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Author: Watty56 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76406  
Subject: Re: Late life retirement investing Date: 7/27/2010 11:16 PM
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My father in law has a mental handicap, so the entire process is a little bit more complicated than usual.

In this situation one of the things that also needs to be covered is to have a clearly designated person who knows the financial details and can take over if something happens like you.

If his situation is likely to deteriorate, then it is important to get all the legal paperwork in place now while he is still able to sign the appropriate paperwork. If this has to be done after he becomes unable to give his consent, then you are getting into lots of time, expenses, and legal fees from what I have heard.


... Given his financial situation, do you have any recommendations on how I should allocate his assets (feel free to recommend specific funds)?...

I’m not a pro but I’ll give it my two cents worth.

I would tend to avoid bond mutual funds right now because if interest rates rise, then the value of the funds will go down, especially for longer term bond funds. Buying individual bonds does not have this problem since if you hold them to maturity then you should be able to redeem then for the full face value. Ask if you don’t understand just how different individual bonds and bond mutual funds.

The targeted retirement accounts tend to be pretty heavy in bond mutual funds so I would be cautious about using those.

An extremely conservative “windows and orphans” portfolio sounds pretty appropriate

I would be tempted to put the majority of any money in retirement accounts into a ladder of shorter term TIPS bonds. The problem with having TIPS in a taxable account is that you are taxed in the inflation adjustment each year even though you don’t receive a check.

You can only buy $10K of iBond savings bonds per year now but over the next five or ten years that would be a significant amount so you might want to earmark some money for future iBond purchases. These are OK in a taxable account since you are not taxed on them until the bond is cashed.

Interest rates are terrible right now and trying to get a slightly higher rate would involve taking a lot more risk which is probably a bad bet. For a safe investment that pretty much leaves either a ladder of insured CD’s or government bonds. One possibility would be to buy say $200K in 10 $20K CD’s that mature at six month intervals over the next five years. These can be reinvested at the current five year CD rate as they mature so they will then to tend to keep current if interest rates rise. You could put even more into a CD ladder to give you time to figure out a long term strategy, at least would generaate more interest than the money market account. Be sure to keep less than $250K in each bank so that you will have full FDIC insurance. Do shop around for the best CD rate. Sometimes a credit union willhave better rates and better service.

For some stock exposure of maybe 10 to 15 percent of his portfolio a total stock index fund and a total international index fund would probably be a good choice. I would tend to move the money into these slowly, maybe a thousand dollars a month for the next five years to get $60K into the stock market.

Greg
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