Please help my mom with her investments

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Topic Author
austinboglehead
Posts: 7
Joined: Thu Sep 21, 2017 11:40 am

Please help my mom with her investments

Post by austinboglehead »

Need some help with my mom's (61yrs old) investments. We are newbies to investing so please be kind.

~$230,000 in a 401K in my dad's name, he passed away but my mom is the beneficiary. Here's the breakdown:
  • SMALL-TO-MID CAP STK: $80,212.48
    GROWTH EQUITY FUND: $74,328.62
    INVESTMENT GRADE BD: $40,402.53
    INTERNATIONAL STOCK: $27,793.68
    SHORT TERM FIXED INC: $7,254.83
She's probably going to retire in like 5 years. She works at a daycare so makes like $30,000/yr. No debt. Are there any changes she should make to her 401K like transferring the small cap stock fund and growth equity fund to a total market fund since the fees are way lower?

Here are the details of her Traditional IRA. This is in her name as she transferred it from my dad's name to her name a few years ago but kept the money in the same funds he had the money in. I'm thinking we should transfer all the assets to Vanguard since the fees are lower.

$319,000 in tradition IRA. She's been making contributions here and there to get the tax benefits.
  • New Horizions PRNHX: $152,437.95
    Pers Strat Balanced TRRBX - $149,393.14
    Tot Equity Mkt Index POMIX - 17,594.39
We're thinking about transferring funds to Vanguard to a basic 3 fund portfolio (VTSAX- 60%, VGTSX- 15% VBMIX- 25%) What do you think of this asset allocation?

Here are some more details about her finances. No debt, owns house in booming area. According to Personal Capital networth is $600,000. 1.1M if you include house value on PC.

She is planning on going to the Social security office soon to get the spousal survival benefits from my dad's SS. If anyone has any advice on this please advise.

Also she's very frugal. Drives an Accord she paid cash for, rarely goes out to eat, takes lunch every day, etc.

Thanks for your help.
student
Posts: 5319
Joined: Fri Apr 03, 2015 6:58 am

Re: Please help my mom with her investments

Post by student »

It seems that she is financially secure with 1.1mil net worth. The percentage of worth in the house is a bit high for me. I would recommend the 3-fund portfolio as you have mentioned.
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FiveK
Posts: 10881
Joined: Sun Mar 16, 2014 2:43 pm

Re: Please help my mom with her investments

Post by FiveK »

austinboglehead wrote: Mon Aug 20, 2018 12:07 pm She is planning on going to the Social security office soon to get the spousal survival benefits from my dad's SS. If anyone has any advice on this please advise.
Sorry about your dad. Good to see that your mom is likely in a good financial situation.

See https://obliviousinvestor.com/social-se ... -benefits/ for some SS suggestions.
Pops1860
Posts: 138
Joined: Thu Mar 14, 2013 4:05 pm

Re: Please help my mom with her investments

Post by Pops1860 »

Just some general comments.

Agree, overall, your mom seems in good shape, no need to rush any decisions, but some consolidation/adjustments might be appropriate.

Moving the 401k funds to a Vanguard rollover IRA seems like a good move, all things considered. Your 3 fund index portfolio seems OK, assuming your mom is comfortable with the equity-heavy tilt (for her situation). But that's what we do (we're retired already), this is OK as long as it is an informed choice (your mom can handle future volatility as it happens). I assume the 25% is a bond index fund, think your 'VBMIX' is maybe a typo?? Remember to use 'custodian to custodian' transfer to assure no tax implications. The general suggestion is to call Vanguard and have them initiate the transfer. Once at Vanguard, you can always adjust the funds in the rollover IRA as you wish without tax penalty, so your initial choice of funds is not a 'cast in stone' decision. You can make adjustments as you learn more as time goes on.

Regarding the T Rowe Price (TRP) investments, same comment - moving to Vanguard to consolidate the $$ for better monitoring/control, and lower expenses/fees, is a viable option. I would suggest you consider leaving the New Horizon fund alone for the time being. It is an actively managed fund (higher expense than index funds at Vanguard), but it actually has a rather long record of good performance, even after accounting for the higher expense ratio. We have the bulk of our funds at Vanguard, in equity index funds, but we keep some of our portfolio at TRP in New Horizons, because its been good for us so far, so, if it ain't broke, don't fix it. We do monitor it closely, however, and we know the mantra - past performance does not guarantee future results. But is is a closed fund now (no new investors allowed), so maybe keeping this fund at TRP for the moment is worth considering. No opinion on the other two funds at TRP. Same comment - use 'custodian to custodian' transfer initiated by Vanguard when you do move the $$.

Don't worry about ratio of house value to total assets. If your mom is comfortable with staying there indefinitely, go for it. The value of the house is out of her direct control, it's just happenstance that it has increased to where it is now.

So, moving to Vanguard probably a good idea, do it in steps, no rush. Good luck.
The power of accurate observation is often called cynicism by those who do not have it. ~George Bernard Shaw
Jablean
Posts: 534
Joined: Sat Jun 02, 2018 2:38 pm

Re: Please help my mom with her investments

Post by Jablean »

One of her larger expenses is going to be property tax. Housing prices increasing each year equals taxes going up each year. (unless state doesn't have prop tax)
Topic Author
austinboglehead
Posts: 7
Joined: Thu Sep 21, 2017 11:40 am

Re: Please help my mom with her investments

Post by austinboglehead »

Jablean wrote: Mon Aug 20, 2018 8:09 pm One of her larger expenses is going to be property tax. Housing prices increasing each year equals taxes going up each year. (unless state doesn't have prop tax)
Oh Texas most certainly does have property taxes (no state income tax) and her property taxes keep going up with literally no end in sight! This is her biggest expense per year. She hired a company who protests it each year but there's not much they can do. Like I said she lives in a really hot area (one of the best school districts in the nation)
goblue100
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Joined: Sun Dec 01, 2013 10:31 am

Re: Please help my mom with her investments

Post by goblue100 »

austinboglehead wrote: Tue Aug 21, 2018 8:32 am
Jablean wrote: Mon Aug 20, 2018 8:09 pm One of her larger expenses is going to be property tax. Housing prices increasing each year equals taxes going up each year. (unless state doesn't have prop tax)
Oh Texas most certainly does have property taxes (no state income tax) and her property taxes keep going up with literally no end in sight! This is her biggest expense per year. She hired a company who protests it each year but there's not much they can do. Like I said she lives in a really hot area (one of the best school districts in the nation)
In my county (Dallas) once she turns 65 she can freeze her school taxes at that rate. Here are some age 65 tax savings available:
https://comptroller.texas.gov/taxes/pro ... ed-faq.php

I'm not sure if the school tax freeze is a universal thing in Texas, or if it is a district choice. It may be automatic once she turns 65.
Financial planners are savers. They want us to be 95 percent confident we can finance a 30-year retirement even though there is an 82 percent probability of being dead by then. - Scott Burns
Nightowl99
Posts: 36
Joined: Mon Feb 26, 2018 7:49 pm

Re: Please help my mom with her investments

Post by Nightowl99 »

Property taxes should go down when your mom turns 65, if she lives in Austin.

I think calling Vanguard to get assistance with transferring funds is a great idea.

Find out if there are any tax consequences before transferring funds from the 401k to the Vanguard account. Options for handling an inherited IRA are discussed in the book "How to Make Your Money Last" by Jane Bryant Quinn (possibly available at the library)--pages 183 - 188. If a 401k rollover is done correctly, then tax deferral should continue until your mom withdraws money later on. That is, it will be taxed as ordinary income when she withdraws it over time, during her retirement.
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