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Subject:  Re: bond allocation information Date:  5/3/2003  11:30 PM
Author:  iamdb Number:  7040 of 36218


A little over a year ago, I encountered the same situation. My mother signed a durable power of attorney for both financial and health matters. At 90 she is the youngest of four surviving siblings, 96, 97, and 102, so I plan for at least 15 years of her living expenses. A further complication is that I'm the beneficiary of the trust of which my mother is the surviving trustee, an apparent conflict of interest -- one could argue that it's in her interest to generate maximum income while preserving value and in my interest to grow the trust. My first thought was to exercise extraordinary fiduciary responsibility by investing her money very conservatively. We consulted a financial planner who convinced me otherwise. For one thing, such an allocation would generate a lot of unnecessary taxes.

So I put a bit more than 10 years of her living expenses into cash (30% of the total), 45% into Vanguard's Total Stock Market Index (VTSAX), 15% into the Total International Stock Index (VGTSX), 10% into the REIT Index (VGSIX). Eventually the allocations to domestic stock and cash will be reduced to acheive closer to 40% in fixed income securities, with more in bonds and less in cash, but the current low interest rates and correspondingly high bond values worry me so the current portfolio may be a little heavy in domestic stock and is certainly too heavy in cash.

The main point of this is to make sure you provide rather safe funds for your mother's future income needs, but the remainder can be invested appropriately for the needs of the beneficiaries of the trust. Of course this violates age guides like limiting equitiy allocation to 110 minus age, but if you're providing adequately for her income needs, then I think you may as well try to grow the portfolio.

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