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My mother is 80 and a widow with SS and a modest pension. She also has 300K to invest conservatively for some income but also wants to conserve capital. Any ideas for investing that will generate some income but keep a percentage liquid if needed, ie.. bonds, CD's, dividend stocks, annuity ?

Thanks,
Marc
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Marc -

- How Much is her SS?
- How much is her Pension?
- How much more does she need after those two to maintain her lifestyle?

Chris

My mother is 80 and a widow with SS and a modest pension. She also has 300K to invest conservatively for some income but also wants to conserve capital. Any ideas for investing that will generate some income but keep a percentage liquid if needed, ie.. bonds, CD's, dividend stocks, annuity ?

Thanks,
Marc
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bonds, CD's, dividend stocks, annuity ?

Without knowing more about your mom's specific situation, my own thoughts would be to focus on CD ladders and a basket of tried and true dividend stocks (e.g. V, XOM, DEO, KO, AAPL) or for even less volatility a blue chip dividend ETF. I'd stay away from bonds that look like their going nowhere fast and also annuities, which tend to be inefficient - of the $300K, you might as well do it yourself and just take $15K out each year for 20 years.

Pete
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There are always so many factors to consider

For me though, were I in a situation where I needed a little income and was really kind of trying to get a little performance too, worried a little about long term care, but maybe a little more about passing it on

I would tend to get an annuity for the cash I need coming in as small as the need demanded and go with a simple balanced index portfolio with the rest, can't say the percent for anyone else, I would tend to go pretty heavily stock because I see the bond risk as almost as great

If my cash need was small enough I would plow the annuity type amount into a indexed style fund of dividend stocks, the kind offered at Vanguard for the cash

But a lot depends on how much cash is needed, is there long term care insurance in place, risk preferences, legacy ideas etc
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1800 SS
2600 Pension

If she had 750-1000/mo extra that would probably suffice.
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If she only needs 1k a month and has 300k saved, well easy math says she can just put it in a savings account and it will last 25 years....

1800 SS
2600 Pension

If she had 750-1000/mo extra that would probably suffice.
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If she only needs 1k a month and has 300k saved, well easy math says she can just put it in a savings account and it will last 25 years....

1800 SS
2600 Pension

If she had 750-1000/mo extra that would probably suffice.
___________________

Were it my mom

140k for a 1000 a month annuity with a 2% annual increase

160 invested 70/30 stock/fixed income split

were it me,

all of it with Vanguard with their cheap advisor maintaining the index buckets for me, and sending me 750 a month (and up to 250 more if I wanted with no question, and a request for why for amounts over 250)
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The tradition "conservative retiree" investment are bonds and utility stocks. I would not go there. When interest rates go up, there will be panic as bond prices drop - people have not see that since Volker was Fed chairman (Hint Carter was President)

The traditional equities would be utilities, but those have been bid up in price way beyond the historic P/E ratios.

So I would suggest you pick from these options -

#1 Cash -- i.e. CDs or Money Markets. There will be a small return - but probably less than inflation. You will not loose dollar value however. ($300K over 15 years is $20,000 a year)

#2 An S&P500 index fund. This will go up and down with the stock market, but it also pays stable dividends - about 2%. (2% of $300K is $6,000 per year. If the needs exceed that amount, spend capital. The average 80 year old has a life expectancy of 9.6 years. If she make it to 90 expectancy is 4.8 years.)

#4 Another option would be buying something like Vanguard's Wellington Fund. This throws off cash that could be used for expenses and it will have much lower volatility than the S&P500.

In any event you need to consider what will happen when she dies. (We are going through this now.) You need to speak to a Probate Attorney in the jurisdiction where the estate will be probated. Upon death, any Powers of Attorney for managing and spending money a void. The time until an executor can act varies from place to place. For the estate we are dealing with, any expense/bill over $1,000 must be approved by a judge. No bills could be paid, checks written or investment activities taken until certain steps were take by the courts and others.
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If she only needs 1k a month and has 300k saved, well easy math says she can just put it in a savings account and it will last 25 years....

Agreed, but I might tweek that a bit by putting 100k into some high quality blue chip dividend paying stocks and use those dividends to partially replenish the 200k that is being spent down.

On or about when the 200k is only 150k, reduce the stock holdings proportionally to 75k. Repeat again as necessary when the cash is down to 100k.
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Rough situation.

CDs won't generate much income.
I'd stay away from "tried and true dividend stocks" because dividend stock behave like stocks, not bonds, and they'll go down in a bear market.

If she had 750-1000/mo extra that would probably suffice.

Easy. $300,000 / $1000 = 300 months = 25 years. An 80 year old isn't likely to live 25 more years.
$1500/mo = 200 months = 16 years.

Some of the other suggestions are okay, but require some active monitoring & action-taking on your or her part. This is probably unlikely to be done.

Were I in that situation, I would be inclined to go with one of the Vanguard LifeStrategy Funds. At 80, you are not going to care much about growth, but you can't totally ignore it. The problem with a CD or savings account drawdown is that although it is safe, you will run down your capital.

So I'd go for the Vanguard LifeStrategy Conservative Growth Fund (VSCGX) https://investor.vanguard.com/mutual-funds/lifestrategy/#/mi...
Current yield 2.04% = $510/mo on $300K. That's half your desired $1000 right there. You only need average growth of 2% to make up the other half, and that is very unlikely to _not_ happen.

....

Oh, crap, forget all that.
4% of $300,000 is $12,000 which is $1000/mo. That's the 4% SWR for a 30 year portfolio. She doesn't need 30 years, she won't live that long.

For a 5% SWR ($1250/mo) 20 year portfolio the success rate is 92.9%.
http://firecalc.com/index.php?wdamt=15000&PortValue=3000...

Average expected final portfolio balance at the 20 year mark: $360,600. There's your "conserve capital".
Put in $300K, end with $360K while getting $1,250/mo (+ inflation) for 20 years. What a deal!

===== sidebar =====
BTW, that's for a 75% stock, 25% bond portfolio.
Hmmm, 50/50 also has 92.9% success rate.
Interestingly, 40/60 has a slightly *lower* success rate, 91.3%.
==========

The chance of a 80 year old living for 20 years is 3.4% (death/failure rate = 96.6%.)
The life expectancy of an 80 y.o. female is 9.1 years.
If she makes it to 89, her life expectancy is another 5 years.
If she makes it to 94, her life expectancy is another 3 years.
If she makes it to 97, call the newspapers!

I'd take those odds. 93% chance of the portfolio lasting for 20 years vs. only 3% chance that she'll live for 20 years.

$1250 a month, fully indexed for inflation.

=========================
Put the entire $300,000 into VSCGX or Vanguard LifeStrategy Moderate Growth Fund (VSMGX), tell them to send her $1,250/mo and forget about it.

Literally: "forget about it". If you monitor it you'll panic and do dumb things when a bear market happens.

Or call me and I'll manage it for you for the low, low fee of only 1% a year of net asset value. ;-)
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No. of Recommendations: 23
Put the entire $300,000 into VSCGX or Vanguard LifeStrategy Moderate Growth Fund (VSMGX), tell them to send her $1,250/mo and forget about it.

But ::sigh:: that's not gonna happen. I'm just some random guy on the internet.
No, you'll go to some fee-based financial planner and he'll take one look at her age and say, "No, no, no. Stocks too scary for 80 year old Depression-era baby."

He'll put her into some bond fund(s), with maybe a soupçon of high-yield bond fund (A.K.A. junk bonds) and you'll feel happy and safe because everybody knows that bonds are safe and stocks are not. The yield will be about 3% - $750/mo like clockwork. If you are really unlucky, he'll convince you to put $100,000 into an annuity (and signal his secretary to call the Mercedes dealer back and put a hold on the blue one.)

And in 10 year she'll still be getting $750/mo, but the account value tanked to $150K because interest rates rose, and inflation has cut the purchasing power of that $750 to $500.
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Rayvt states:

I'd stay away from "tried and true dividend stocks" because dividend stock behave like stocks, not bonds, and they'll go down in a bear market.

I assume that comment was for me; and it is true but you then go on to recommend:

BTW, that's for a 75% stock, 25% bond portfolio.

and


Put the entire $300,000 into VSCGX or Vanguard LifeStrategy Moderate Growth Fund


I don't have time to pull up the standard deviation on either of the two recommendations but I don't see how either is less likely to result in bear market losses than 1/3 in div stocks and 2/3 in cash. Also, the OP wanted some kept liquid (e.g. cash) and neither stocks nor bonds satisfy that request.
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Given her modest income needs, I'd prefer a diversified portfolio of say 15-20 dividend paying stocks.

This is the lowest cost option with no expense ratio and the ability to keep up with inflation as dividends are gradually increased over time.
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I know you'll get lots of suggestions but finances don't operate in a vacuum - there are many moving parts. Be sure to test the choices against the tax situations - state and Federal. Also, check any medigap/medicaid concerns.
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I assume that comment was for me

Not really. It's just that your words were easy to cut/paste. "Tried and true dividend stocks" is a common generic suggestion that is just automatically made by and for people who don't want to think deeply about it. After all, who doesn't like the idea of "this stock pays you to own it"? I wanted to nip that in the bud.

I don't have time to pull up the standard deviation on either of the two recommendations but I don't see how either is less likely to result in bear market losses than 1/3 in div stocks and 2/3 in cash. Also, the OP wanted some kept liquid (e.g. cash) and neither stocks nor bonds satisfy that request.

Like I said, a rough problem. Everybody wants safety and profits without any pain. That doesn't exist -- which does not stop people from wanting to believe that it does, or stop them from configuring their portfolio as if it does.

Cash is a terrible investment. It's not even worth discussing as an investment. 2/3 in cash is a huge anchor to be dragging around. And when it's gone, it's gone.

BTW: VSCGX -- Worst 1 Yr Total Return(Dec 30, 2008): -19.52%

As far a liquidity: You can call Vanguard and tell them to wire $50,000 from your VSCGX account and you'll have cash in hand the next day.
Except maybe on weekends & holidays, so better keep a couple thou in $20 bills in the back of your closet - 'cause your bank is also closed and the ATM might not work due to power outage.

Yeah, we want liquidity AND no bear market losses AND low volatility AND principle left over at the end. Sadly, we can't have this. It doesn't exist.

But the worst thing is that charlatans will come along and convince people that *he* can get them all this. So they give him their money and he disappears with it.
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What would my grandma have done?

XOM, CVX, T, KO, PEP, PG, JNJ, KHC, GE, EMR, GSK, PFE,PM, MCD


Poor woman, her spending couldn't keep pace with the rate divi increases -- even taking into acccount good for nothing grandkids mooching off her. /snark/
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Given her modest income needs, I'd prefer a diversified portfolio of sour 15 or 20ay 15-20 dividend paying stocks.

This is the lowest cost option with no expense ratio and the ability to keep up with inflation as dividends are gradually increased over time.


Paul could you list your 15 or 20?
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Paul could you list your 15 or 20?

My CAPs portfolio is close to my actual holdings. It does not allow mutual funds, many etfs, or many fixed incomes.

You can reach my CAPs portfolio by clicking on the underlined name of any of my postings. The CAPs portfolio summary is on the right of the first screen. You can see the details by clicking on the header.

My stocks are chosen for growth potential rather than dividends. But I do have significant dividend income.

If you are really into dividends, check out the Dividend Champions recently updated on the Dividend Growth Investing discussion board--

http://boards.fool.com/updated-dividend-champions-32418926.a...

They are into stocks with not only a long dividend payment record, but also those with a record of increasing their dividend.

From my portfolio, I see good opportunity in railroad stocks. Their prices are down from declines in coal and oil shipments, but I expect them to cut costs and recover. I don't see them going bankrupt. I think their dividends are secure.

I also like Caterpillar. They are setting new highs these days in recovery, but are still a long way from the highs in good times.
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My mother is 80 and a widow with SS and a modest pension. She also has 300K to invest conservatively for some income...

Ok, answering before reading through the entire thread, so this may or may not have been mentioned.

To put things in perspective, the life expectancy of an 80 y/o female is about 9 years (https://www.health.ny.gov/health_care/medicaid/publications/...)
then add a fudge factor and say she will make it to 95.

$300,000 divided by 15 years then by 12 months would yield $1666/month without earning ANY interest or growth.

So is this enough to satisfy her needs/wants on top of SS and pension? If so, put it in a money market account and don't worry.

JLC
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Hello Rayvt,

The Vanguard lifestrategy fund is an interesting possibility. The VSCGX has about 40% exposure to the domestic and international bond markets. When interest rates rise, the asset values are going to tank. Why not just add dividend paying stocks selectively (e.g., WFC is a good value now), and add some equity index funds on dips?
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The Vanguard lifestrategy fund is an interesting possibility. The VSCGX has about 40% exposure to the domestic and international bond markets. When interest rates rise, the asset values are going to tank. Why not just add dividend paying stocks selectively (e.g., WFC is a good value now), and add some equity index funds on dips?


Let me tell you a little story about the very first home computer we almost bought, a TI-99/4A price about $500. Or a much cheaper COmmodore.
The Commodore didn't have a lot of RAM, so I decided to pay for more RAM. Then we decided to add a better monitor.
All of a sudden our "cheap computer toy" was upwards of $1500, and as or more expensive than the TI.


That's the problem -- you start out with something simple and straightforward, then add a little tweak here and a little tweak there. And all of a sudden you are in different ballpark.

The beauty of these Vanguard lifestrategy fund is that the only work you have to do & only decisions you ever need to make is once, at the start. Same as any other passive strategy, really.

Once you start adding "dividend paying stocks selectively" and "index funds on dips" you don't have a passive strategy, you have an active strategy that you have to continually monitor and make buy/sell decisions all the time. A little tweak here & there is kinda like being a little pregnant. No. You are either pregnant or you are not pregnant. Your portfolio is either passive or active.

But...if you want to have an active strategy, you don't want to build it on one of these lifestrategy funds. There are much better strategies.

So decide if you want to do a one-time decision fire-and-forget investment portfolio, or if you want to do an active strategy portfolio.


*looks at Subject title*
Um, no. A 80 YO widow with $300K should not even consider enhancing her LifeStyle Fund portfolio with dividend stocks or buying on dips.

I go through this all the time, in writing my instructions for my wife in case she has to take over the investment portfolio.
Simple is okay.
But if you do this little thing it has better returns.
And if you also do that little thing the risk is reduced.
etc.
And pretty soon my instructions to her look like an operations manual for a hedge fund.

Um, no. If she could & would do that, then I wouldn't need to tell her what to do.
So I throw my 10 pages of procedures in the trash and replace them with 2 lines:
1) Move all the money into Vanguard XXXXX fund.
2) Call Vanguard and tell them this, and they'll help you move the money from all the various accounts that it is presently in.
3) Tell Vanguard to do a systematic withdrawal of $XXXX a month and send it to you.
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Um, no. If she could & would do that, then I wouldn't need to tell her what to do.
So I throw my 10 pages of procedures in the trash and replace them with 2 lines:
1) Move all the money into Vanguard XXXXX fund.
2) Call Vanguard and tell them this, and they'll help you move the money from all the various accounts that it is presently in.
3) Tell Vanguard to do a systematic withdrawal of $XXXX a month and send it to you.
_______________
LOL

I can't tell you how close that is to what I did!
However, I went one small step different, I told her just to go with a Vanguard advisor, they would rebalance her funds for her and be there if she had any question, sure it is an expensive security blanket but I know my wife will get more than value at believing she is in the hands of an 'expert' and I know all Vanguard's 'expert' will do is charge a lot to keep the index funds in a sane balance. We already made a call and spoke with one just so she would be comfortable when the time came(of course we did not go with them at that time though)
Yeah paying .3% for little is a lot of money for what I am getting there, but having a single person to call and a firm with a solid record is worth it for putting my wife's mind at ease. Could I get close with life strategy fund? Sure, but knowing your audience, made the more costly choice one I think will work more comfortably in my case.
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I presume that the SS and pension are stable and will adjust for inflation.
These are significant assumptions. SS will have issues as we approach 2034. She would be roughly 100 by then, which is not entirely unlikely with current medical technology.
Additionally, pensions are not necessarily secure, depending on who is backing it.

But with those assumptions, I would invest the money 50% in Berkshire Hathaway (BRK.b) and 50% in index funds. For the index funds, I would have 1/3 in a large cap (RSP), 1/3 in a midcap and 1/3 in a small cap.
Once per year I would withdraw 3% as cash and rebalance the fund.

Why?
Berkshire is about as close to a guaranteed solid firm as you will find. But like any company they can run into short-term hiccups. Therefore it is prudent to invest across the economy as well.
RSP is a large-cap fund that rebalances itself monthly. Imho that reduces my risk of being overinvested in stocks that are overvalued. Ymmv.
The mid cap and small cap funds (e.g. MDY and SLY) provide exposure to growth segments. For the long run, this can be important.

You will note that I do not advise bonds or cash.
You have not indicated any reason to think her life expectancy should be less than 96 (I ran a quick calculator). That means she can expect to live through 2 business cycles. I might hold 10% (3 years of withdrawls) in cash atm because the market is currently a bit rich, but no more than that.

FYI, I eat my own cooking.
http://boards.fool.com/fwiw-i-recently-had-a-31136825.aspx
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