Where should my parents invest 100k?

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Where should my parents invest 100k?

Postby TRC » Fri Dec 28, 2012 7:55 am

My parents (ages 69 and 72) have about 100K in an IRA at Schwab. Currently it's invested in CDs and they are maturing. They had a free consultation from a Schwab "Advisor" who is reccomending a 25% / 75% split of equities to fixed income. I've yet to see the report, so I can't comment on the funds and expense ratios.

What I do know is that my parents are very risk averse. They both have pensions that fund 100+% of their retirement needs, so this is their only nest egg (so to speak). Debt wise they have a small mortgage (~50k) and 1 car loan (~15K), but they have no desire to pay these off early with this money (I've already suggested they do so).

Any suggestions on where they could invest this money? Ideally at schwab? They don't understand the mechanics of asset allocation and rebalancing, so one fund would be ideal.

Thanks,
TRC
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Re: Where should my parents invest 100k?

Postby livesoft » Fri Dec 28, 2012 7:59 am

If they won't pay off the debt, then another CD seems ideal for them. Or perhaps a new car.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Where should my parents invest 100k?

Postby TRC » Fri Dec 28, 2012 8:16 am

Thanks Livesoft. They just bought a new car (Kia Optima), so they are all set for a while on vehicles.

Would a target date retirement fund or total bond market index fund be better suited? Schwab's website is challenging to navigate....I couldn't find specifics on either of these options.
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Re: Where should my parents invest 100k?

Postby STC » Fri Dec 28, 2012 8:21 am

What is the rate on the car loan, the mortgage, and the proposed CD?
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Re: Where should my parents invest 100k?

Postby TRC » Fri Dec 28, 2012 8:27 am

STC wrote:What is the rate on the car loan, the mortgage, and the proposed CD?


Not sure on the rates for either loans (my guess is they are low), but when I suggested they pay them off, they felt like it would deplete thier nest egg too much and leave them open to risk in case of the unexpected.
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Re: Where should my parents invest 100k?

Postby livesoft » Fri Dec 28, 2012 8:32 am

So this is really their emergency fund? Then I'd invest it like an emergency fund: I-bonds or short-term bond fund or CDs or online high-yield savings account.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Where should my parents invest 100k?

Postby RadAudit » Fri Dec 28, 2012 8:43 am

TRC wrote:They don't understand the mechanics of asset allocation and rebalancing, so one fund would be ideal.


Vanguard has a Target Retirement Income Fund (VTINX) that may be more in line with what you were looking for. You might want to check it out. The rebalancing and asset allocation is taken care of by the fund.

I'm sure Schwab could find something similar if you were about to move some of the money over to Vanguard. Check the ERs of similar products, of course.

Livesoft has a good point about the $100k being an emergency fund - so investing the entire amount in a retirement fund may not be appropriate.
Last edited by RadAudit on Fri Dec 28, 2012 8:45 am, edited 2 times in total.
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Re: Where should my parents invest 100k?

Postby STC » Fri Dec 28, 2012 8:45 am

If it is liquidity they are looking for then I agree with livesoft. Treat it like a Multi-tier EF. Perhaps something like:

10k savings account
$50k iBonds (over time)
$20k longer duration CD's
$20k total world equities (VT)
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Re: Where should my parents invest 100k?

Postby sometimesinvestor » Fri Dec 28, 2012 8:52 am

No problem with the investments proposed by livesoft and STC except that even if i bonds are ok in IRAs it seems wrong to put them inan ira as the advantages vanish. I will also note that schwab has decent low cost index funds and a 10% stock, 60% short term and the remainder in intermediate bonds or cds would be easy to do
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Re: Where should my parents invest 100k?

Postby STC » Fri Dec 28, 2012 8:55 am

sometimesinvestor wrote:No problem with the investments proposed by livesoft and STC except that even if i bonds are ok in IRAs it seems wrong to put them inan ira as the advantages vanish. I will also note that schwab has decent low cost index funds and a 10% stock, 60% short term and the remainder in intermediate bonds or cds would be easy to do


Good point. Perhaps the RMD goes to iBonds, then CD/Short term bond fund, then 20% or so in equity's to help combat inflation in a low interest rate environment.
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Re: Where should my parents invest 100k?

Postby pkcrafter » Fri Dec 28, 2012 10:11 am

TRC wrote:My parents (ages 69 and 72) have about 100K in an IRA at Schwab. Currently it's invested in CDs and they are maturing. They had a free consultation from a Schwab "Advisor" who is reccomending a 25% / 75% split of equities to fixed income. I've yet to see the report, so I can't comment on the funds and expense ratios.

What I do know is that my parents are very risk averse. They both have pensions that fund 100+% of their retirement needs, so this is their only nest egg (so to speak). Debt wise they have a small mortgage (~50k) and 1 car loan (~15K), but they have no desire to pay these off early with this money (I've already suggested they do so).

Any suggestions on where they could invest this money? Ideally at schwab? They don't understand the mechanics of asset allocation and rebalancing, so one fund would be ideal.

Thanks,
TRC


First off, are your parents even open to the Schwab advisor's suggestion of 25% equity? No use suggesting anything unless they are actually open to adding equities. Do your parent's pension's have COLAs? If not, then some equity is a wise move, if yes, then it's not so important.

Paul
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Re: Where should my parents invest 100k?

Postby jmg229 » Fri Dec 28, 2012 2:53 pm

It does seem like knowing more what this is for would be helpful. I got my father set up using a 40% Intermediate Term Treasury, 40% TIPS, 20% Total Stock Market allocation to provide some stability of a back-up E-Fund while also possibly allowing for a little growth to make up for the fact that his nice pension has no COLA. He is risk adverse but it works well for him. He does struggle with the concept of rebalancing, however, so I agree that one fund may be nice to find.
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