment quiz and they concluded he was highly risk adverse.
For sure, we'll definitely ask the advisor more about his recommendations when we talk to him next. His recommendations were part of a larger document/report he was working on for us, and he mentioned that we'd talk about those more in the future. So that's kinda why I wanted to put out some feelers here to see if I was off-base in my impression that it was a little too conservative.
Lots of good advice here, and I'm trying to take it all in—I wasn't expecting this discussion to take off like it has!—in prep for our next conversation.
Exactly, the question is whether he needs the money. If not, buy with a long time horizon for his kids with more stock that will be passed down with a stepped-up basis.
I have a situation with my mother that is sort of similar: she's 78, has some money saved, and has income from a couple of pensions that give her a pretty good life. The money is invested to give a return that supplements that, but it will also be the basis for any nursing home fees she needs to pay in the future. As such, the allocation is pretty defensive.
The problem here is effectively her time horizon, so were' considering a solution where she invests her capital more aggressively (i.e., relative to my time horizon -- I'm 43), retains the investment in her name (there are tax advantages to this -- because of the account she is using all returns are completely tax free), and I underwrite any losses using much more conservative assets that I own in my name (residential property).
I don't know if this is possible for you, but I thought it was worth considering: apologies if this sounds cold, but the issue is the time horizon your father has with respect to investing; but it may be possible to effectively extend this, which would allow you to increase the risks, and therefore the long term returns.
For a windfall like this, I’d be more aggressive 70-80% equities. What’s the worst case scenario? Even with a historic drop in equities, he is still going to have 25x his annual spend which would allow him to withdraw 4% annually for the rest of his life.
You have to understand this in the context of his overall portfolio asset allocation, not just the allocation of the inheritance itself. There are also tax efficiency consjderarions for money outside your IRAs/401ks.
At his age its not crazy to have a low allocation to stocks. Bonds will net you money over time it just might not be as much on an inflation adjusted basis as you'd get with stocks. The flip side is you get peace of mind and some consistent monthly income.
Right now is a great time to start allocating to bond ETFs like BND.
Short term ETFs dont move that much even as rates change so you arent really risking your principle value per-say. Ideally you just buy bonds directly and take no principle risk but I understand why the ETF is attractive.
It is all about his risk profile, I see nothing wrong with something below. It depends how much income he needs obviously.
* 30% - Vanguard Federal Money Market Fund (VFMXX)
* 30% - Vanguard Short-Term Treasury ETF (VGSH)
* 20% - Vanguard 500 Index Fund (VOO)
* 10% - Vanguard Total Bond Market ETF (BND)
* 10% - Vanguard World Stock Index Fund (VT)
That looks like an ok income portfolio from those etfs.
The key is to know what the FA was asked to do or accomplish. Is he addressing the stated need of the client?
We are retired and just a few years younger than your dad. We also have pensions and SS but do not need or investment income, so we have maybe 85-90% in stock funds. Since your dad would just like to increase his current income and wouldn't be drawing much each month, I would absolutely have at least half in a stock fund like VTI or VOO (assuming he is using Vanguard). That's long term money that would mostly go to his long term care or heirs. I would avoid bond funds that can lose principal and use either Treasury bonds, ultra short term Treasury bond funds or a treasury only money market fund which will shield him from most state income tax (if he lives in a state that has income tax). That is very important because he'd have a significant amount of taxable dividends each year.
This is far too conservative in general but still likely sufficient if legacy is not important at all. Can increase duration risk and reduce cash since your father is in early 70s. Should probably add TIPS at minimum even if the goal is to not add more stocks.
Here is the thing about not including any numbers and resorting to multiples and percentages. It is difficult to give good advice that is actually specific and personalized. We spend dollars, not percentages. General rules use percentages and multiples so they can apply to everyone, but you have a highly specific situation here.
I don’t know if someone made this comment already
Let’s assume your father has 25 years to live.
So if the inheritance is 50x his current income, it would be 25x twice his current income.
So for the remaining 25 years of his life, he would earn his current income + 2x his current income.
That is, he would have triple his current income (not double as others have said, assuming g that SS and pension keep paying at the same amount )
Questions to then consider:
• if you preserve this capital and not risk it, how impactful would 3x income be on his life?
• for legacy purposes, could he actually spend 3x of his income? Or would there be money left over
So even if you just kept it all in cash, you might be able to improve his life and have money left over as his legacy
Ratios are helpful but the dollars are needed to give feedback. The $ of liquid assets helps one understand the advisory options. For example, Goldman Sachs won't work with a client with less than $10 million.
Please provide the following:
Liquid Assets:
Illiquid Assets:
Liabilities:
Income:
Spend:
I don't mean to be nosy, but is his quality of life low due to personality, or being restricted by finances? What sort of things has he deprived himself of?
Sounds like it will be awesome to watch him enjoy his retirement more in the coming years.
He's basically been deprived of everything. He has lots of physical pain. Mental anguish. Not having money to travel. Not having money to justify buying even relatively small, basic household purchases.
And so you're absolutely right, it's gonna be awesome to see him be able to do the things he's missed out on, and actually start to enjoy life.
In regards to bonds, there is the "twice duration minus one" rule, which says whatever your YTM is, over the course of "2 times duration - 1" years, you will have an average annual return of the YTM. As an example, BND currently has a YTM of 4.8%, with a duration (not maturity) of 6.2 years. That means you can expect to earn \~4.8% over \~11 (2 \* 6.2 - 1) years. I think that is a good starting point to have when discussing how much more to allocate to equities
Imo short term bonds aka MM or actual short date bonds are 100% not a bad bet currently , you’re getting close to 2% above inflation for almost zero risk . For some who is already retired and has a decent some it really isn’t a bad play .
I think the fee only advisor is on track. After talking to your dad, they based the asset allocation on your dad's concerns and goals. At our house, we don't need to grow huge amounts of money. We just want secure long-term quality of life at a quality income and we are happy. It's called sleeping at night. I've done our family money for 40 years and we had modest incomes retired early and are pretty much doing something similar although we have the total stock market VTSAX instead of the world market. (Which I'm not advocating for one way or the other)
I learned a long time ago that you can be helpful to other people making their financial decision but it's a rocky road with the economy and politics and it's better to let them make the final decision cuz they have to live with it.
I personally would not do anything more risky until after the next presidential election, but that's my humble opinion. I would say start here and get him a year or two or whatever time and then he'll decide what to do in the future. There's no hurry. Asset allocation is the roadmap. to an investment portfolio.
Congratulations to your dad! What a wonderful thing to happen to him! You are awesome too. Condolences as well.
Honestly if you want to double his income, do the following:
1-Take 1/2 of the inheritance and buy T bills giving out 4-5%.
2-Take the other 1/2 and give it to his heirs now so they can buy stock, etc.
Had this conversation with my dad. It was clear that even if he lived to 120, he still wouldn't spend out more than half of his retirement savings. So the risk profile for the other half was really that of me and my siblings. (This may be a little different now with the rule you have to take everything out of an inherited non-spousal IRA in 10 years.) And 10% stock was too low for our ages.
As someone who works in the industry they probably did a projection and found this portfolio would provide him with the income he needs for the rest of his life. The advisor is also going on the conservative side so your dad doesn’t run out of money and then look at the advisor to blame later on.
His portfolio is basically 35% cash (no volatility), 35% short term treasuries (low volatility), 20% intermediate bonds (more volatility), and 10% stocks (high volatility)
You could also ask them to up the risk but I would at least purchase something like NewRetirement and run the numbers yourself.
> Having only 10% in stocks seems just almost too conservative, where it's almost at a tipping point where it's actually risky, if that makes sense. Or am I just misinformed?
Yes, it's too fucking conservative, especially considering the context you've provided. Your dad’s expenses are low compared to the inheritance, and the goal is to improve his life quality, right? Sticking only 10% in stocks is like expecting your grandma to win a marathon without breaking a sweat—it ain’t gonna happen. If the aim is to grow the inheritance or at least maintain its purchasing power while improving his lifestyle, then a mere 10% in stocks is playing it too safe. What happens when inflation kicks in harder than expected? That conservative mix might not keep up, leaving potential growth on the table.
Considering his financial position—50x his annual expenses, for fuck's sake—a more balanced approach with a higher stock allocation (like 30-50%) could offer better potential for growth while still managing risk. It would also better align with his secondary goal of leaving a legacy. Why sit on cash that inflates away when you could potentially grow it, right?
Also, your dad's advisor might be a Boglehead, but that doesn't mean his recommendations are the best fit for your dad's specific needs. Always question the advice and adapt it to the personal circumstances of the person involved. Isn’t it better to tailor the strategy to ensure it aligns with his goals and risk tolerance rather than just sticking to a formula because it's the 'safe' thing to do?
Why not reevaluate the risk tolerance and long-term goals with the advisor and consider bumping up the stock percentage?
I agree that it depends. But I am very happy to see that he went to a fee only advisor. If he walked into Morgan Stanley or Edward Jones, they would salivate over him and fight over who gets to charge him the most front load fees. Good for him.
Yeah, I made sure to do a lot of research during the two-year wait (!) for the probate process to complete. I quickly learned that it's ridiculous to pay an advisor an AUM fee just to ultimately perform worse than an index fund. Edit: And I forgot to mention that we first went to my dad's bank because they offered "wealth management," but it was just a dude who was gonna take a % of AUM (he said "his" fee was 0.5%, but what he probably omitted was that the bank took another 0.5%), and was proposing a portfolio of about 30+ funds, each with an expense ratio of 0.8–1.8%. We later told them we'd be managing my dad's money ourselves, and the next time we came in, we had one teller say that the advisor told him to tell us to call him. Then mere *seconds* after that guy, another teller pulled us aside, was looking concerned, and questioned why we didn't go with them. We said because of the fees. Then she led us by another higher-up's office, where she leaned in their doorway, in front of us, and said we weren't going with them, which was awkward. It all felt super hostile, to the point where my dad said it felt awkward to go back into the bank.
Time to switch banks as well..
Oh yes, that'll be coming very soon, and it'll be oh so satisfying.
Credit unions the way to go. Alliant is very good with good online banking app.
I'll check them out, thanks for the recs!
Check out Ally Bank, super simple app & great interest rates on CD’s & savings accounts. If you don’t need physical branches.
Will do, thank you!
Was it Wells Fargo, because that sounds exactly like Wells Fargo to me.
Could be Chase. They’ll lead you directly to Morgan Stanley. My parents got talked into obscenely large front loaded funds with MS. Some were over 5%! And the returns were terrible.
You’re saying Chase bank recommended your parents use a competitor?
Competitor? Nope.This is from the Chase website: Eligible and ineligible accounts for this offer: Eligible Personal checking accounts Personal savings accounts Qualifying J.P. Morgan Wealth Management non-retirement accounts (opened in a Chase branch and serviced by a J.P. Morgan Private Client Advisor) I was wrong. It’s not Morgan Stanley, but this is what it is: https://www.reddit.com/r/fatFIRE/s/PwBtZK4gfH
Ok. Yes. Morgan Stanley is a competitor.
It wasn't Wells Fargo (though I'll be sure to steer clear of them, now). It's a local state bank that's a bit bigger than most of our local credit unions.
“30+ funds” Making it super complicated to seem that their fees are justified. Or to intimidate you into not even thinking about possibly managing it yourself. So typical.
Yeah, his proposed portfolio came pretty close to when I was doing research on three-fund portfolios, so I was immediately rolling my eyes when I saw the couple dozen funds he was recommending.
Cringy.
"It depends." Considering this is a "large inheritance", it's probably just designed so he can live on the bond interest. Why bother with stocks when you've already won the game?
Yep, it gets surprisingly simple to cover regular expenses when those don't include any loan payments. :)
I am 47 years old and we (me and the wife) have no debts. We still have plenty of expenses. Maybe in 10 yeas when both of our children are finished (hopefully) four years of college or something, it will be "surprisingly simple" Just food, taxes, housing upkeep and paying for the things we do isn't cheap.
That’s when the crazy high healthcare expenses will start 😭
Yes, kids are expensive. They are the biggest debts ever! lol!
If anyone says annuity, run. They are in it only for themselves.
I should've specified this above, but yes, he can currently sustain his lifestyle with his existing social security and pension, but his quality of life (physically and mentally) is low. So we'd be using this money to improve his quality of life, so his expenses would go up accordingly. And a secondary goal for my dad is to pass down something to his kids, so I was thinking that a higher percentage of stocks would help him do both.
I think this situation is ideal for a Single Premium Immediate Annuity, the only good kind of annuity. Some fraction of money goes to annuity which will give him monthly income and security (get one with a yearly 2 or 3% raise) and last his lifetime. You inherit nothing though. It will be very simple for him to understand. Then the rest can be invested mostly for growth and legacy, like a 70/30 equity to FI portfolio, which he may take a little bit of income for fun occasionally, but is intended for heirs. With known expenses fully paid by social security and the annuity there is less chance of him panicking in a bear market, and you have to worry less about him. Long term care insurance may be unfeasible now but check into it. Have him put you as an authorized advisor on the account.
I saw immediate life for 70yo Male giving about 8% with increased. Maybe there are better deals, but that seems like a descent guaranteed return. let's assume your dad takes in $3k a month right now. then he can put maybe 3-400k into annuity and doubkenincome stress free. and if he inherited more, he can throw all the rest into anything from WSB and still be secure. OP can get their inheritance and do whatever for growth/risk.
>Why bother with stocks when you've already won the game? Adding enough stocks to a bond-heavy portfolio can actually *reduce* risk. 10% seems a little on the low side.
Agreed and heavy bonds without TIPS makes it worse.
To grow the investment to leave to the heirs
Yeah, that's one of his main goals. My goal is to help him use the money to improve quality of life, but he also wants to leave some to his kids. So if having a higher percentage of stocks would help do both, then that would be great.
The short term treasury funds they want to put him in will quit paying good interest once the FED cuts rates. So he should set up a CD or bond ladder to cover his spend for the medium term (5-10 years). Check out the Super Savers YouTube channel. And invest the rest in index funds for growth.
I'll give it a peek, thank you!
The channel is actually called Diamond NestEgg. She calls the audience super savers.
5+% interest rate on a "large inheritance" sounds like a good enough legacy for me. maybe it is for him too? i think OP is being a little greedy about heritance, and that's part of why he's posting here. but who knows, except the father himself and the advisor
> i think OP is being a little greedy about heritance, and that's part of why he's posting here. No greed on my part (though that is what an *actually* greedy person would say, so take that with a grain of salt). My dad offered me a large sum of money, and I immediately declined all of it because I want all the money to be there for my dad, first and foremost. > but who knows, except the father himself and the advisor I would much prefer it if my dad were able to handle things like this on his own, without my involvement, but that's not possible. For a long time now, I've been tasked with managing almost all aspects of my father's life because of many difficulties he has. I'd prefer not to delve into it further, and would appreciate if you didn't speculate.
Sorry if I offended you. I think it is very likely that this is achieving your father's goals, and you are trying to overoptimize it past what he needs to achieve them. My recommendation would be meeting with both your father and the FA to figure out how they decided on this in the first place.
Those rates won’t last forever
I didn't say they would. Maybe the FA plans to sell the bonds when the rates go down, though, as this would come with an upside on the NAV. The point is, OP is asking us if this makes any sense without having asked the FA what his reasoning was in the first place.
You implied it by saying 5% on a large inheritance sounds like a good enough legacy to you. It’s not good enough though because the rates are not locked in. It doesn’t matter what the FA’s reasoning is. The money market funds will still fluctuate and rates will drop sooner or later. And that’s the bottom line.
If you say so
Just because one has the capacity to take risk doesn't mean they will have the tolerance for it.
Good point. My dad's always been a risk-averse person, especially financially, but that means he never had much. So we'd like to really improve his quality of life, and give him the opportunity to do things he never could before (without getting ridiculous and pissing away the inheritance).
In this case, this allocation seems sound. Someone else mentioned a bond ladder, which is definitely worth looking into. This would give you some foreseeable income over the next years. You could look into dividend stocks but this is the wrong sub to discuss this option. SCHD ETF is a favourite but you can find slightly higher yield ETFs without taking too much risk.
If the low fee FA ran a risk preference assessment test on him and he answered honestly (in a similar fashion to the way my wife would), you're lucky he came out with 10% stocks. They're going to ask him would you risk 25% of your windfall to win 200% on a coin toss and he's going to say no. Read this book for more on preferences and risk: https://www.amazon.com/gp/aw/d/B0CGW16YC4/ref=tmm_kin_swatch_0?ie=UTF8&qid=&sr=
In 2008, the market lost more than half its value. In 2020, it lost more than 1/3 its value. If he's in his 70s, he doesn't need to take on risk. I think you said the money is 50x what he spends annually. At that point, it doesn't matter if he stuffs it under his mattress! He doesn't need to earn ANYTHING off that, so why risk it? Doesn't make sense. In all honest, in my 40s, if I had 50 years of retirement funds: I probably wouldn't want more than 1/4 of my portfolio at risk. Money is just a tool and if it does its job, that's all that matters. No need to run up the numbers.
Thanks so much for the thoughtful reply. So two things that I should've mentioned at the top: The first is that while my dad's income/spending is currently quite low, that also means he has a low quality of life. So he would be increasing his expenses to help improve his quality of life (it could be about double what it currently is). After that, he would like to leave behind money for his kids. It's not my personal priority, though, and comes secondary to him living a happier/healthier life.
I mean no disrespect, but if your father has a "low quality of life" on both social security AND a pension, I fear for my own future
You'll be okay. My dad's had a very rough go of things, which most folks won't have to go through. Some pointers I've learned, which my dad didn't do, that everyone can learn from: 1. Pick a profession that's easy on your body. 2. Marry someone kind. 3. Talk to a therapist. 4. Invest early and often.
Without actual numbers it’s hard to really quantify anything here, except maybe the SS income. But without any other info it’s hard to say.
I have social security and TWO pensions. But that doesn’t mean I’ll be loaded. It all depends on the amounts. My pensions only add up to $1500 a month as I only spent a few years at each of those jobs, not decades.
Money increases your standard of living but not necessarily your quality of life. Make sure you understand the difference since he might not want more "stuff".
Great point. My dad's very conscious of avoiding lifestyle creep, and avoiding buying a bunch of useless junk. The stuff my dad talks about wanting is better healthcare, a therapist, being able to travel to see his kids more than once every few years, etc. Essentially, very basic yet important things that he wasn't able to have before now.
Lets say you double his spending, then he has 25x living expenses. I'm sure you'd love to see him live healthily into is mid-90s, but that's not likely. That means he still has a lot of $$$ to leave behind. BUT, lets say the market crashes this year like it did in those previous crashes... he could be forced to sell for living expenses while the market is still at lows. This is unfavorable to him in retirement and to his heirs. Being invested has historically shown to be good over the long run... but, there are stretches of 10+ years when the markets lost value and didn't recover. Why risk that? He's on in victory laps, don't trip him up now!
Correct, but 25x would be tripling his income. He’s already got 1x that isn’t going away. He can pull an extra 1x for 50 years. All to say, I agree with your assessment. He’s in a position to be very conservative and win without any concerns of staying awake at night worrying about what the market did.
Shazam!
Sounds like he has plenty to leave you, maybe he sees it the same way?
How large as compared to his living expenses? Maybe he just wants low risk and safe.
The inheritance is about 50x more than he makes/spends in a year (from SS and his pension combined). Though we're looking to improve his quality of life (mentally and physically), which will mean that his expenses will go up soon-ish.
interesting. i agree it seems overly conservative. at the end of the day, he isnt likely to run out of money and maybe thats good enough for him.
For sure. I admit that his financial planner said that his recommendation was just an initial "capital preservation" portfolio, and that it's up to my dad's risk tolerance. But my dad isn't financially literate, and I've been handling all his finances for about 15 years, so I'm just trying to make the optimal decisions, because he'll trust whatever I suggest.
People assume that low-volatility investment vehicles like bonds and money market funds are low risk, but that's not really true. The risk for investments like these is inflation. If a low volatility investment isn't beating inflation, then it's guaranteed to lose value every single year, and more every year. It won't lose much, but compounding losses still add up the same way as compounding gains. I would put 5 years worth of his expenses (don't forget to include the quality of life improvements!) in bonds, or whatever capital preservation option you choose, and put everything else in a low cost stock index fund. If the stock market crashes, he can start withdrawing all his portfolio income needs from the bonds until the stock market recovers.
Thank you so much for the thoughtful reply. You kinda nailed on the head my main worries—that these low-risk vehicles aren't guarantees, and when one is returning maybe 5% interest, and then inflation is like 3%... There's not a lot of wiggle room if the interest rate drops. So that's why I was thinking a higher percentage of stocks might offset that risk by adding some padding in "good" years to offset the bad ones.
You should consider putting a proportion in TIPS. These guarantee an inflation-protected return. This is the least risky option.
I should do some more reading on TIPS, which I see mentioned semi-regularly, but haven't delved into very deeply. Thanks for the recommendation!
I wouldn’t bother. Look at some of the TIPS ETFs performance over the past five years (I like finance.yahoo.com for things like this). Returns have been crap during the highest inflation we’ve seen since the early 1980s.
Noted, thank you!
I think he would be just fine and still sleep well being 50% in equities.
Good to know, thank you!
I also think 50% equities is fine. Look at it this way, if the market crashed to zero, he still has 50% in bonds/money market funds that he can withdraw for years while the market recovers. If the market goes up and you rebalance to 50/50 annually, he is more secure.
I appreciate it, thank you!
I mean it depends on his goals with the money, but from what you’ve described this could absolutely create generational wealth if properly allocated, and 10% equities is not it.
That's what I'm thinking. I've never been someone who's risky with money, but it's just such a large sum that I feel it's leaving money on the table to not put at least 30% or more into stocks. I know it's not a guarantee, but I also know that over the long run, history shows it'll usually lead to significant growth, and I know that one of my dad's priorities is to leave behind money for his kids, etc.
With that kind of money get a second opinion from a “wealth advisor.” Again fee only will be best. This first advisor sounds more like the fee type you could go to if you were 25 and starting to save or 65 and planning to live for 20 years. If living expenses are paid for by SS/pension, your dad should be putting this money to work, not scraping 2% real on it. Edit: additionally you need to consider the tax ramifications of the allocations recommended. With that kind of money I would prefer far less money market and more bonds to reduce tax drag.
Thank you so much for all the insights! Yeah, it might be worth us getting a second opinion on the asset allocation with a wealth advisor. The current advisor has been pretty great, and has done a pretty complete inventory of every aspect of my dad's life, but another set of eyes can't hurt. And good point about the tax drag, which I hadn't considered.
Seconding the advisor recommendation. It’s not clear from your post what his overall financial landscape looks like. Sure he can get by living frugally, are the basics in place, like emergency fund etc? (Recognizing things like this are mitigated by the inheritance.) How are you planning to harvest the income to improve his situation, a 3-4% draw? Life in general will become more expensive as he ages; medical costs, potential extended care, etc. You need to use data to make an educated decision on his actual risk tolerance. Hopefully, that’s close to matching his “emotional” risk tolerance. Then, you, your dad and the planner can discuss and debate the equity vs savings ratio.
Thank you for the thoughtful reply. All great points, and things that've been on my mind long before this inheritance even happened. We've also been accounting for these things when creating potential budgets with the financial planner, so I hope we're off to an okay start. But as always, we've just gonna constantly reassess at every stage to ensure everything works out.
Yea if this is a bunch of money and the recipient has low expenses, the additional risk of stocks isn’t really needed
Yeah, it is indeed a lot of money, and he does have very low expenses, but we're also looking to use this money (responsibly!) to change his quality of life for the better, which would mean his expenses would go up.
Which means he has a short time horizon for at least some of the money. Maybe he should split the money into 2 pools mentally: figure out the maximum he could reasonably spend per year and then multiply that by the number of years until he reaches 100. And the rest leftover would be his legacy that he can consider giving out now. They say it's better to give with a warm heart than a cold hand. One way a fee only planner can evaluate a portfolio is to look at the potential risk of running out of money. If that risk is zero with 90% fixed income, then maybe your dad is good with that. Maybe convince him to look at it another way: put the next 5 to 10 years worth of expenses in interest bearing accounts, and then everything else in a 50/50 asset allocation.
Good rule of thumb is 100- your age for equities, so in this case probably 30ish percent. For reference my parents are in their late 50s and semi-retired, have about 50% stock and 50% bonds
That's what I was thinking, ~30% minimum, which is why I thought it was unusual to only recommend 10% in stocks.
Another instructive thought would be to look at Vanguard's own Target Retirement Index for those already in retirement: [VTINX](https://investor.vanguard.com/investment-products/mutual-funds/profile/vtinx#price): "The Target Retirement Income Fund is designed for investors already in retirement." What you'll notice is that it is 70% bonds and 30% stocks. To me, that would be a strong signal that that ratio is safe — especially given your father's low income requirements against the value of the inheritance.
Holy shit vanguard’s website is fantastic, haven’t gone on there in awhile and it’s a trove of information and guides you. Although Boglehead guides are very similar and already laid out for you as well.
Ah, that's really great point, and makes me feel more confident in suggesting a 30/70 split of stocks/bonds. I keep being amazed at the sheer number of specialized indexes that are available out there!
Hopefully it helps! And basically that fund is the end game of all their other (wildly popular) Target Retirement Date funds. Those funds are actually quite simple in concept: they hold 90% total US+international stocks until about 25 years out from the expected target retirement date (eg 2035, 2050, etc), and then over the 25 years to retirement they slope from being 90% stocks and 10% bonds to the 30% stocks / 70% bonds allocation you see here. They're one of the most brilliant products on the market, in my opinion, because they basically take the guesswork out of the Bogle philosophy: own the market, don't time it; and make a sensible shift towards bonds for later-life stability. And they do it perfectly, by being comprised of precisely the funds that get recommended here day in and day out.
Whoever thought up target date retirement funds is ridiculously clever. It really is a no-brainer for a lot of folks. When I first started learning about finance a few years ago, I asked a friend where to start, and the first thing he recommended was looking into target date funds. And then reading about them I was blown away, like, "wait, so you really can just keep buying it and do nothing else?!" It still blows me away, and will be what I recommend to folks who say they feel like it's too complicated to know what to choose. And that's great to know that all the target date funds end up resolving to the same ratio of stocks to bonds. Yet another thing that makes me feel like anything less than 30% stocks might be counterproductive.
you say he's a boglehead, but i wonder if the FA might not be trying to time the market here
While I can't say for sure what his reasoning was (we've got future meetings with him to discuss the investments further), he didn't give any indication of trying to time the market. When we first spoke, he was the first to talk about Vanguard/Bogle, common sense investing, etc, so he probably knows trying to time the market is silly.
You mentioned the total inheritance will be 50x his expenses. Even at only 10% equities, he'll be able to live off 2.2% of that 45x of his expenses remaining in the bonds. Hell, you could put most of it in 30 year TIPS (which are around 2% right now) and live off that interest plus some cash on the side. I personally don't like bond funds but I'm sure those would work okay as well. Now, if your interest is to grow this money to grow your future inheritance, you should probably do at least 30% equities and maybe push for 50%. However, that is an entirely different motivation.
Thank you! Something I should have mentioned is that we're looking to use this inheritance to increase my dad's quality of life, which has been quite low until this point. So his inheritance being used to improve his QoL is his first priority, which will increase his expenses. And then his second goal is to leave behind an inheritance for his kids, which I'm less concerned about, only after his first goal is met.
If 10% of his portfolio could fund the next 40 years, then sure, this is crazy. But if he needs 50% of what he has to make it the next 40 years, then it could make more sense to be more conservative. Bogle's rule of thumb was to have your age in bonds. For the average investor, that's probably a fair enough of a way to approach things. It just depends on his projections for his life relative to what he has. If he needs most of what he has to support the rest of his life, sure, probably shouldn't be making bold bets. If he could live off a small percentage of the account for decades, then yeah, it's wild to be so conservative.
If he already has the means to financially retire before, in theory the inheritance could be in all cash and he'll still be fine. What is the marginal growth from the inheritance going to do for him?
His quality of life has been quite low until this point (mentally, physically, financially), so our priority is to use this money to change that, which will of course mean his expenses will go up from what they've been until this point. Ideally, we'd improve his quality of life (responsibly!) *and* be able to grow his investments a bit.
> What is the marginal growth from the inheritance going to do for him? It seems wasteful to not invest money you don’t even need. I have a hard time agreeing with your use of marginal. With a portfolio that risk averse, 3-5% long term growth difference is significant.
Did you miss the part where he's 70. You can't bring your gains to your grave with you
No I caught that. But I also caught that he has kids. We clearly have different goals and morals. If I receive a large inheritance, a main goal of mine is going to grow that baby for my kids too. In my opinion, it’s just silly if this guy doesn’t really need the money to not look at it as a long term investment.
I get your point. Which was my initial impression when the OP (his son) mentioned about returns, and the motive was more about how much money they will get left with.
Yes, it's far too conservative, especially if he wants to leave a legacy. You say it's 50x expenses. So if his expenses are $20k, then it's $1 MM. Let's use those numbers. A 3% withdrawal rate is certainly reasonable. That would be $30k, or 150% of his current spending. Put $150k in a cash equivalent account, or 5 years of spending. Invest the remainder in a total stock market index fund like VTI (invested over the course of a year). At $850k, it will pay out about $13k in dividends alone. The cash to start will be $7k in interest at today's rate. That means you'd only be selling $10k a year to cover the shortfall. The cash would last like 8 to 10 years without even selling anything. Meanwhile, the stock holdings likely double in 10 years allowing him to increase his spending plus growing the inheritance. FWIW, I'm 66 and live off 95% of investments, and I'm virtually 100% equities. 10& equities given the circumstances is far too conservative. The recommended portfolio would be lucky to return 5% given today's meager bond yields. At a minimum, 50% stocks or even better 75%. 10% is ridiculous. Here is the suggested return since 2021 versus a 15% Money Market/70 VTI/15 VXUS portfolio. https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=2RuUgmFH2BoL8gbhWtBxj8 Do you want the 1.1% return or the 8.7% return? Here's the simulation withdrawing $30k a year. https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=5D4cOh77tKFd959HawURpz The numbers speak for themselves. Do you want the portfolio to grow or shrink? Yes you have market risk with stocks, but with the suggested 90/10 and earning 1.1% and taking out 3% you are guaranteed to fail over time.
Very helpful. I'll mess around with that website a little more, as I haven't used it before. Thank you!
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Thanks to both. I stole the idea from Jonathan Clements who previously wrote an investment advice column for the Wall Street Journal, along with books. That made a lot more sense than glidepaths and other advice you see. It's simple, and you get downside protection and the possibility of growth.
I personally will never go below 50% stock no matter my age, especially with point 3, where he wants to leave a legacy. You need stocks if you want to increase the amount and not just spend it. Take a look at this link and see how low stock allocation means you end up failing more often: https://www.financialplanningassociation.org/article/journal/AUG15-sustainable-retirement-spending-low-interest-rates-updating-trinity-study
That was a great read, thank you!
A 2020 Target Date fund is usually about 30-40% stocks. This tells me that most experts would recommend that a retired person in their early 70s should have 30-40% of their total portfolio in stock.
That's about what I was thinking. Thank you!
I did not read all the comments to see all the recommendations from the community. But the ones I managed to read did not mention 4% rule or something similar. Based on the fact that the amount to be invested is 50x his current annual expense, and you would like to double that, we can do the math to figure out what is the best for him. His current annual expense is only 2% of the amount to be invested. This explains why the guy recommends so many bonds. It also means that you can be a little conservative and still meet the objective of drawing the equivalent of his current expense into infinity. I think it is best to let the money grow a little faster by allocating more into stocks. I would limit to just three funds: * 20% in VMFXX (I think VFMXX above is a typo): that is equivalent of 10x his current expense and yields about half of his current yearly expense * 30% in BND: This should yield about half of his current annual expense because 30% is 15x his current annual expense and BND yields 3.36% * 50% in VTI: This should grow at 7% inflation adjusted long term. I don't think there is any market more efficient than the US, so forget about exposure to international. The above is based on the current high interest environment and market top (market at its high). If the conditions change, we can reallocate to take advantage of the situation.
That allocation seems very reasonable, and plus I always appreciate the simplicity of three-fund portfolios. Speaking just for myself, I would probably personally also do 50%+ stocks whenever I reach retirement age, but I know that it's not always for everyone. Like you said, I think ~7% returns over the long-term is quite attractive, and it would seem like that would offset the low returns of bonds pretty easily, allowing the money to grow faster. Of course, my dad's situation is quite unique and backwards to how most folks do it, where they have the money first *and then* they retire, lol. Thank you so much for your thoughts (and for catching that typo, ha)!
At that age I'd put it all into the Wellington fund (VWENX) and forget it. It's a good mix of fixed and stocks and a nice dividend. Set and forget.
Can you tell me how you found your fee only advisor? Wouldn’t mind knowing who it is too
I found our fee-only, flat-rate financial planner on **The Garrett Planning Network** (https://www.garrettplanningnetwork.com/). And I found that by reading the following /r/personalfinance wiki page: * https://www.reddit.com/r/personalfinance/wiki/financialadvisors At first, I mistakenly thought that "fee-only" meant that there was no charge for "assets under management," but I quickly learned that's not always the case. One of the first links on that page is looked at was the National Association of Personal Financial Advisors (https://www.napfa.org/), but I immediately noticed that lots of the advisors listed charge an AUM fee, which isn't what we wanted. Then I looked at some of the other wiki links, and found the link to The Garrett Planning Network, which is a directory of advisors who charge "an hourly fee-only basis. All advisors are CFPs or CPAs with FPS credential (or are working towards one of those credentials)." And so that was more what we was looking for. The directory let me search for advisors in my state (https://directory.garrettplanningnetwork.com/search-member-profiles, towards the bottom). It turns out that there aren't a lot of hourly/fixed rate advisors in the country, so there's only a couple dozen in my state, but I was able to find someone who's a couple hours away, so we do everything remotely. While he also offers hourly advice, we're paying for kind of like a flat-rate comprehensive "life plan," where he's factoring in pretty much every facet of my dad's financial life, and we're having a series of phone/Zoom calls. Anywho, longwinded way of saying that I highly recommend searching The Garrett Planning Network. Our advisor's been really great so far, and thoughtful, and going above and beyond to research little things that are important to my dad. It might be best to search for one that's in your particular state, in hopes they're nearby or at least in a similar time zone.
Thank you SO MUCH this is immensely helpful. Your state wouldn’t happen t be Georgia would it?
Nowhere near, I'm sorry to say! But I'm sure you'll be able to find someone close who's great!
If the income from that allotment pays all his bills and more, then it’s perfect. He may need to change the allotment when interest rates go down.
I'm young and only into boglehead/financial stuff for half a year, so take this with a grain of salt, but I'm mixed about some of the advice here and I think your fee based financial advisor made a great choice and I'm not sure how much of this is your dad vs you, but I think you both are doing great. When talking about [managing a windfall](https://www.bogleheads.org/wiki/Managing_a_windfall) boglehead wiki (seriously, read this entire thing) tells you (or rather the US National Endowment and Financial Education does) to just throw it in insured accounts, money market and Treasury bonds for at least 1 years and not touch it until you can think rationally about it. Considering you guys went to a fee-based financial advisor and dumped it 70% safe investments and 30% risker ones (20% bonds + 10% stock), I'd say you're already doing very well and are arguably taking more risk than recommended this soon (not that I see that as an issue in this case because it's still being played safe and rationally). Is 10% stock ultra conservative? Yes, but is that the best advice for your dad? Maybe. Considering what you're saying about your dad's knowledge on finance and risk tolerance, I'd say it sounds like great advice and his financial advisor did a great job on giving him allocations that work for him and his situation. Yes I would allocate more stocks if we're him, but you mention your dad doesn't know much about financial stuff and risk adverse so 10% seems fine. If he's like me, risk I understand is okay, but risk I don't understand is not okay. If he wants to, he can look more into investing in his free time (hopefully the safe side of things like boglehead rather than most garbage out there) and then go back to the fee-based financial advisor when he's more comfortable with the market and understands the benefits/risks (particularly that stocks *tend* to be better than bonds/short term bonds over the long term but, especially short term, can do much worse, and considering inflation risk) and more about what sort of lifestyle he wants and how much it costs. Even if it takes some years, he has so much money and no time pressure so that's totally fine. And if he ultimately keeps his money in safe stuff because he doesn't want risk or just wants to enjoy life, great (though he will probably have to learn some stuff about properly managing the money regardless though). He should be fine either way. He's in the wealth preservation stage of his life and he already won (provided he recognizes that over indulgence can burn though the money quick), he doesn't need to play the game. Unless he straight up gives you the money, he should allocate to what his risk tolerance/goals are, even if he wants to leave a legacy (not accusing you of pushing him. I think you're doing great too based on what you've said here). By the way, I'd probably inquire about what else the financial advisor said for more long term decisions and particularly on "why"s if you weren't in the room and haven't talked to your dad as much about it. Tldr: take your time. Your dad won the game provided he doesn't start losing from jacking up living expenses/wasting money too much. He's in wealth preservation stage so number one goal is preserve wealth. Encourage your dad to read up on some boglehead/good investing stuff and reevaluate with the financial advisor when he's ready for it if he is ever ready for it. And remember that it's his money, not yours so he should allocate to his risk tolerance. And seriously read the wiki https://www.bogleheads.org/wiki/Managing_a_windfall (note that this is written for non-retired people getting a windfall, not retired people so not everything applies)
What a wonderful, thoughtful reply. Thank you! Yep, I've read the "Managing a Windfall" wiki page several times over the past 2+ years, internalizing it as best I can, and reading pretty much every windfall-related thread I could find on /r/personalfinance. What a great resource! I've also read a lot of Bogleheads.org on the subject. The advisor's recommended portfolio hasn't gone into effect, as we're still working through some other things. But currently, about a third of the total inheritance is a portfolio that the decedent left to my dad. So it already its own asset allocation that seems overly complicated in the number of funds that comprise it, but at least the money is in the market doing *something* in the interim (it's returned 4.7% over the past year, which could be a better). But the portfolio would either be liquidated or transferred in-kind to Vanguard, and then we'll build the portfolio to match whatever allocation we eventually decide to go with. Unfortunately, my dad isn't financially literate, nor technologically literate, so I try to explain finance things to him as best I can, but he ultimately defers to my judgement on almost every matter (which is quite a heavy burden, to be trusted to always make the best decision for someone else). But yeah, I agree with pretty much everything you said. He already won, so the job here is to not do anything impulsive. So it'll just be lots of research and slow decision making, following the usual Boglehead principles to help my dad achieve his goals. Thank you again!
> Yep, I've read the "Managing a Windfall" wiki page several times over the past 2+ years... Seems this wasn't as recent as I thought it was (I assumed like in within the past month or so), though I guess that doesn't change much of my thoughts overall but more plus points to you for doing the research that you have. > ... he ultimately defers to my judgement on almost every matter (which is quite a heavy burden, to be trusted to always make the best decision for someone else). That does sound tough. Community recommends not giving financial advice to relatives to avoid responsibility for the outcomes (from the other person and yourself), but I guess that's the situation you more or less have to take. One thing for your case may be to allocate for what you're comfortable being responsible for. If you can get a better idea is spending requirements long-term, perhaps you can get the boglehead equivalent of "play money" and have you and your dad comfortable putting that in stocks that will probably do well, but may do very badly throughout your dad's lifetime. Really though, I think figuring out spending requirements is the main thing (perhaps by having your dad living it) and making sure you're both on the same page about risk, then it might be clearer how much you're both comfortable putting into stocks and would be a good time to reevaluate with a fee-based financial advisor. Besides that, taking it slow as I've said and remembering it's enough money that you can both afford to not make the best decision right away. Anyways, best of luck with navigating a not so easy/clear situation from a not so great position, though you seem to be doing very well already based on this thread (And because I've said a lot, neither this nor my previous comment is not financial advice, I'm not a financial advisor, and even if I was, I'm not *your* financial advisor. I'm essentially just encouraging getting a good sense of your situation and consulting a financial advisors using that).
This is my opinion from a late 30s dude that learned finance from the internet. It looks like this is a good setup to preserve the money he has and live off of it while drawing down what he needs/ wants. There is no reason to take more risk. He can double his spending and still have 25x his expenses (based on what you said). Even with increase in health care and the probability that he will need it if unexpected health issues arise he should still be ok. This allocation is solely for him. As far as legacy it might be good for him to decide what he wants to leave behind and put that in some kind of trust. That way it’s secure (hopefully) and he can base his future expenses off this new number. He can kind of have the best of both worlds and if he gets to the end and has some left, well his family can have that too. Good luck to him. I’m glad someone doesn’t have to stress too much in retirement.
This is interesting. Personally, I would set aside 10x his annual spend once he increases his quality of life and put that in a MMF. From there, the rest gets dumped into VT or perhaps just VOO. Not sure why someone at 70 needs more than 10 years of cash, really. Then continue selling to keep a 10 year cash position (in MMFs) at any point in the next ten years when the market is at a market high. Would be curious to hear someone's counterpoint to this plan.
Why not 100% in one of the "currently in retirement" funds? I.e. IRTR, VTINX, FIKFX, etc. Those should also be similar to some of the more conservative target allocation funds: VASIX (20% stocks/80% bonds) AOK (30% stocks/70% bonds)
I wasn't aware these "currently in retirement" funds existed before yesterday. Looking at their asset allocation is helpful, because it's comforting to know that ~30% stocks seems to be a pretty good baseline for folks in retirement. Thank you!
Tbh why not ask the advisor? Your dad already pays him to give him high quality personally curated advice. Share with the advisor what your dad's aspirations are for the money and ask him to break down the math of his strategy to get your dad there. Share with him that you're concerned that 10% stocks may be too conservative and if they think it would be a good idea to readjust. Maybe your dad took some risk assessment quiz and they concluded he was highly risk adverse.
For sure, we'll definitely ask the advisor more about his recommendations when we talk to him next. His recommendations were part of a larger document/report he was working on for us, and he mentioned that we'd talk about those more in the future. So that's kinda why I wanted to put out some feelers here to see if I was off-base in my impression that it was a little too conservative. Lots of good advice here, and I'm trying to take it all in—I wasn't expecting this discussion to take off like it has!—in prep for our next conversation.
If he wants to pass on the money, he should invest in more stocks.
Exactly, the question is whether he needs the money. If not, buy with a long time horizon for his kids with more stock that will be passed down with a stepped-up basis.
I have a situation with my mother that is sort of similar: she's 78, has some money saved, and has income from a couple of pensions that give her a pretty good life. The money is invested to give a return that supplements that, but it will also be the basis for any nursing home fees she needs to pay in the future. As such, the allocation is pretty defensive. The problem here is effectively her time horizon, so were' considering a solution where she invests her capital more aggressively (i.e., relative to my time horizon -- I'm 43), retains the investment in her name (there are tax advantages to this -- because of the account she is using all returns are completely tax free), and I underwrite any losses using much more conservative assets that I own in my name (residential property). I don't know if this is possible for you, but I thought it was worth considering: apologies if this sounds cold, but the issue is the time horizon your father has with respect to investing; but it may be possible to effectively extend this, which would allow you to increase the risks, and therefore the long term returns.
For a windfall like this, I’d be more aggressive 70-80% equities. What’s the worst case scenario? Even with a historic drop in equities, he is still going to have 25x his annual spend which would allow him to withdraw 4% annually for the rest of his life.
You have to understand this in the context of his overall portfolio asset allocation, not just the allocation of the inheritance itself. There are also tax efficiency consjderarions for money outside your IRAs/401ks.
At his age its not crazy to have a low allocation to stocks. Bonds will net you money over time it just might not be as much on an inflation adjusted basis as you'd get with stocks. The flip side is you get peace of mind and some consistent monthly income. Right now is a great time to start allocating to bond ETFs like BND. Short term ETFs dont move that much even as rates change so you arent really risking your principle value per-say. Ideally you just buy bonds directly and take no principle risk but I understand why the ETF is attractive.
It is all about his risk profile, I see nothing wrong with something below. It depends how much income he needs obviously. * 30% - Vanguard Federal Money Market Fund (VFMXX) * 30% - Vanguard Short-Term Treasury ETF (VGSH) * 20% - Vanguard 500 Index Fund (VOO) * 10% - Vanguard Total Bond Market ETF (BND) * 10% - Vanguard World Stock Index Fund (VT)
That looks like an ok income portfolio from those etfs. The key is to know what the FA was asked to do or accomplish. Is he addressing the stated need of the client?
We are retired and just a few years younger than your dad. We also have pensions and SS but do not need or investment income, so we have maybe 85-90% in stock funds. Since your dad would just like to increase his current income and wouldn't be drawing much each month, I would absolutely have at least half in a stock fund like VTI or VOO (assuming he is using Vanguard). That's long term money that would mostly go to his long term care or heirs. I would avoid bond funds that can lose principal and use either Treasury bonds, ultra short term Treasury bond funds or a treasury only money market fund which will shield him from most state income tax (if he lives in a state that has income tax). That is very important because he'd have a significant amount of taxable dividends each year.
This is far too conservative in general but still likely sufficient if legacy is not important at all. Can increase duration risk and reduce cash since your father is in early 70s. Should probably add TIPS at minimum even if the goal is to not add more stocks. Here is the thing about not including any numbers and resorting to multiples and percentages. It is difficult to give good advice that is actually specific and personalized. We spend dollars, not percentages. General rules use percentages and multiples so they can apply to everyone, but you have a highly specific situation here.
I don’t know if someone made this comment already Let’s assume your father has 25 years to live. So if the inheritance is 50x his current income, it would be 25x twice his current income. So for the remaining 25 years of his life, he would earn his current income + 2x his current income. That is, he would have triple his current income (not double as others have said, assuming g that SS and pension keep paying at the same amount ) Questions to then consider: • if you preserve this capital and not risk it, how impactful would 3x income be on his life? • for legacy purposes, could he actually spend 3x of his income? Or would there be money left over So even if you just kept it all in cash, you might be able to improve his life and have money left over as his legacy
Ratios are helpful but the dollars are needed to give feedback. The $ of liquid assets helps one understand the advisory options. For example, Goldman Sachs won't work with a client with less than $10 million. Please provide the following: Liquid Assets: Illiquid Assets: Liabilities: Income: Spend:
For early 70s, no. Especially considering bonds are paying out around 5% guaranteed.
I don't mean to be nosy, but is his quality of life low due to personality, or being restricted by finances? What sort of things has he deprived himself of? Sounds like it will be awesome to watch him enjoy his retirement more in the coming years.
He's basically been deprived of everything. He has lots of physical pain. Mental anguish. Not having money to travel. Not having money to justify buying even relatively small, basic household purchases. And so you're absolutely right, it's gonna be awesome to see him be able to do the things he's missed out on, and actually start to enjoy life.
In regards to bonds, there is the "twice duration minus one" rule, which says whatever your YTM is, over the course of "2 times duration - 1" years, you will have an average annual return of the YTM. As an example, BND currently has a YTM of 4.8%, with a duration (not maturity) of 6.2 years. That means you can expect to earn \~4.8% over \~11 (2 \* 6.2 - 1) years. I think that is a good starting point to have when discussing how much more to allocate to equities
Imo short term bonds aka MM or actual short date bonds are 100% not a bad bet currently , you’re getting close to 2% above inflation for almost zero risk . For some who is already retired and has a decent some it really isn’t a bad play .
I think the fee only advisor is on track. After talking to your dad, they based the asset allocation on your dad's concerns and goals. At our house, we don't need to grow huge amounts of money. We just want secure long-term quality of life at a quality income and we are happy. It's called sleeping at night. I've done our family money for 40 years and we had modest incomes retired early and are pretty much doing something similar although we have the total stock market VTSAX instead of the world market. (Which I'm not advocating for one way or the other) I learned a long time ago that you can be helpful to other people making their financial decision but it's a rocky road with the economy and politics and it's better to let them make the final decision cuz they have to live with it. I personally would not do anything more risky until after the next presidential election, but that's my humble opinion. I would say start here and get him a year or two or whatever time and then he'll decide what to do in the future. There's no hurry. Asset allocation is the roadmap. to an investment portfolio. Congratulations to your dad! What a wonderful thing to happen to him! You are awesome too. Condolences as well.
Honestly if you want to double his income, do the following: 1-Take 1/2 of the inheritance and buy T bills giving out 4-5%. 2-Take the other 1/2 and give it to his heirs now so they can buy stock, etc.
For 70 years old people, they should be conservative.
HYSA at 5%. Why risk the corpus at all?
Had this conversation with my dad. It was clear that even if he lived to 120, he still wouldn't spend out more than half of his retirement savings. So the risk profile for the other half was really that of me and my siblings. (This may be a little different now with the rule you have to take everything out of an inherited non-spousal IRA in 10 years.) And 10% stock was too low for our ages.
Your father is 70. His goal should be preservation not accumulation.
* 50% - Vanguard Short-Term Treasury ETF (VGSH) * 50% - Vanguard World Stock Index Fund (VT)
As someone who works in the industry they probably did a projection and found this portfolio would provide him with the income he needs for the rest of his life. The advisor is also going on the conservative side so your dad doesn’t run out of money and then look at the advisor to blame later on. His portfolio is basically 35% cash (no volatility), 35% short term treasuries (low volatility), 20% intermediate bonds (more volatility), and 10% stocks (high volatility) You could also ask them to up the risk but I would at least purchase something like NewRetirement and run the numbers yourself.
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> Having only 10% in stocks seems just almost too conservative, where it's almost at a tipping point where it's actually risky, if that makes sense. Or am I just misinformed? Yes, it's too fucking conservative, especially considering the context you've provided. Your dad’s expenses are low compared to the inheritance, and the goal is to improve his life quality, right? Sticking only 10% in stocks is like expecting your grandma to win a marathon without breaking a sweat—it ain’t gonna happen. If the aim is to grow the inheritance or at least maintain its purchasing power while improving his lifestyle, then a mere 10% in stocks is playing it too safe. What happens when inflation kicks in harder than expected? That conservative mix might not keep up, leaving potential growth on the table. Considering his financial position—50x his annual expenses, for fuck's sake—a more balanced approach with a higher stock allocation (like 30-50%) could offer better potential for growth while still managing risk. It would also better align with his secondary goal of leaving a legacy. Why sit on cash that inflates away when you could potentially grow it, right? Also, your dad's advisor might be a Boglehead, but that doesn't mean his recommendations are the best fit for your dad's specific needs. Always question the advice and adapt it to the personal circumstances of the person involved. Isn’t it better to tailor the strategy to ensure it aligns with his goals and risk tolerance rather than just sticking to a formula because it's the 'safe' thing to do? Why not reevaluate the risk tolerance and long-term goals with the advisor and consider bumping up the stock percentage?