Portfolio Advice for Worried 70 years olds

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thefoggycity
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Joined: Fri Jan 03, 2014 11:08 am

Portfolio Advice for Worried 70 years olds

Post by thefoggycity » Sun Dec 18, 2016 11:10 pm

Hello Bogleheads,

What advice would you give to a married couple in their early 70s who are worried about a future market crash?

I am referring to my parents who have 70% of their portfolio in bonds and 30% of their portfolio in equities.

Have stated my opinions and encouraged them not to sell stocks out of fear of a crash but would like to get the collective wisdom of the online BH community to chime in to share their wisdom as well.

Thank you for your responses.

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Taylor Larimore
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Re: Portfolio Advice for Worried 70 years olds

Post by Taylor Larimore » Sun Dec 18, 2016 11:31 pm

thefoggycity wrote:Hello Bogleheads,

What advice would you give to a married couple in their early 70s who are worried about a future market crash?

I am referring to my parents who have 70% of their portfolio in bonds and 30% of their portfolio in equities.

Have stated my opinions and encouraged them not to sell stocks out of fear of a crash but would like to get the collective wisdom of the online BH community to chime in to share their wisdom as well.

Thank you for your responses.
thefoggycity:

If your parents have sufficient assets to last their lifetime, 100% bonds is a reasonable portfolio if it helps them sleep well.

Another thought (if they are in good health): Consider purchasing a joint Single-Premium Immediate Annuity (SPIA) with the stocks. This will give them a guaranteed income for the rest of their lives (like a pension).

Note: Before selling stocks in a taxable account, it is important to know the amount of any capital-gain tax (which will be eliminated at death).

I hope these ideas help.

Best wishes.
Taylor.
"Simplicity is the master key to financial success." -- Jack Bogle

thefoggycity
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Re: Portfolio Advice for Worried 70 years olds

Post by thefoggycity » Sun Dec 18, 2016 11:34 pm

Great advice, Taylor.

Thank you, and Happy Holidays.

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Taylor Larimore
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Re: Portfolio Advice for Worried 70 years olds

Post by Taylor Larimore » Sun Dec 18, 2016 11:52 pm

thefoggycity wrote:Great advice, Taylor.

Thank you, and Happy Holidays.
thefoggycity:

This idea may help: When we have saved enough to retire, it is very important not to lose it.

I also wish you and your family a very Happy Holiday!

Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

JimInIllinois
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Re: Portfolio Advice for Worried 70 years olds

Post by JimInIllinois » Mon Dec 19, 2016 12:23 am

You could show them that income (dividends) from stocks is much less volatile than prices, so their income should be stable. With 70% bonds they will never be forced to sell stocks into a down market, so they can ride out any downturns. Finally, if they do want to reduce their risk, show them that the lowest volatility stock/bond portfolio is 20/80, not 0/100.

Tamalak
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Re: Portfolio Advice for Worried 70 years olds

Post by Tamalak » Mon Dec 19, 2016 8:27 am

As Jim said, minimum risk is 20/80, which is a very reasonable allocation for 70 year olds and not far from what they've got now. So hopefully that's the sleeping point they can sell to!

retiredjg
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Re: Portfolio Advice for Worried 70 years olds

Post by retiredjg » Mon Dec 19, 2016 8:45 am

Sometimes worry can be overcome by education. A portfolio with a small percentage of bonds (20% to 30%) carries less risk and delivers more return than a portfolio that is 100% bonds. Sorry, I can't point to the source for that research.

You could also point out that most (all?) portfolios designed for income (such as various company target funds, the LIfeStrategy Income fund, Wellesley Income fund) contain something in the neighborhood of 20% to 30% in stocks. In the case of Wellesley Income, I think it is even a little bit more.

Sometimes worry cannot be overcome by education. I think this is becomes truer as a person ages. That type of worry just gnaws and may not necessarily respond to "logic" and the gnawing should not be ignored. Taylor's suggestions of going to 100% bonds and/or a SPIA would be a good idea in a case like that.

MSDOGS1976
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Re: Portfolio Advice for Worried 70 years olds

Post by MSDOGS1976 » Mon Dec 19, 2016 9:28 am

Taylor Larimore wrote:
thefoggycity wrote:Hello Bogleheads,

What advice would you give to a married couple in their early 70s who are worried about a future market crash?

I am referring to my parents who have 70% of their portfolio in bonds and 30% of their portfolio in equities.

Have stated my opinions and encouraged them not to sell stocks out of fear of a crash but would like to get the collective wisdom of the online BH community to chime in to share their wisdom as well.

Thank you for your responses.
thefoggycity:

If your parents have sufficient assets to last their lifetime, 100% bonds is a reasonable portfolio if it helps them sleep well.

Another thought (if they are in good health): Consider purchasing a joint Single-Premium Immediate Annuity (SPIA) with the stocks. This will give them a guaranteed income for the rest of their lives (like a pension).

Note: Before selling stocks in a taxable account, it is important to know the amount of any capital-gain tax (which will be eliminated at death).

I hope these ideas help.

Best wishes.
Taylor.
Excellent advice. I'm in my early 60's and have reduced my equity exposure a lot over the last few years because I feel I have enough to take me to the house. But I do keep a little in stocks(20/80 AA) as I can sleep with it. But if I'm lucky enough to reach my 70's, I may go all bonds and buy an SPIA to put things on 'cruise control' so to speak. BTW, I was an 80/20 guy up until my mid 40's so haven't always been conservative.

This is that never ending AA debate when you have 'won' the game. I have one friend who is retired that keeps 80-90% in stocks. His philosophy is he has all his income needs covered through dividends and SS so is not worried about drastic market fluctuations. For me it wouldn't pass the sleep well test.

thefoggycity
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Joined: Fri Jan 03, 2014 11:08 am

Re: Portfolio Advice for Worried 70 years olds

Post by thefoggycity » Mon Dec 19, 2016 5:26 pm

Thank you for your replies, everyone. Very helpful!

Qoheleth80
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Re: Portfolio Advice for Worried 70 years olds

Post by Qoheleth80 » Mon Dec 19, 2016 8:52 pm

Watch out for the average duration of their bond portfolio. In this rising rate environment I would keep the duration between short and intermediate (7 yr ish max). Also I would caution against a 100% bond allocation unless their portfolio is huge. The reason for that is that over the course of the next 20 years inflation will erode the purchasing power of the income that their portfolio will generate. A 70/20/10 split (bonds/stocks/cash) will give them a lot of stability (as long as the duration is short), the 20% equity will allow for some growth, and the 10% cash is the "sleep at night" money!

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