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My mom and dad are 86 and 96 (!) I am trying to advise them on some specific income producing investments.

They live solely off social security and small quarterly dividend checks from the (mostly) utility stocks they have owned for years. Neither have retirement or pension plans.

In what can they invest (with the exception of junk bonds) to generate the most money coming in regularly to help with living expenses and unforseen emergencies?

Thanks so much for any advice.

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Well, I am being presumptuous here. I am presuming most of their income is coming from Social Security. Hm, that is 2 kinds of presumptuousness, one from being out of line, and the other for making an assumption that may be false.

Anyhow, what the Fool recommends for those people who do not have the time or the inclination to do the research to invest in specific securities, is just to stick the money in an index fund. A lot of people around here like Vanguard. Certainly, there is risk. If the market as a whole goes down, so will the index fund.

Utilities used to be super-safe investment decisions because they were regulated monopolies and always paid a big dividend. What with the advent of competition, that is no longer the case and I think you have to look at utilities the same way you would look at anything.

As I say, I am being presumptuous, but it seems to me that unless Mom & Dad feel they would keep the juices flowing by playing the market, the index fund is the way to go.
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About those index funds: they return well, on average, but with some down years expected. Would your parents be OK with fluctuation in the value of their investment? If not, those utility stocks look, well, useful.

On the plus side, your parents' advanced age makes their safe withdrawal rate higher than younger retirees'. It's likely they could take out 7% or more of their investment per year, and not exhaust their capital too soon. Again, there's a comfort issue to deal with. I suggested to my father, age 78, that he could reasonably plan to exhaust his savings over the next 20 years. He had visions of being 98 and broke, and didn't go for it. Can't say I blame him.
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Greetings Lcrosswaite, and welcome. You asked:

<<My mom and dad are 86 and 96 (!) I am trying to advise them on some specific income producing investments.

They live solely off social security and small quarterly dividend checks from the (mostly) utility stocks they have owned for years. Neither have retirement or pension plans.

In what can they invest (with the exception of junk bonds) to generate the most money coming in regularly to help with living expenses and unforseen emergencies?>>


IMHO given their age and need for income, bonds and blue chip, dividend-paying stocks are it. I would not think an S&P 500 fund appropriate for this purpose.

Regards….Pixy

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I'm kind of in the same situation although my parents ages are slightly less. IMHO, they should be oriented almost 100% towards income. Further, one needs to be realistic about how many years they are likely to remain with us.

In that regard, I would suggest Utility QUIP's with a death put. QUIP = Quarterly Income Participation (Certificate) aka a Utility Preferred Stock which are yielding in the 7% to 7.25% range at the moment. Some of these also come with a "death put" feature which permits the estate of the deceased to "put" the QUIP back to the issuer if the holder dies before the QUIP is normally due.

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To add what the other posts said, look into:
1) Preferred stocks: Not only do you get an increased dividend relative to regular stocks, but you get a share in the stock appreciation.
2) REITs: Real Estate Investment Trusts pay high dividends.
3) Look into these books: "The 100 Best Stocks to Own in America (5th Ed)", Gene Walden and "The America's Finest Companies Investment Plan 1998", Bill Staton. Both books have lists of blue-chip companies you can investigate for high dividend yields. Not only do you want a high yield, but you want a dividend that increases at a rate higher than inflation.

Zev
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Here's a twist on investing in utility stocks developed by Jim O'Shaughnessy in his book, How to Retire Rich, pp.68-69. Check it out at your local library. The nice thing about O'S's strategy is that it allows you to eat your cake (high current income) & have it too (stock price appreciation to deal with inflation)

Universe: Value Line Investment Survey (1700 stocks)

How It Works:
Step 1: Value Line Safety Rating = 1
Step 2: Sort the remaining stocks in descending order by dividend yield.
Step 3: Buy the top 10 stocks.

Rebalance: Annually.

Backtest: CAGR 14.74% for 12 years ending 12/31/96.

Chris
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