Asset allocation question for my parents

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Nocilis
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Asset allocation question for my parents

Post by Nocilis » Thu Oct 12, 2017 12:14 pm

Hello all. I'm glad I found this forum to hopefully help each other in investing :)

So my dad is a relatively wealthy person, but he isn't a proper investor. He asked me if I would like to manage his money for him.

I'm no investor myself and so I've spent a few days reading about investing. From what I've read on Investopedia, there's three basic investing: Fixed Income, Equities and Cash & Cash Equivalent. Since my dad is a very conservative person, I've decided to lean towards conservative investing and divide it with this formula:

Fixed Income: 45%
Equities: 45%
Cash & Cash equivalent: 5%
Gold: 5%

What I'm confused about is how do I divide his current wealth using that formula. So his current wealth look like this:

- Savings account: $600,000
- Lands and buildings owned (real estate) estimated value if sold today: $2.15 million (not including current residence and office)
- Mutual funds: $10,000
- Gold: none
- Fixed income securities: $1.35 million
- Debt: none

Do I include the real estate value? Where do I put it?

Am I doing it right with the formula? I'm new to investing so I'm afraid to make a fatal mistake.

RadAudit
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Re: Asset allocation question for my parents

Post by RadAudit » Thu Oct 12, 2017 5:40 pm

Welcome to the forum

Have you asked your Dad what he wants to do with his money? Usually, people invest for a goal(s), what are his? Does he want to leave any money to charity?
"Everything will be all right in the end. If everything is not all right, then it is not the end." - The Best Exotic Marigold Hotel

Nocilis
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Re: Asset allocation question for my parents

Post by Nocilis » Thu Oct 12, 2017 8:06 pm

RadAudit wrote:
Thu Oct 12, 2017 5:40 pm
Welcome to the forum

Have you asked your Dad what he wants to do with his money? Usually, people invest for a goal(s), what are his? Does he want to leave any money to charity?
Yes, for mom and his children's future and security was his answer. I'm not sure he has a specific goal, he's a simple man mostly.

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Watty
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Re: Asset allocation question for my parents

Post by Watty » Thu Oct 12, 2017 8:31 pm

Nocilis wrote:
Thu Oct 12, 2017 12:14 pm
I'm new to investing so I'm afraid to make a fatal mistake.
In addition to the risk of you making a mistake you could give very reasonable suggestions that get poor results because of a bad market.

Or you could be doing a good job but get hit by the proverbial Mack truck which would leave their investments in limbo.

At his level there are likely tax and estate planning issues that you could not be expected to know how to handle correctly.

The good news is that Vanguard has a personal advisory service that charges 0.3% and will manage the investments and they will use good low cost investments.

https://investor.vanguard.com/advice/pe ... or?lang=en

He could use then for a few years and then when things are organized and on automatic pilot he can stop paying the management fee and take care if it himself possibly with your help.

If you are not familiar with why 99% of financial advisors are really salespeople in disguise who would sell them terrible junk just to make money off of them.

trueblueky
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Re: Asset allocation question for my parents

Post by trueblueky » Thu Oct 12, 2017 9:16 pm

Nocilis wrote:
Thu Oct 12, 2017 12:14 pm
Hello all. I'm glad I found this forum to hopefully help each other in investing :)

So my dad is a relatively wealthy person, but he isn't a proper investor. He asked me if I would like to manage his money for him.

I'm no investor myself and so I've spent a few days reading about investing. From what I've read on Investopedia, there's three basic investing: Fixed Income, Equities and Cash & Cash Equivalent. Since my dad is a very conservative person, I've decided to lean towards conservative investing and divide it with this formula:

Fixed Income: 45%
Equities: 45%
Cash & Cash equivalent: 5%
Gold: 5%

What I'm confused about is how do I divide his current wealth using that formula. So his current wealth look like this:

- Savings account: $600,000
- Lands and buildings owned (real estate) estimated value if sold today: $2.15 million (not including current residence and office)
- Mutual funds: $10,000
- Gold: none
- Fixed income securities: $1.35 million
- Debt: none

Do I include the real estate value? Where do I put it?

Am I doing it right with the formula? I'm new to investing so I'm afraid to make a fatal mistake.
Their ages make a difference in my opinion. If your folks are 85, I'd be inclined to let it ride for now. They've done well with no equities, and may not have experienced the big bear.

If they're much younger, 30/70 or so might be the way to ease them in.

Nocilis
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Re: Asset allocation question for my parents

Post by Nocilis » Thu Oct 12, 2017 9:21 pm

Watty wrote:
Thu Oct 12, 2017 8:31 pm
Nocilis wrote:
Thu Oct 12, 2017 12:14 pm
I'm new to investing so I'm afraid to make a fatal mistake.
In addition to the risk of you making a mistake you could give very reasonable suggestions that get poor results because of a bad market.

Or you could be doing a good job but get hit by the proverbial Mack truck which would leave their investments in limbo.

At his level there are likely tax and estate planning issues that you could not be expected to know how to handle correctly.

The good news is that Vanguard has a personal advisory service that charges 0.3% and will manage the investments and they will use good low cost investments.

https://investor.vanguard.com/advice/pe ... or?lang=en

He could use then for a few years and then when things are organized and on automatic pilot he can stop paying the management fee and take care if it himself possibly with your help.

If you are not familiar with why 99% of financial advisors are really salespeople in disguise who would sell them terrible junk just to make money off of them.
Well I'm already handling all the real estate taxes and rental anyways.

Also, he's not going to use a service or outside 'finance management', he doesn't trust them. Neither do I but I'm at least more open to it.

Nocilis
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Re: Asset allocation question for my parents

Post by Nocilis » Thu Oct 12, 2017 9:26 pm

trueblueky wrote:
Thu Oct 12, 2017 9:16 pm
Nocilis wrote:
Thu Oct 12, 2017 12:14 pm
Hello all. I'm glad I found this forum to hopefully help each other in investing :)

So my dad is a relatively wealthy person, but he isn't a proper investor. He asked me if I would like to manage his money for him.

I'm no investor myself and so I've spent a few days reading about investing. From what I've read on Investopedia, there's three basic investing: Fixed Income, Equities and Cash & Cash Equivalent. Since my dad is a very conservative person, I've decided to lean towards conservative investing and divide it with this formula:

Fixed Income: 45%
Equities: 45%
Cash & Cash equivalent: 5%
Gold: 5%

What I'm confused about is how do I divide his current wealth using that formula. So his current wealth look like this:

- Savings account: $600,000
- Lands and buildings owned (real estate) estimated value if sold today: $2.15 million (not including current residence and office)
- Mutual funds: $10,000
- Gold: none
- Fixed income securities: $1.35 million
- Debt: none

Do I include the real estate value? Where do I put it?

Am I doing it right with the formula? I'm new to investing so I'm afraid to make a fatal mistake.
Their ages make a difference in my opinion. If your folks are 85, I'd be inclined to let it ride for now. They've done well with no equities, and may not have experienced the big bear.

If they're much younger, 30/70 or so might be the way to ease them in.
It's for the 'family future' though (me and my sibling), not for them personally. We are an Asian family so it might be different how western parents handle their money.

Where do I put real estate in the equation? Is that too much real estate value for the total asset?

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Sandtrap
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Re: Asset allocation question for my parents

Post by Sandtrap » Thu Oct 12, 2017 9:28 pm

https://www.bogleheads.org/wiki/Boglehe ... philosophy
A start.

Read all the Bogleheads "booklist".
Then the "Wiki".

When you know enough to pick a financial advisor you will have the option of doing it yourself.
Not a financial expert - just a retired businessman hacking out of a sand trap -- again.

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Sandtrap
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Re: Asset allocation question for my parents

Post by Sandtrap » Thu Oct 12, 2017 9:35 pm

Nocilis wrote:
Thu Oct 12, 2017 9:26 pm
trueblueky wrote:
Thu Oct 12, 2017 9:16 pm
Nocilis wrote:
Thu Oct 12, 2017 12:14 pm
Hello all. I'm glad I found this forum to hopefully help each other in investing :)

So my dad is a relatively wealthy person, but he isn't a proper investor. He asked me if I would like to manage his money for him.

I'm no investor myself and so I've spent a few days reading about investing. From what I've read on Investopedia, there's three basic investing: Fixed Income, Equities and Cash & Cash Equivalent. Since my dad is a very conservative person, I've decided to lean towards conservative investing and divide it with this formula:

Fixed Income: 45%
Equities: 45%
Cash & Cash equivalent: 5%
Gold: 5%

What I'm confused about is how do I divide his current wealth using that formula. So his current wealth look like this:

- Savings account: $600,000
- Lands and buildings owned (real estate) estimated value if sold today: $2.15 million (not including current residence and office)
- Mutual funds: $10,000
- Gold: none
- Fixed income securities: $1.35 million
- Debt: none

Do I include the real estate value? Where do I put it?

Am I doing it right with the formula? I'm new to investing so I'm afraid to make a fatal mistake.
Their ages make a difference in my opinion. If your folks are 85, I'd be inclined to let it ride for now. They've done well with no equities, and may not have experienced the big bear.

If they're much younger, 30/70 or so might be the way to ease them in.
It's for the 'family future' though (me and my sibling), not for them personally. We are an Asian family so it might be different how western parents handle their money.

Where do I put real estate in the equation? Is that too much real estate value for the total asset?
Yes, there are sometimes cultural differences that can be a huge consideration in approach and long term generational planning.
You are correct. This is a legacy.
If the real estate is income property, especially mortgage free and income earning with positive cash flow, leave it alone.
If the cash reserves are adequate for personal and business emergencies and operating expenses, leave it alone.
That leaves, "fixed income securities" and "mutual funds" (which are a very small part of things).
If these are stable, especially if they are elderly, leave it alone.
IMHO based on your input so far, you are on the right path. There's no absolute right or wrong, just slow and steady steps without doing damage.
You may also want to consider discussing estate planning such as trusts, etc, so that passage to the next generation is more efficient.

My suggestion is as a retired businessman and not a financial professional. I have been in a similar situation, parents of substantial worth, R/E, rental income, etc, and a shared culture. I hope this is actionable input that is useful to you and not too intrusive or presumptive.
j
Not a financial expert - just a retired businessman hacking out of a sand trap -- again.

Fallible
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Re: Asset allocation question for my parents

Post by Fallible » Thu Oct 12, 2017 10:02 pm

Sandtrap wrote:
Thu Oct 12, 2017 9:28 pm
https://www.bogleheads.org/wiki/Boglehe ... philosophy
A start.

Read all the Bogleheads "booklist".
Then the "Wiki".

When you know enough to pick a financial advisor you will have the option of doing it yourself.
Agree. The first thing for the OP to do is to learn as much about investing as possible, then begin to tackle the specifics. And then continue to read up on investing.

Here are links to the wiki's "Getting Started" and "Investing Startup Kit" pages:

https://www.bogleheads.org/wiki/Getting_started
https://www.bogleheads.org/wiki/Boglehe ... art-up_kit
Bogleheads® wiki | Investing Advice Inspired by Jack Bogle

Nocilis
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Re: Asset allocation question for my parents

Post by Nocilis » Thu Oct 12, 2017 11:48 pm

Sandtrap wrote:
Thu Oct 12, 2017 9:35 pm
Yes, there are sometimes cultural differences that can be a huge consideration in approach and long term generational planning.
You are correct. This is a legacy.
If the real estate is income property, especially mortgage free and income earning with positive cash flow, leave it alone.
If the cash reserves are adequate for personal and business emergencies and operating expenses, leave it alone.
That leaves, "fixed income securities" and "mutual funds" (which are a very small part of things).
If these are stable, especially if they are elderly, leave it alone.
IMHO based on your input so far, you are on the right path. There's no absolute right or wrong, just slow and steady steps without doing damage.
You may also want to consider discussing estate planning such as trusts, etc, so that passage to the next generation is more efficient.

My suggestion is as a retired businessman and not a financial professional. I have been in a similar situation, parents of substantial worth, R/E, rental income, etc, and a shared culture. I hope this is actionable input that is useful to you and not too intrusive or presumptive.
j
Thank you! I do find Western culture more 'independent minded'. The real estates are indeed mortgage free and is generating income, however a couple of them are only generating roughly 0.5% net profit a year (not counting the increase in land value). Bear in mind that if I put those in Fixed Income I could easily generate 5-6% net interest. Should we sell those?

I think my next step would be to reduce their savings account from 15% of total asset to 5% and put 5% in Fixed Income and 5% in Gold.
Fallible wrote:
Thu Oct 12, 2017 10:02 pm
Agree. The first thing for the OP to do is to learn as much about investing as possible, then begin to tackle the specifics. And then continue to read up on investing.

Here are links to the wiki's "Getting Started" and "Investing Startup Kit" pages:

https://www.bogleheads.org/wiki/Getting_started
https://www.bogleheads.org/wiki/Boglehe ... art-up_kit
Thanks, I am reading as much as I can but understanding what I'm reading is a challenge sometimes.

"We have suggested as a fundamental guiding rule that the investor should never have less than 25% or more than 75% of his funds in common stocks"

I take it this means everyone should have at least 25% of their total asset in stocks? Does it apply in my case? At the moment there's almost no fund allocated at stocks.

venkman
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Re: Asset allocation question for my parents

Post by venkman » Thu Oct 12, 2017 11:58 pm

Nocilis wrote:
Thu Oct 12, 2017 11:48 pm
Thank you! I do find Western culture more 'independent minded'. The real estates are indeed mortgage free and is generating income, however a couple of them are only generating roughly 0.5% net profit a year (not counting the increase in land value). Bear in mind that if I put those in Fixed Income I could easily generate 5-6% net interest. Should we sell those?
What fixed income securities are you referring to that are currently generating 5-6% interest?

Nocilis
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Re: Asset allocation question for my parents

Post by Nocilis » Fri Oct 13, 2017 12:24 am

venkman wrote:
Thu Oct 12, 2017 11:58 pm
What fixed income securities are you referring to that are currently generating 5-6% interest?
Interests are different in different countries. I know in the US have very low interest but developing nations have a much higher rate.

venkman
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Re: Asset allocation question for my parents

Post by venkman » Fri Oct 13, 2017 12:34 am

Nocilis wrote:
Fri Oct 13, 2017 12:24 am
Interests are different in different countries. I know in the US have very low interest but developing nations have a much higher rate.
They also have a much higher risk of default, which is why they have to pay those higher interest rates.

Any investment that offers higher return will ALWAYS have the tradeoff of higher risk. I'm not saying Emerging Markets bonds are necessarily a bad investment, but I wouldn't want to hold them as the core of my fixed-income.

Nocilis
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Re: Asset allocation question for my parents

Post by Nocilis » Fri Oct 13, 2017 1:10 am

venkman wrote:
Fri Oct 13, 2017 12:34 am
Nocilis wrote:
Fri Oct 13, 2017 12:24 am
Interests are different in different countries. I know in the US have very low interest but developing nations have a much higher rate.
They also have a much higher risk of default, which is why they have to pay those higher interest rates.

Any investment that offers higher return will ALWAYS have the tradeoff of higher risk. I'm not saying Emerging Markets bonds are necessarily a bad investment, but I wouldn't want to hold them as the core of my fixed-income.
Very true, also inflation is much higher. However, as I don't live in the US, it makes more sense to me to get the bonds in my own currency.

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Sandtrap
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Re: Asset allocation question for my parents

Post by Sandtrap » Fri Oct 13, 2017 1:22 am

duplicate oops
Last edited by Sandtrap on Fri Oct 13, 2017 6:07 am, edited 1 time in total.
Not a financial expert - just a retired businessman hacking out of a sand trap -- again.

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Sandtrap
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Re: Asset allocation question for my parents

Post by Sandtrap » Fri Oct 13, 2017 6:04 am

Some helpful links:
Bogle Philosophy
https://www.bogleheads.org/wiki/Boglehe ... philosophy
Here are links to the wiki's "Getting Started" and "Investing Startup Kit" pages:
https://www.bogleheads.org/wiki/Getting_started
https://www.bogleheads.org/wiki/Boglehe ... art-up_kit
Define General Investment Goals and Objectives
https://www.bogleheads.org/wiki/Invest ... _statement
Suggested Reading List
https://www.bogleheads.org/RecommendedReading.php
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viewtopic.php?f=1&t=6212
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