No. of Recommendations: 1
Mark,

Peter, my mom is 58, she has $25,000 for retirement, 10k in cd's and 15k in a savings account and that's it. She doesn't have a 401k or pension, so she's going to be working for awhile.


Is that money she considers to be "for retirement" in addition to other savings she has designated for emergency ? If that's the totality of her savings, then she should probably not be investing any of it, in stocks or otherwise. She could be looking for better CD or savings rates.

She needs to have an emergency savings fund. A lot of people say 3 to 6 months worth of expenses. I think that's too low, especially for someone age 58 who might have a very hard time finding a job again if laid off, or who is more susceptible to disability than most. I would recommend one year of e-fund. I am much younger than 58, but that's what I shoot for.

So, start by looking at all her actual expenses for the past year from 12 months bank and credit card statements, and add up every she spent. If that's over $25k, then she should not invest a penny in anything not FDIC insured.

If it happens to be less, check if she paid more than 1% interest rate on anything. If so, she should pay that debt off first. Then, she can start investing the rest. It's probably a fairly small amount. Let's be optimistic and say she actually has $5000 to invest for retirement.

Then figure out the proper asset allocation for that $5000. If your mother plans to retire in 7 years, look at what a target fund for 2020 might hold.

For example, the Fidelity 2020 FFFDX.
http://fundresearch.fidelity.com/mutual-funds/composition/31...
That has 45% in domestic equity, 16% in international equity, 34% in bonds, and the rest in short-term. I think that's a lot of equities for a 7 year term, personally. But Vanguard VTWNX seems to have a similar allocation.

With an amount that small, you can see how commissions on individual stocks could eat significantly at any return you might hope to achieve. The only way it might make sense if I you use DRIPs. But it's probably a lot better to use a good index fund, and will provide much better diversification. She could put $5000 in an IRA with Vanguard or Fidelity and just put it in a target 2020 fund. Even so, with such a small capital, the returns will be fairly small. Unless she adds to the capital, this isn't going to amount to much of a retirement.
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