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Portfolio Critique for a 91 year old woman

Posted: Fri Aug 07, 2020 9:38 pm
by hcs77135
Hi,

My dad handled all my parents' finances and he died last September. My mom is 91 and is relying on me now to handle her finances. There are a couple of stock mutual funds, but it's mostly bonds and preferred stock. I have a good amount of experience with mutual fund investing but have never bought an individual stock or bond in my life, and haven't thought much about how a 91 year old person should be invested. My personal opinion is that it's crazy to be so un-diversified, but I had no knowledge of my parents' finances until last Fall.


Emergency funds: 6 months.

Debt: My mom has no debt. She lives in her house and has property taxes of $20,000/year but no mortgage.

Tax Filing Status: Single

Tax Rate: 22% Federal, 6% New York State (but social security and her RMD are not subject to NYS income tax)

Desired Asset allocation: I have no clue - that's the reason for the post.

She has about $350,000 in a taxable brokerage account and $210,000 in an IRA.

She lives off of social security and a defined benefit pension, and she uses her RMD (about $18,500) to pay her property taxes. She is invested for income in her brokerage account, but she does not use that income, although she might need it for a house repair.

Taxable Account: 62.5% of total financial assets. Bond unless otherwise specified. % reflects % of her total financial assets.

Composition of taxable account:
Short term fixed income: 3.07%
US Fixed Income taxable: 55.25%
US Fixed Income Tax Exempt: 20.79%
Preferred securities: 6.03%
High Yield Fixed Income: 9.66%
Bank loans: 5.20%

0.9%: cash
10%: JP Morgan Chase 6.0% "Fixed to 8/20/23 variable thereafter" maturity 8/6/2060
5%: Verizon 3.5%, call date 6/1/24, maturity date 11/1/24
4.2%: AT&T, 4.25%, call date 12/1/26, maturity date 3/1/27
4.0%: IBM, 3.02%, 2/9/26
4.0%: American Express, 4.29%, call date 11/15/20, maturity date 8/7/60 (this bond has a variable rate, "Fixed to 11/2019 variable thereafter 3.8203%")
3.7%: NYC Transit, 4% (tax-free), call date 7/5/21, maturity date 7/5/27
3.5%: Metropolitan Transit Authority, 3.25% (tax free), call date 11/5/22, maturity date 11/5/32
2.7%: Metropolitan Transit Authority, 4.25A% (tax free), call date 11/5/22, maturity date 11/15/42
2.7%: Goldman Sachs 5%, maturity date 12/15/25
2.3%: Swiss RE Holding Company 7%, maturity date 2/15/26
2.0%: Goldman Sachs 4.75%, maturity date 10/15/24
2.0%: Tarrytown NY Union Free School District, 3%, call date 8/1/24, maturity date 8/1/26
2.0%: Wells Fargo 4.48%, maturity date 1/16/24
1.9%: Investco Opp Senior Floating Rate C -- preferred stock?
1.9%: Berkshire Hathaway 3%, maturity date 2/11/23
1.9%: Goldman Sachs 4.25%, maturity date 12/15/34
1.8%: Freeport-McMoran Inc. 3.55%, call date 12/1/21, maturity date 3/1/22
1.7%: Hartford Financial Group 7.875%, "fixed to 4/15/22 floats after" maturity date 4/15/42
1.4%: Investco Opp Senior Floating Rate A -- preferred stock?
1.0%: Hillman Financial Group 11.6%, call date 9/6/20, maturity date 9/30/27
1.0%: NYS Thruway 5% (tax free), call date 1/1/24, maturity date 1/1/32
1.0%: Prudential PLC 6.50 Preferred

Traditional IRA: (37.5% of total assets)

equities: 28.83%
fixed income/preferreds: 69.02%
alternatives: 2.15%

4.6%: Georgia-Pacific 7.375%, 12/1/25
4.4%. Wells Fargo 4.48%, 1/16/24
4.3%: Merck & Co. Inc New Com -- large value common stock
3.6%: I Shares Corp. S&P US Growth -- IUSG
3.5%: General Electric 3.7%, 1/15/33
3.0%: Kinder Morgan Energy Partners LP, 3.95%, call date 6/1/22, maturity date 9/1/22
2.9%: Bank of New York, 3.95%, 11/18/25
2.9%: Verizon (this is large value common stock)
2.0%: Goldman Sachs 4.25%, 12/15/34
1.9%: Cigna, 4.0%, call date 11/15/21, maturity date 2/15/22
1.8%: BP Capital Markets 3.588%, Maturity date 4/1/27
1.6% Marriott International Inc, 3.25%, maturity date 9/15/22
0.7%: Eaton Vance Tax Managed Dividend Equity Fund (EXG)
0.3%: Cash

If the above hasn't given you a splitting headache, my questions are:

1. Does this overall portfolio make sense for a 91 year old person? What improvements could be made? What do you think about the AA in the taxable account and in the investment account? Is she taking on too much risk with the long-term bonds?
2. Should I liquidate the whole thing and start fresh with mutual funds that I actually understand?
3. If I leave it as is, as bonds mature/are called, where should I put the proceeds of those bonds assuming that she does not need the cash? In income producing assets? Growth stocks? A number of these bonds are coming due or will be called in the next 2-3 years.
4. Are there tax inefficiencies? Should she have more munis in her taxable account? Should the stock mutual funds be in her taxable account and not the IRA?


I appreciate that this is a thicket so any sense that anyone can make out of it is most appreciated.

I should mention that currently the taxable account throws off about $15,000/year in income (some taxable, some tax-free) and as I said above she does not use this income. She does use the RMD from the IRA to pay property taxes. The rest is taken care of with social security and a pension.

Her goal is not to grow principal, it is to have income to live on. She'd like to preserve the principal for her heir (me), but she has no problem invading principal if she needs it for eg a house repair.

Thank you very much!

Re: Portfolio Critique for a 91 year old woman

Posted: Fri Aug 07, 2020 9:54 pm
by 000
hcs77135 wrote: Fri Aug 07, 2020 9:38 pm 1. Does this overall portfolio make sense for a 91 year old person? What improvements could be made? What do you think about the AA in the taxable account and in the investment account? Is she taking on too much risk with the long-term bonds?
It seems the overall AA is about 10% stocks. Is that correct? If so, the portfolio is a bit inflation sensitive. One might consider more stocks, or TIPS or Series I bonds.
hcs77135 wrote: Fri Aug 07, 2020 9:38 pm 2. Should I liquidate the whole thing and start fresh with mutual funds that I actually understand?
Liquidating the stocks and moving to stock index funds is easy enough.

The bonds and preferreds are a worse mess to sort out. I guess the spreads on selling these will be pretty high. Looks like the fixed income portfolio is invested predominately in about 25 individual issues. There is a lot of concentration risk here for little upside, but the most concentrated positions are in "quality" issuers, so I guess it could be worse. You could get some quotes from the broker to see how much the bonds/preferreds will sell for in the secondary market and weigh the possible haircut against the risk and complexity. There is no one right answer.

If it were me, I would gladly pay taxes to get to a more diversified and manageable portfolio.
hcs77135 wrote: Fri Aug 07, 2020 9:38 pm 3. If I leave it as is, as bonds mature/are called, where should I put the proceeds of those bonds assuming that she does not need the cash? In income producing assets? Growth stocks? A number of these bonds are coming due or will be called in the next 2-3 years.
She needs to decide what asset allocation she is comfortable with. Then new funds (whether they come from sales or maturations) can be put into that allocation.
hcs77135 wrote: Fri Aug 07, 2020 9:38 pm 4. Are there tax inefficiencies? Should she have more munis in her taxable account? Should the stock mutual funds be in her taxable account and not the IRA?
It is not clear that munis are worth the trouble here.

Re: Portfolio Critique for a 91 year old woman

Posted: Fri Aug 07, 2020 9:56 pm
by Stinky
I’m sorry for your father’s death. It looks to me like he put together a pretty conservative, mostly fixed income portfolio. At age 91, I wouldn’t have any problem with maintaining the conservative nature of the portfolio.

It sounds like she’s in a good place with her income compared to her expenses.

Since she’s paying property taxes, it sounds like she still owns her home. I hope that she maintains good health; however, her situation can change quickly, and she could need to move to an assisted living facility or a nursing home in the near future. Maintaining conservative, liquid assets would enable her to afford bills for a facility; plus, she presumably would sell her house if she moved to a facility and get the proceeds from that.

The taxable portfolio has a lot of small positions. I’d just maintain the status quo, especially in the taxable account, since many of the bonds probably have significant unrealized gains. If you to sell the bonds quickly, she might owe capital gains tax, and there’s no reason to pay that. As bonds mature, I’d reinvest them into something like a Total Bond Market fund.

I wouldn’t see any reason to increase her equity exposure.

Re: Portfolio Critique for a 91 year old woman

Posted: Fri Aug 07, 2020 10:03 pm
by millennialmillions
Sorry to hear of your father's death.

That is a long list of funds. It sounds like you will be managing this portfolio going forward? If I were in your shoes, I would likely sell it all and invest the proceeds in the Vanguard LifeStrategy Income or Conservative Growth fund (based on your mom's goal to generate income to live on with a secondary goal of preserving principle). You could argue to hold the bonds in the IRA and equities in the taxable account for tax efficiency, but with current yields the reverse is actually better on average.

I would take this chance to simplify to a 1-fund portfolio in both the IRA and taxable accounts.

Re: Portfolio Critique for a 91 year old woman

Posted: Sat Aug 08, 2020 9:28 am
by hcs77135
Thank you all very much for your input and for your condolences.

000: Thank you for your comments. Yes, correct, the overall AA is about 10% stocks. I looked up the Invesco "Senior Floating Rate" A and C in the taxable portfolio, these are interests in bank loans, they have performed miserably in all time periods and get low grades from everyone. I might sell those (there is a loss of close to $3,000) and buy something like Vanguard Tax Managed Capital Appreciation to add a little equity to the taxable account, she doesn't need the income from it. (When my dad was alive they spent a lot more $ and needed more current income.) Then for the loss on selling Invesco, I could either write that off against ordinary income (since it's less than $3000) or liquidate some of the bonds up to a similar amount of gain and buy a Vanguard bond fund, either Total Bond Index or Intermediate Investment Grade (medium-term corp bonds) which has been great for me.

I think the gains in her taxable account are not so bad, because I made sure she got a 50% step-up in basis after my dad died, so I may be able to liquidate some of the individual bonds and purchase bond funds without paying too much tax. I would keep the high coupon bonds. Then over time as those bonds mature, I will likely buy more bond funds with the proceeds to simplify and continue to reduce issuer-specific risk.

The individual stocks are in the IRA, so I could easily sell Merck and Verizon and buy TSM or S&P500 without any cap gains.

As far as AA, I don't think she could answer that question, but I would say 80% bonds/20% stocks, or perhaps 75%/25%, to reduce her taxable income since she doesn't need the income, and to help protect against inflation. I don't think she'd be comfortable with more than 25% equity at this point, this has all worked very well for her. On the other hand, she has enjoyed very nice real returns on her bonds, and that likely will change: as these high coupon bonds mature, she likely will be faced with investing in very low yielding bonds and so I'm wondering, should the equity allocation be higher, where is that sweet spot without taking on too much risk?

Also, in addition to overall AA, would you have a different AA for the taxable fund than for the Traditional IRA?

She is in a combined 28% tax bracket, and the coupons on the munis look very good on a taxable-equivalent basis, so I'm interested in your thinking about the munis. On the other hand, I'm a bit nervous about the finances of New York right now -- she has a lot in the subway system and it's a financial disaster -- and wondering about default risk.

Stinky: Thank you for your comments. I think the 50% step-up in basis she received after my dad's death reduces the cap gains but I need to look into that further. But I totally agree with you that as they mature (or if I do sell), I will diversify by putting the proceeds either in TBI or an intermediate corporate fund.

She is in good health, and she should not have to pay for any long term care because her house and the brokerage account are in an irrevocable trust (she still receives all the income), and her excess income will go into a pooled interest trust should she need care, so she will qualify for Medicaid.

Millennialmillions: Thank you for your comments. Yes, it seems unwieldy to me as well. I appreciate what you are saying about where to hold bonds and equity, although I'm not sure I fully understand it ... the yields on what she has currently are quite high. But perhaps you are saying that as these mature she is going to be faced with very low returns on bonds and better to keep them in the taxable.

I definitely am going to simplify, but I may do it over time, in a couple of years many of these bonds will have matured and as they mature I will put the money in mutual funds, and at some point may move it all over to mutual funds, balanced funds or maybe split it up a bit for tax reasons, with bond funds in both accounts but maybe equity growth funds in the taxable and equity value funds in the IRA.

Again, I really appreciate your insightful and speedy responses.

Re: Portfolio Critique for a 91 year old woman

Posted: Sat Aug 08, 2020 11:24 am
by Stinky
hcs77135 wrote: Sat Aug 08, 2020 9:28 am She is in good health, and she should not have to pay for any long term care because her house and the brokerage account are in an irrevocable trust (she still receives all the income), and her excess income will go into a pooled interest trust should she need care, so she will qualify for Medicaid.
If you haven’t already, I suggest that you (and maybe your mother) take a tour of assisted living facilities - both those that accept Medicaid, and those that don’t.

At least in my part of the country, the quality of both physical facilities and care is much lower at those places that accept Medicaid patients. Maybe your part of the country is different, and she (and you) will be very satisfied with a place that accepts Medicaid. But that would not be the case where I live.

I know that folks structure their financial affairs in certain ways, and that’s fine with me. But, if someone has the assets to afford private care, I’d want to make sure that I’m happy with a Medicaid option before I go there.

I know that this was not a question that you asked, and I don’t want to step on any toes. But I’m suggesting this based on my personal experience with an aging parent.

Re: Portfolio Critique for a 91 year old woman

Posted: Sat Aug 08, 2020 11:47 am
by Taylor Larimore
I appreciate that this is a thicket so any sense that anyone can make out of it is most appreciated.
hcs77135:

I am sorry about your Dad's passing.

In my opinion, you need the services of a low-cost, competent, investment advisor for these reasons:

* If you take over the management of the portfolio, you will undertake a tremendous amount of work and responsibility you can avoid.

* Your mother can afford professional management.

* No matter what you recommend, you will be criticized because every portfolio has periods of underperformance.

* The portfolio is indeed a "thicket" which any competent advisor will recommend be changed and simplified.

* Changes may involve major tax consequences of which you are unaware.

* Be sure your mother has the necessary documents for an estate plan recommended by a competent probate attorney.

Good Luck!

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "This business is all about simplicity and low cost. I'm not into all these market strategies and theories and cost-benefit analyses - all the bureaucracy that goes with business. In investing, strip all the baloney out of it, and give people what you promise."

Re: Portfolio Critique for a 91 year old woman

Posted: Sat Aug 08, 2020 12:08 pm
by delamer
When I inherited a similar — in terms of number of investments — taxable portfolio, I immediately sold off everything that had a small gain or loss, just for the sake of simplying the portfolio. One consideration is that the small positions don’t have a material impact on the portfolio’s return, just on its complexity.

Then, over time, I have gotten rid of other positions with bigger gains/losses (sometimes using tax loss harvesting). The goal has been to convert from individual stocks/bonds to ETF/mutual funds in a reasonably tax efficient way. You can use an app like TaxCaster to estimate federal income taxes with different selling strategies.

For the IRA, I’d make all the changes at once. Overall, for taxable plus IRA, a goal of 30% in an S&P500 fund and the rest in a Treasury fund would make sense.

I am sorry about your father.

Re: Portfolio Critique for a 91 year old woman

Posted: Sat Aug 08, 2020 1:54 pm
by hcs77135
Again, many thanks for your thoughtful advice - and the condolences.

Stinky, thanks - my mom wants to stay in her house until her last breath. She does not want to go into assisted living. So she will have home care, eventually even round-the-clock if she needs it. Fortunately - and this could change of course - New York medicaid is generous. I have friends with parents who have excellent care at home. My godmother, who had no assets, was on Medicaid, and spent her last 7 years in a truly beautiful, highly regarded nursing home (she had dementia and kept calling it "the resort") and my mom would go there if she absolutely had to. Again, things can change but so far so good in New York State.

Delamer - thank you for your comments. I checked the last statement and she has a net capital gain of only about $4600 in the portfolio. About $14000 of gain and $9400 of loss. Again this is because of the stepped-up basis last year and also everything has been heavily income-driven. It would be easy to match $9400 in losses with $9400 in gain.

I believe you think as I do, that funds are the way to go, far more diversified than bonds.

I also agree that 30%/70% makes sense. That's what she has in her IRA and there's no reason that she shouldn't have the same ratio in her brokerage.

My only hesitation in liquidating right away, before maturity, is that she has some bonds that are paying more than I could get in an intermediate investment grade bond fund. And I wouldn't want to go longer on duration to get a higher yield because interest rates are so low that, if they rise, long term bonds are going to get hit the hardest. Similarly, I wouldn't want to replace some of these investment grade bonds with high-yield bond funds in order to match the return. So that's why I'm thinking that I would do this over time, replacing bonds as they mature with bond funds. I'm thinking I would do this over 5 years as at least 60% of the portfolio will mature or be called by 2025. Feel free to poke holes in this thinking. Thanks!

Re: Portfolio Critique for a 91 year old woman

Posted: Sat Aug 08, 2020 2:19 pm
by Stinky
hcs77135 wrote: Sat Aug 08, 2020 1:54 pm Again, many thanks for your thoughtful advice - and the condolences.

Stinky, thanks - my mom wants to stay in her house until her last breath. She does not want to go into assisted living. So she will have home care, eventually even round-the-clock if she needs it. Fortunately - and this could change of course - New York medicaid is generous. I have friends with parents who have excellent care at home. My godmother, who had no assets, was on Medicaid, and spent her last 7 years in a truly beautiful, highly regarded nursing home (she had dementia and kept calling it "the resort") and my mom would go there if she absolutely had to. Again, things can change but so far so good in New York State.

[snip]

So that's why I'm thinking that I would do this over time, replacing bonds as they mature with bond funds. I'm thinking I would do this over 5 years as at least 60% of the portfolio will mature or be called by 2025. Feel free to poke holes in this thinking. Thanks!
Glad to hear that NY Medicaid provides all the things you've mentioned. It sounds like your mother (and you) have a very well-conceived plan.

I agree with letting the bond portfolio run down over time. There's no reason to go to some effort now to sell individual bonds when the situation will substantially resolve itself over a fairly short period of time.

Re: Portfolio Critique for a 91 year old woman

Posted: Sat Aug 08, 2020 2:25 pm
by lgs88
hcs77135 wrote: Sat Aug 08, 2020 9:28 am I definitely am going to simplify, but I may do it over time, in a couple of years many of these bonds will have matured and as they mature I will put the money in mutual funds, and at some point may move it all over to mutual funds, balanced funds or maybe split it up a bit for tax reasons, with bond funds in both accounts but maybe equity growth funds in the taxable and equity value funds in the IRA.

Again, I really appreciate your insightful and speedy responses.
Sounds like this portfolio is getting the job done for your mother, despite its flaws -- which have been enumerated by others.

I like your plan to move slowly. The way to optimize this portfolio would be to sell it all and replace it with something less kludgy, but why? It's fit for purpose as it is. The individual bonds will take care of themselves as they mature.

Re: Portfolio Critique for a 91 year old woman

Posted: Sat Aug 08, 2020 2:48 pm
by Sheepdog
Please take Taylor Larimore's advice. I fully agree with him, the person here with the best family supported financial wisdom. He has been there and he is close to your mother's age.

(In case some here did not know, Taylor is the main founder of the Diehard/Boglehead forums and the smartest in-retirement investment man I know. He is the main person who guided me when I retired. It has been successful because of him.)
.

Re: Portfolio Critique for a 91 year old woman

Posted: Sat Aug 08, 2020 3:56 pm
by hcs77135
Thank you all once again.

Sheepdog and Taylor: Thank you for your posts. I'm not opposed to using a financial advisor as Taylor Larimore suggests and I appreciate all of his words and concerns. It would be helpful to understand more what a "low cost" financial advisor is, and whether there are good financial advisors who will pick up a small portfolio like my mom's ($560,000).

A little more context. The money has been at Morgan Stanley but my parents were not paying 1%, they had been with the advisor years ago when he was starting out in commercial banking, and he just took them on when he moved over to MS where he now is a managing director. Essentially, he did what they told him to do (this messy portfolio would not have been his way of doing things and I don't fault him.). They never paid for true management, they simply paid per transaction, which was minimal. Going forward, he wants 1%, and that is understandable. But in this day and age I didn't feel like I needed to pay 1% when I have time and interest and have managed my own investments for my entire adult life (I'm now 56). However, as I recently posted, I am thinking that as I approach retirement I myself should work with someone, particularly to optimize after-tax income, understand what to withdraw from where, etc. So I'm open on this point.

Fortunately my mom's estate plan is all set. I am an only child and the beneficiary of her IRA, and her other assets (her house and brokerage account) are in an irrevocable trust of which I am the trustee and sole beneficiary, so there will be no probate, and I have a very broad power of attorney. If I happen to go before my mom, it all goes into a trust for my daughter.

Thank you all again and enjoy the weekend.

Re: Portfolio Critique for a 91 year old woman

Posted: Sat Aug 08, 2020 4:08 pm
by 000
hcs77135 wrote: Sat Aug 08, 2020 9:28 am As far as AA, I don't think she could answer that question, but I would say 80% bonds/20% stocks, or perhaps 75%/25%, to reduce her taxable income since she doesn't need the income, and to help protect against inflation. I don't think she'd be comfortable with more than 25% equity at this point, this has all worked very well for her. On the other hand, she has enjoyed very nice real returns on her bonds, and that likely will change: as these high coupon bonds mature, she likely will be faced with investing in very low yielding bonds and so I'm wondering, should the equity allocation be higher, where is that sweet spot without taking on too much risk?
Lots, lots of people have been running into stocks due to low yields. So stocks are highly valued and have more risk right now.

An annuity may be able to provide ballast at higher yield, but the funds would no longer be available, so one needs to consider the possibility of unexpected expenses.
hcs77135 wrote: Sat Aug 08, 2020 9:28 am Also, in addition to overall AA, would you have a different AA for the taxable fund than for the Traditional IRA?
I personally don't use a bucket approach, instead thinking of my all my assets as one portfolio. Having different buckets is really just a mind game.
hcs77135 wrote: Sat Aug 08, 2020 9:28 am She is in a combined 28% tax bracket, and the coupons on the munis look very good on a taxable-equivalent basis, so I'm interested in your thinking about the munis. On the other hand, I'm a bit nervous about the finances of New York right now -- she has a lot in the subway system and it's a financial disaster -- and wondering about default risk.
One needs to do some calculations based on tax-adjusted yield or consult with a tax advisor to see if munis are worth it.

It is widely believed that munis have more risk than US treasury bonds or FDIC-insured cash investments.


The suggestion upthread to find a "low-cost, competent, investment advisor" will likely be difficult.

This site has a wiki that may be of use.

You are doing a good thing helping out mom. Good luck!

Re: Portfolio Critique for a 91 year old woman

Posted: Sat Aug 08, 2020 7:22 pm
by JBTX
Frankly I don't think you need to rush to do anything. It is needlessly complicated but most of what I see is bread and butter stuff. In the IRA, Id probably start selling some of the stocks and putting them into a stock index fund. Then maybe in time bonds to a bond fund. Just move it to something you can manage. Maybe just move it to a conservative life strategy fund

As to the taxable, I would not rush into anything due to tax implications. To the extent there may be material capital gains on bonds, as rates have dropped, those capital gains would be "stepped up" in her eventual estate. As some of these things get close to maturity, maybe more them to something simpler. Conservative bond fund. Cds, etc.

Re: Portfolio Critique for a 91 year old woman

Posted: Sun Aug 09, 2020 7:14 am
by hcs77135
Thank you again everyone for your comments. It seems that the low bond rates make equities more risky because everyone is searching for yield, and make bond funds more risky because if rates climb they will lose value!

I do have one further specific question, can anyone explain to me what these Invesco Oppenheimer Senior Floating Rate funds (OOSAX and OOSCX) are? It looks like they invest in senior bank loans. Unlike bond funds which have done very well as interests rates have gone lower and lower, these have done terribly and get very low grades from Morningstar, Zacks, The Street, etc. What is the purpose of these instruments in a portfolio and why have they not performed similarly to bonds (looking at ytd, 1, 3, 5, 10 they haven’t done well. They also have a front load of 3.25 which makes me think they were purchased for the broker’s benefit and not my parents’.

They have an unrealized capital loss of $3000 combined so I am thinking I will dump them and my mom can take the loss against ordinary income.

Thank you very much!

Re: Portfolio Critique for a 91 year old woman

Posted: Sun Aug 09, 2020 7:53 am
by Watty
A few unrelated things to consider if you have not done them already;

1) Some brokerages, including Vanguard, want to have any POA document done on their form. It would be good to get that while she is able to still sign it.

2) I have heard that some states require a different specific POA to sell real estate and if she does end up moving into a nursing home then that would be good to have if her state requires that.

3) It would be good to make sure that the beneficiary on the IRA has been updated and is correct.

4) You should also make sure that there is a plan in place to manage her finances if you get hit by the proveriable Mack truck.

It would be good to talk with an elder care lawyer to make sure that all of her paperwork is is order not only for the financial POA documents but also for the needed things like medical directives.

Re: Portfolio Critique for a 91 year old woman

Posted: Sun Aug 09, 2020 8:35 am
by hcs77135
Watty - Thank you for your comment. Fortunately we worked with a highly respected elder law/t and e attorney to set up her trust, my very broad POA, her IRA beneficiary, and her health care docs.

I appreciate your point about ensuring that wherever the money ultimately is parked (it’s currently at Morgan Stanley), they have the POA form that they need.

Also, while there is an alternate trustee in case I get mowed down, I think this piece deserves further thought and again I appreciate your advice.

Re: Portfolio Critique for a 91 year old woman

Posted: Sun Aug 09, 2020 8:40 am
by hcs77135
I think I understand one obvious reason why My mom’s OOSAX and OOSCX — the Invesco Oppenheimer Senior Floating funds have done so badly - they invest in adjustable loans. Would anyone invest in this as part of their debt allocation (please see post of earlier this morning for a little more detail.) thanks very much

Re: Portfolio Critique for a 91 year old woman

Posted: Sun Aug 09, 2020 8:45 am
by sometimesinvestor
Other than not reinvesting dividends but putting them in the bank if not needed to further reduce risk I would do nothing. AS noted this is a very conservative asset allocation so I don't thin your mom is in any danger of running out of money. Why create a taxable event by selling anything with a gain?

Re: Portfolio Critique for a 91 year old woman

Posted: Sun Aug 09, 2020 8:53 am
by Stinky
hcs77135 wrote: Sun Aug 09, 2020 8:40 am I think I understand one obvious reason why My mom’s OOSAX and OOSCX — the Invesco Oppenheimer Senior Floating funds have done so badly - they invest in adjustable loans. Would anyone invest in this as part of their debt allocation (please see post of earlier this morning for a little more detail.) thanks very much
The Senior Floating funds are probably investing in what I have heard called "bank loan participations". The underlying bank loans reset interest rates on a quarterly basis.

Also, the underlying loans are almost always made to less-than-investment-grade credits. Therefore, their price is very sensitive to the underlying health of the economy. Even though the equity markets are "soaring", there is a lot of turmoil in the underlying economy, and I wouldn't be surprised to see defaults on bank loans pick up (if they haven't already).

I think that you're wise to dump these, take your loss, and move on.

Re: Portfolio Critique for a 91 year old woman

Posted: Sun Aug 09, 2020 8:53 am
by hcs77135
Sometimes Investor - thank you I agree! The question is, as many of these intermediate bonds are called or mature in the next 4 years, what to do with the proceeds? And i do wonder about getting out of the Invesco floating rate loans OOSAX and OOSCX and harvesting the tax loss. Otherwise I agree, I wouldn’t plan to sell except for RMD in the IRA probably starting with the lowest coupon/shortest duration. (Since RMD is greater than her income from the IRA.)

Re: Portfolio Critique for a 91 year old woman

Posted: Sun Aug 09, 2020 9:00 am
by hcs77135
Stinky: thanks! Hate to sell low but these seem like bad news. Thought I would replace it with something like Vanguard Tax-Managed Capital Appreciation Fund or TSM to start to add a little equity to the account and reduce taxable income.

Re: Portfolio Critique for a 91 year old woman

Posted: Sun Aug 09, 2020 9:36 am
by Taylor Larimore
hcs77135 wrote: Sun Aug 09, 2020 9:00 am Stinky: thanks! Hate to sell low but these seem like bad news. Thought I would replace it with something like Vanguard Tax-Managed Capital Appreciation Fund or TSM to start to add a little equity to the account and reduce taxable income.
hcs77135:

This can be an excellent time to "sell low" in taxable accounts because the capital-gain tax will be less.

This is also the reason why it is very important to use only tax-efficient funds in taxable accounts.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Favor low-turnover funds, but not only because these costs are lower. They also provide substantial tax advantages."

Re: Portfolio Critique for a 91 year old woman

Posted: Sun Aug 09, 2020 9:48 am
by soundwave
Taylor Larimore wrote: Sun Aug 09, 2020 9:36 am
hcs77135 wrote: Sun Aug 09, 2020 9:00 am Stinky: thanks! Hate to sell low but these seem like bad news. Thought I would replace it with something like Vanguard Tax-Managed Capital Appreciation Fund or TSM to start to add a little equity to the account and reduce taxable income.
hcs77135:

This can be an excellent time to "sell low" in taxable accounts because the capital-gain tax will be less.

This is also the reason why it is very important to use only tax-efficient funds in taxable accounts.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Favor low-turnover funds, but not only because these costs are lower. They also provide substantial tax advantages."
Thank you Taylor. You just made me feel better for selling my own 91 year old mother's losing stocks at a loss yesterday. Moving all proceeds into her existing broad market fund at Fidelity.

This board is filled with valuable mentors! I'll continue to listen :happy

Re: Portfolio Critique for a 91 year old woman

Posted: Sun Aug 09, 2020 10:07 am
by BL
Thank you for looking out for your mother.

I would want to make a plan for money that matures or is called from her bonds. Total Bond Market or CDs/savings or money market accounts might be suitable. Beyond that, I would move cautiously, especially in taxable account where taxes are concerned.

You might want to check out where an increase in MAGI (AGI + some other non-taxable income, probably tax-free bonds) might result in higher Medicare rates.
https://www.medicare.gov/Pubs/pdf/11579 ... -costs.pdf
If there are Capital Gains, increased municipal bond dividends, etc. There are sharp income cliffs where extra rates begin 2 years later.


At her age, I would be somewhat cautious in adding equities, which are usually not suggested for spending needs in the next 5 years. My thoughts, as an old person, is that there are no good safe investments and no good rates currently for investing in that time frame. Online banks and credit unions have savings and CDs for about 1%. Read here or check places like BankRate.com. However, if she is investing for the heir (you), perhaps equity index funds such as those found in Vanguard make sense.

I would be very cautious about using the "advisors" commonly available in banks and storefronts. Too many look out for themselves more than their clients. I do believe there are some registered fiduciary advisors that work by the hour either in person or at a distance, but haven't a clue where to find them, except perhaps a handful mentioned on this site, nor how to judge their quality. The successful ones are all "nice guys/gals", not necessarily good advisors.

I would only trust Vanguard PAS (0.3% AUM) to set up and handle my account (so far we haven't needed anyone). They won't advise other than low-ER index funds/ETFs, AFAIK. You can't meet them in person. One could quit after a year and continue with the funds as set up. I have read here that they would tell you what they advise before you have to decide whether to hire them or not. They might not manage bonds that cannot be transferred to them.

When you inherit, you can easily sell all with no tax consequence and buy the 3-fund portfolio if you wish. For now, if you leave it where it is, check carefully for costs of any kind (fees, loads, buying and selling, etc.) and move it if that happens to a low-cost brokerage. Selling low is fine to get rid of undesirables.

Capital Losses and Capital Gains

Posted: Sun Aug 09, 2020 10:13 am
by Taylor Larimore
soundwave wrote: Sun Aug 09, 2020 9:48 am
Thank you Taylor. You just made me feel better for selling my own 91 year old mother's losing stocks at a loss yesterday. Moving all proceeds into her existing broad market fund at Fidelity.

This board is filled with valuable mentors! I'll continue to listen :happy
soundwave:

I'm pleased to have been of help.

If desired, you could also sell your mother's profitable stocks knowing the capital-gains will be offset up to the capital-losses you have just taken.

Keep in mind that at death all capital gains are eliminated.

Best wishes
Taylor
Jack Bogle's Words of Wisdom: "Managed funds are astonishingly tax inefficient."

Re: Portfolio Critique for a 91 year old woman

Posted: Mon Aug 24, 2020 5:27 pm
by hcs77135
Thank you all again for your thoughtful advice.

I have decided to move my mom's funds from Morgan Stanley to Vanguard (where I have all my financial assets). Vanguard will accept all the bonds and the preferred and common stock, as well as the non-Vanguard mutual funds. This way, as bonds mature, I can use the proceeds to purchase low cost index funds, probably some combination of bond funds and tax-managed or growth equity funds. (The reason for the equity funds is that at this point my mom's spending and traveling days are behind her (she had a great, adventurous time until recently), and she does not need the investment income because she has more than enough from SS, pension and RMD. Also she'd like to leave me -- actually my daughter -- as much as possible.) Many of the bonds will have matured by 2024 so the portfolio will start to have a lot less issuer risk. Also I am a flagship client at Vanguard so any sales that I do will cost her a lot less than they would at MS.

Given how good the coupon is on many of these bonds and the fact that virtually all are investment grade, I probably will hold many of them until they are called or mature and then replace them.

However, there are certain other securities that I would like to replace with Vanguard funds right away, for example the Invesco fund in the brokerage account and the high-fee Eaton Vance and iShares mutual funds in the IRA. Mom does have to take RMDs from the traditional IRA, that exceed the income she earns each year, but this can be satisfied with maturing/called bonds. But my question is, if I wanted to sell more bonds now, to reduce issuer risk/taxes/diversify into equities, what would one look for in determining which bonds to unload first?

Is it the lowest yield? The lowest credit rating? A combination of the two?
Is there a reason to sell non-callable long term bonds first because they have more interest rate risk if and when rates rise?

I should mention that capital gains are not a big issue in the taxable account, perhaps because it's all in fixed income but also because my mom received a 50% step-up last year when my dad died. Net of capital losses there are less than $10k of gains.

I'm a buy-and-hold mutual fund person myself and have never owned an individual bond other than an ibond so very much appreciate your thoughts.