No. of Recommendations: 2
markkoala,

You wrote, 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.

So at the moment your mom has at least 5-10 years to go before she could consider retiring given that she's not yet eligible for social security. Also, it seems likely she'll have to work some even in her later years, unless she's planning on moving in with her son...

Also, My plan was to only have her invest 5k (from one of her cd's which comes up soon) into 5 diversified dividend stocks to hopefully build her confidence in the market and show her she can get a better return than <1%.

I'm no CFP, but being a confessed investing novice, I'd be reluctant to have my mom move much of her retirement portfolio into investments she's uncomfortable with - especially individual stocks. Given that she's been holding the money in cash (CDs) and may be retiring fairly soon, I'd be inclined to advise her to put some of her money into a balanced, low-cost mutual fund.

Vanguard has several that would meet her needs. Perhaps one of their "Target Retirement" or "LifeStrategy" funds would be appropriate? I have more than 3 years of investing experience, but I two of these funds as part of my core taxable holdings. I hold the Target Retirement 2030 fund (I find the Target Retirement 2020 & 2025 funds to be too conservative) and the STAR fund. Both of these are low-cost, balanced funds in which you can expect (relatively speaking) low volatility and modest growth and income.

Finally, So I'm really doing this because I've had some success in the market in the last couple of years, and it seems that dividend stocks would be a good investment for my moms money.

Ever hear the expression, Past performance is no guarantee of future results? There's a reason for that. Everyone that's been in the market has been making money these past couple of years. It's one thing to bet your own money on a hunch or research. Are you sure you're ready to bet a 1/5th of your mother's life savings?

FWIW, I happen to agree that dividend stocks is probably a fairly safe way to play the market over the next couple of years - I just bought a block of VZ this morning myself.

But are you going to be able to actively manage your mother's account? Is she going to blame you if one of the dividend issuers you buy cuts its dividend and the market punishes it by halving the share price? And what about trading costs? You're talking about investing in $1,000 increments. You have to be careful about making too small an investment as the trading costs can eat up profits when you buy in small lots.

One of the nice things about getting her into a mutual fund is that there shouldn't be any per-transaction costs - at least not if you buy directly from the fund company. Also you might be able to talk her into making regular contributions with each paycheck, which could help her in retirement at least as much as the increased returns.

Just my 2¢,
- Joel
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