Good single fund for conservative retiree

[whyme]

After years of keeping every penny of her savings in cash, my stepmother has agreed to let me invest a small account that she has as I think appropriate. It's not a large amount--less than $10,000, but it is a significant portion of her assets, which are very limited (virtually her entire income comes from social security, plus a small annual payout from an IRA). I'd like to find something that will deliver a modest return while avoiding dramatic price swings. I normally avoid managed funds, but the Vanguard Wellesley Income fund seems like it might be a reasonable option in this case. The target retirement income fund is another possibility. Opinions on these funds or suggestions of superior options (at Vanguard, where the cash is now)? Thanks in advance.

[Retread]

If $10,000 is a significant part of her assets, I'd keep it in a savings account, money market account or an I-Bond.
Bruce

[dharrythomas]

STAR or LifeStrategy Moderate Growth are reasonable, Wellington also.

In the line of the asset allocation you were looking at LifeStrategy Conservative Growth is also good.

I agree with whyme! If this is what she has, it needs to be in CASH as her Emergency Fund.

[Grt2bOutdoors]

STAR or LifeStrategy Moderate Growth are reasonable, Wellington also.

In the line of the asset allocation you were looking at LifeStrategy Conservative Growth is also good.

I agree with whyme! If this is what she has, it needs to be in CASH as her Emergency Fund.

STAR is 65% equity - do you consider that to be conservative if that money is a "good portion" of one's assets? Same for Wellington and Lifestrategy Moderate Growth. Conservative is FDIC insured Certificate of Deposits, a savings account - where risk of principal loss to market fluctuation is nil. We are not talking about inflation risk, deep risk, black swans. We are talking about looking at your account value online or by phone call and finding out that $10,000 is now valued at $7,500!!! The OP's mother should not "invest" any money that can be lost to market fluctuation - the stress might be too much to bear.

[Taylor Larimore]

After years of keeping every penny of her savings in cash, my stepmother has agreed to let me invest a small account that she has as I think appropriate. It's not a large amount--less than $10,000, but it is a significant portion of her assets, which are very limited

Whyme:

I think it is usually a mistake to take on the responsibility of investing outside our immediate household. Whatever fund you suggest to your stepmother will have periods of embarrassing and stressful under-performance and whatever you suggest will seldom be the best performing investment. You will be blamed. For example:

Your stepmother is obviously conservative with "every penny of her savings in cash." How is she going going to feel when she learns her savings in Vanguard Wellesley plunged -9.8% as it did in 2008? Do you think she will "stay the course" not knowing what's ahead? Will she blame you? Answer: Yes.

This is a situation you don't need. My suggestion would be to find a good low-cost adviser or have her contact Vanguard' for help:

https://investor.vanguard.com/what-we-o ... -i-need-it

Another suggestion would be to give her a good book about investing and offer to help her change investments with HER choice of fund(s). You can select a book here:

http://www.bogleheads.org/wiki/Taylor_L ... tment_Gems

Merry Christmas!
Taylor

[robertalpert]

Intermediate term tax exempt bond fund vmltx

or short-term bond index vbisx


If she wants something more exiting, then she should talk to a financial planner.

[Retread]

Intermediate term tax exempt bond fund vmltx

or short-term bond index vbisx


If she wants something more exiting, then she should talk to a financial planner.

Tax exempt? Would be interested in your reasoning.
Bruce

[Khanmots]

Taylor's post has a lot of wisdom. It'd be very easy to get yourself blamed. If you're still wanting to help I'd only be looking at recommendations that didn't involve any risk other than liquidity risk... and ensuring that's well understood.

With that said, given the amount being discussed, I'd be recommending TIPS as an alternative to letting it sit in cash. They're not going to decrease in value, they'll keep up with inflation (the big problem with cash), and (after the first year) they can be redeemed in small amounts as needed. If the first year is a big issue, then invest half now and half later.

An alternative recommendation would be CDs, but they have greater liquidity restrictions than TIPS.

Or... even helping her find and setup a "high return" online savings account would likely be an improvement over where she's at now.

What I would not be doing is recommending that she get into anything that has the potential to lose value. That's just going to (eventually) get you blamed

[Retread]

Taylor's post has a lot of wisdom. It'd be very easy to get yourself blamed. If you're still wanting to help I'd only be looking at recommendations that didn't involve any risk other than liquidity risk... and ensuring that's well understood.

With that said, given the amount being discussed, I'd be recommending TIPS as an alternative to letting it sit in cash. They're not going to decrease in value, they'll keep up with inflation (the big problem with cash), and (after the first year) they can be redeemed in small amounts as needed. If the first year is a big issue, then invest half now and half later.

An alternative recommendation would be CDs, but they have greater liquidity restrictions than TIPS.

Or... even helping her find and setup a "high return" online savings account would likely be an improvement over where she's at now.

What I would not be doing is recommending that she get into anything that has the potential to lose value. That's just going to (eventually) get you blamed

Don't you mean I-bonds?
Bruce

[tibbitts]

The potential return difference on $10k between a conservative fund and a savings account or CDs or I-bonds isn't enough to involve yourself in this situation.

[Retread]

The potential return difference on $10k between a conservative fund and a savings account or CDs or I-bonds isn't enough to involve yourself in this situation.

Agree.
Bruce

[Calm Man]

The potential return difference on $10k between a conservative fund and a savings account or CDs or I-bonds isn't enough to involve yourself in this situation.

Agree.
Bruce

Agree, with 10K, if you get the woman an extra 5% it is $500. And there will be no thanks. If she loses 10% she will freak and you will get the blame.

[robertalpert]

Intermediate term tax exempt bond fund vmltx

or short-term bond index vbisx


If she wants something more exiting, then she should talk to a financial planner.

Tax exempt? Would be interested in your reasoning.
Bruce

I missed that fact it was IRA money. If in IRA, scrap the tax exempt. But still consider short-term bond index vbisx.

[robertalpert]

deleted, error in editing

[Retread]

Intermediate term tax exempt bond fund vmltx

or short-term bond index vbisx


If she wants something more exiting, then she should talk to a financial planner.

Tax exempt? Would be interested in your reasoning.
Bruce

I missed that fact it was IRA money. If in IRA, scrap the tax exempt. But still consider short-term bond index vbisx.

My point is that one of modest means doesn't need tax exempt income.
Bruce

[robertalpert]

My point is that one of modest means doesn't need tax exempt income.
Bruce

I see what you mean. Perhaps short-term bond index or CD, or not sure what else

[imagardener]

PenFed has a 3% CD so you'd look like a genius compared to what she is getting (1% or less) on her 10k now. Perhaps suggest laddering in 5k now and spread the other 5k over 5 months so she's always have access to some part of the money if needed. It's not a windfall but totally secure and she could tell her friends about her brilliant SIL who got her a 3% return with no risk.

[joe8d]

The potential return difference on $10k between a conservative fund and a savings account or CDs or I-bonds isn't enough to involve yourself in this situation.

Yes.An Online Savings Account like Barclays Bank ( 0.90 % ) would be my choice for the circumstances described.

[tbradnc]

If I had $10k that represented a significant part of my assets I believe I would not do anything more exotic than building a CD ladder at Penfed - 5 CD's @ $2k each.

[Watty]

This is likely her emergency money so the things like CD's that people mentioned are really about the only choice.


If she does have other emergency funds then it would be good to see if she can get an immediate annuity for that amount and how much it would pay her.

[Khanmots]

Don't you mean I-bonds?
Bruce

Indeed I did. Thanks for the catch.

[Call_Me_Op]

Whyme:

I think it is usually a mistake to take on the responsibility of investing outside our immediate household.

I agree strongly with Taylor, and that's based upon personal experience. If someone doesn't understand the principles of investing, they will not understand that investments don't increase in value all of the time. They will blame you for any losses. Then they will sell at the wrong time, and lock-in the losses - as well as the blame.

[whyme]

Thanks to all of you for your responses. There is no doubt a great deal of wisdom in Taylor's advice to steer clear of this kind of involvement with a relative, but in this case, I'm already in pretty deep. My stepmother is not from the US and when my father died, it became apparent that she didn't have ANY experience handling household finances or dealing with taxes, wills, insurance, etc. She didn't know how to write a check. She has never operated a computer or smart phone. Language issues and cultural differences complicate her ability to become independent in making decisions about these matters. So, I stepped in to help set things up for her—buy insurance, negotiate with Medicare, automate payment programs, etc.--and she counts on me for all financial questions or any emergency. To fill in some more details: she does have a reasonable emergency fund (she carries a large balance in her checking account, probably equivalent to one year of her household expenses) and she also has a small IRA (probably another couple of years worth of household expenses) that can be tapped in an emergency. If she has a financial emergency, I will pitch in as well with some of my own resources, assuming that I haven't been flattened by an emergency at the same time. The account that I want to invest for her is longer-term savings (although I recognize that her total assets are small enough that if a need for long-term medical care arises, it could wipe everything out pretty quickly, but in that case $500 one way or the other won't matter). I'm hoping this little account (when I said it's less than $10,000, it's actually much less than that--closer to $5000) can be built up a bit, maybe she can eventually transfer a bit of her IRA money there (the IRA is in a CD that pays virtually zero) and eventually begin to produce a small stream of income for her. It will never be much, but even an additional $50/month would be noticeable to her.

The money needs to stay at Vanguard, so I want to stay with their options. My concern about going 100% with TIPS or other bond options is the obvious one about the prospects for interest rates (and bond values) over the next several years. So, given all of the above, is the consensus still to keep the money in cash at zero interest?

[FinancialDave]

PenFed has a 3% CD so you'd look like a genius compared to what she is getting (1% or less) on her 10k now. Perhaps suggest laddering in 5k now and spread the other 5k over 5 months so she's always have access to some part of the money if needed. It's not a windfall but totally secure and she could tell her friends about her brilliant SIL who got her a 3% return with no risk.

Whyme,
Given your recent post I think the above PenFed idea is still the best.

fd

[FinancialDave]

However, if you have to buy one product from Vanguard, I would probably choose Wellesley in this particular case. Mainly for it's more stable record and the fact that for a conservative allocation fund it has always performed better than it's category.

fd

[ddunca1944]

Thanks to all of you for your responses. There is no doubt a great deal of wisdom in Taylor's advice to steer clear of this kind of involvement with a relative, but in this case, I'm already in pretty deep. My stepmother is not from the US and when my father died, it became apparent that she didn't have ANY experience handling household finances or dealing with taxes, wills, insurance, etc. She didn't know how to write a check. She has never operated a computer or smart phone. Language issues and cultural differences complicate her ability to become independent in making decisions about these matters. So, I stepped in to help set things up for her—buy insurance, negotiate with Medicare, automate payment programs, etc.--and she counts on me for all financial questions or any emergency. To fill in some more details: she does have a reasonable emergency fund (she carries a large balance in her checking account, probably equivalent to one year of her household expenses) and she also has a small IRA (rob ably another couple of years worth of household expenses) that can be tapped in an emergency. If she has a financial emergency, I will pitch in as well with some of my own resources, assuming that I haven't been flattened by an emergency at the same time. The account that I want to invest for her is longer-term savings (although I recognize that her total assets are small enough that if a need for long-term medical care arises, it could wipe everything out pretty quickly, but in that case $500 one way or the other won't matter). I'm hoping this little account (when I said it's less than $10,000, it's actually much less than that--closer to $5000) can be built up a bit, maybe she can eventually transfer a bit of her IRA money there (the IRA is in a CD that pays virtually zero) and eventually begin to produce a small stream of income for her. It will never be much, but even an additional $50/month would be noticeable to her.

The money needs to stay at Vanguard, so I want to stay with their options. My concern about going 100% with TIPS or other bond options is the obvious one about the prospects for interest rates (nd bond values) over the next several years. So, given all of the above, is the consensus still to keep the money in cash at zero interest?

She is fortunate to have your help. Kudos to you.
I like the PenFed 3% CD's, but if the money has to stay at Vanguard, as you indicated, my vote is Wellesley. We are moderately conservative retirees and 1/3 of our IRA accounts are in Wellesley. As far as bond funds and predicting future rates, I prefer to leave that up to the fund managers who I believe know a lot more than I do.