Helping Parents Get Portfolio On Track

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stc13
Posts: 1
Joined: Tue Feb 13, 2018 10:38 am

Helping Parents Get Portfolio On Track

Post by stc13 » Tue Feb 13, 2018 11:33 am

Hi everyone. I've been lurking for about a year and a half, and finally took the plunge to register as I try to help my parents get their portfolio on track. Dad is 72, Mom is 61, and their portfolio is mid-six figures. They have had about half of their portfolio with a financial advisor for the past three years. About a year ago, my mom told me that she didn't feel comfortable with their advisor and was very unhappy with the returns they had seen. My mom is a naturally distrusting person (hence why the FA only has half their portfolio), but is also very slow moving when it comes to change. I gave her the Bogleheads Guide to Investing to read, and about 6 months ago she asked me to rebalance my dad's 401k. She's been happy with the results, and over the last month has finally shared the details of their account with the financial advisor. And after looking at the investments he set up, I think her tendency to distrust worked in their favor this time.

My parents are in a relatively LCOL area. Mom is working and plans to continue as long as possible, and dad works part-time a few hours a week to keep busy. They're fairly frugal, and between their income and dad's SS, their income is still outpacing expenses. Barring any major health changes, I'd expect that to continue for at least the next 4-5 years. I'm an only child, and their primary stated goals are to generate enough revenue in retirement to maintain their lifestyle (~40k/year) and leave an inheritance for myself and my wife and future grandkids. My mom is finally ready to move away from their FA, and we're trying to figure out what next steps make sense.

Right now there is a sizable amount of cash that has been sitting in their savings account because they didn't feel comfortable with their advisor. When they rebalance, my mom has said she wants to invest that money. But I feel like the large investment in BDC's may complicate the situation, so any advice or suggestions would be greatly appreciated. What would an appropriate asset allocation be given their age difference (him 72, her 61)? Is there a best way to divest from these BDC's?

Current Retirement Assets
His 401k
Fidelity - 17% - has been been split between three fund index funds (I don't have access to the exact fund breakdown)

His IRA
Mutual Funds:
American Funds American Mutual Fund Class A (AMRMX) - 5%
American Funds Capital Income Builder Class A (CAIBX) - 8%
Federated Capital Income Fund Class A Shares (CAPAX) - 6%
American Funds Fundamental Investors Class A (ANCFX) -3%
American Beacon Mid-Cap Value Fund C Class (AMCCX) - 6%

Business Development Corporations
FS Investment Corporation III - 4%
FS Energy & Power - 3%
Northstar Real Estate - 3%
Northstar Healthcare Income - 4%

Her IRA
Northstar Real Estate - 8%

Investible Cash
33%

Annual Contributions
His IRA - 6k
Her Roth IRA - 6k

Debt:
None

My apologies for any formatting errors. Thanks in advance for any suggestions, and if more info is needed please let me know.

goblue100
Posts: 477
Joined: Sun Dec 01, 2013 10:31 am

Re: Helping Parents Get Portfolio On Track

Post by goblue100 » Wed Feb 14, 2018 4:03 pm

Have they moved the money from the FA, or is that still on the to do list? All of those American funds sound FA driven?
Some people are immune to good advice. - Saul Goodman

delamer
Posts: 4418
Joined: Tue Feb 08, 2011 6:13 pm

Re: Helping Parents Get Portfolio On Track

Post by delamer » Wed Feb 14, 2018 7:06 pm

Your dad can’t contribute to a traditional IRA at his age. In fact, he needs to start RMDs from his IRA and 401(k).

Is everything but the cash and 401(k) with the advisor?

There is a pretty wide range of appropriate allocations at their age(s).

How much do they need to withdraw from their assets once your mother stops working? If it is a lower percentage (and given that your parents want to leave an inheritance) that would argue for a higher stock allocation.

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Watty
Posts: 13336
Joined: Wed Oct 10, 2007 3:55 pm

Re: Helping Parents Get Portfolio On Track

Post by Watty » Thu Feb 15, 2018 12:22 am

I might have missed it but I did not see what their approximate tax bracket is. That is very important in figuring out how to invest in a taxable account.
stc13 wrote:
Tue Feb 13, 2018 11:33 am
Is there a best way to divest from these BDC's?
I don't know anything about these. You might want to start another thread, without using an acronym, with this in the title to attract the attention of people that know more about these.

TwstdSista
Posts: 765
Joined: Thu Nov 16, 2017 4:03 am

Re: Helping Parents Get Portfolio On Track

Post by TwstdSista » Thu Feb 15, 2018 4:24 am

Just a reminder that there will be trade fees to sell the funds with the FA. Those fees may be higher or lower at their current location vs. wherever there new location might be. You/They should research this to minimize costs.

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burt
Posts: 637
Joined: Sun Feb 17, 2008 7:47 am

Re: Helping Parents Get Portfolio On Track

Post by burt » Thu Feb 15, 2018 8:19 am

TwstdSista wrote:
Thu Feb 15, 2018 4:24 am
Just a reminder that there will be trade fees to sell the funds with the FA. Those fees may be higher or lower at their current location vs. wherever there new location might be. You/They should research this to minimize costs.
I wouldn't worry about trade fees, that's small potatoes.
The elephant in the room is high expense funds located with a high fee advisor.
You should move these funds to a low cost index fund provider. Vanguard, Schwab, Fidelity...and others.
Make it easy and select a balanced fund with an asset allocation matching their risk tolerance.

burt

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