Need Help With My Mom's Cash Hoard!

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chrisfire24
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Joined: Sat Feb 01, 2020 9:59 am

Need Help With My Mom's Cash Hoard!

Post by chrisfire24 »

Hello All,

Looking for some advice to help my Mom better manage her investments. Specifically, I would like to address her cash hoard.

Background
-Age: 57
-State: IL
-No debt of any kind
-Net Worth: $1M (including a conservative estimate of her condo) <<<Just hit this milestone last week...yay!!!
-Tax Bracket: 22% (but it's close depending on bonus)
-Sallie Mae Cash: $249K @ .55 (just under the FDIC Limit)
-Fifth Third: $50K (pennies every month in interest)

I will not be able to convince her to rebalance (i.e. putting bonds in her 401K and buying stocks in a taxable using the cash hoard).

Any recommendations on what to do with a significant chunk of this cash that she does not need anytime in the short to mid future? Her job is fairly safe and I am not concerned with minimizing taxes per se as the way I see it...it would just be nice for her to earn more on her money without me having to help manage it (that's worth something).

Thank you!

Chris
livesoft
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Re: Need Help With My Mom's Cash Hoard!

Post by livesoft »

I wouldn't touch it myself and just leave it alone.

Where do you keep your personal cash like this?
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sailaway
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Re: Need Help With My Mom's Cash Hoard!

Post by sailaway »

It doesn't sound like she wants or needs your help.
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8foot7
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Re: Need Help With My Mom's Cash Hoard!

Post by 8foot7 »

Did she ask you? If not, I'd never speak of it.
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Stinky
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Re: Need Help With My Mom's Cash Hoard!

Post by Stinky »

Has she asked for your help?

She’s actually getting a pretty decent rate on her $249k. It’s pathetically low, but that’s where the market for insured savings accounts is.
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HomeStretch
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Re: Need Help With My Mom's Cash Hoard!

Post by HomeStretch »

+1

Moving the Fifth Third $50k to a higher yield account like an Ally no-penalty CD earning 0.6% will only yield $300 extra interest per year.

Congratulations to your mom on accumulating an impressive nest egg. If she will have “enough” in investment income + SS/pension income to cover her retirement expenses then she is doing fine.
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Watty
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Re: Need Help With My Mom's Cash Hoard!

Post by Watty »

If she has a mortgage then it might make sense to pay it off if she is not willing to invest the money.

You mentioned a net worth of a million dollars so she likely has a lot of other investments other than the condo. What is that money invested in and what is her overall asset allocation? Depending on what that is invested in she could have an appropriate asset allocation for someone her age.
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chrisfire24
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Re: Need Help With My Mom's Cash Hoard!

Post by chrisfire24 »

Thanks for the fast responses so far!

She asked for my help a few years ago to manage her finances (so I took over managing her 401K, etc.).

But with respect to the cash, she has not directly asked me to be honest. I just figured a bond fund in a taxable account might allow her to squeeze out a little extra with minimal risk.

As long as she can keep working a few more years, she should be set for retirement.
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chrisfire24
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Re: Need Help With My Mom's Cash Hoard!

Post by chrisfire24 »

Watty wrote: Sat Nov 21, 2020 9:47 am If she has a mortgage then it might make sense to pay it off if she is not willing to invest the money.

You mentioned a net worth of a million dollars so she likely has a lot of other investments other than the condo. What is that money invested in and what is her overall asset allocation? Depending on what that is invested in she could have an appropriate asset allocation for someone her age.
No mortgage!

Including the cash, she has about 55% in stocks (mostly US), 15% in bonds, and the remaining in cash.
J295
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Re: Need Help With My Mom's Cash Hoard!

Post by J295 »

Her level of cash is ok with me. If I were in her position I would be viewing the non-equity portion as a ballast, and not looking to squeeze extra return if it requires sacrificing much downside risk.

Perhaps she wants to put some of the cash into Ibonds? Given that it’s the end of the year, she could direct 20,000 that way with an investment at the end of this year, and early/sometime next year
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Stinky
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Re: Need Help With My Mom's Cash Hoard!

Post by Stinky »

She could consider purchasing a short-term multi year guaranteed annuity (MYGA) with part of the cash that she is CERTAIN she won’t need to tap for the duration of the annuity.

Here’s the wiki on fixed annuities. Also, go to blueprintincome.com for a deeper dive into product features. https://www.bogleheads.org/wiki/Fixed_annuity

Blueprint has a good selection of MYGAs, ranging from 2 year to 10 year terms. If she wants to stay with a high quality company, New York Life offers a 3 year MYGA with a 1.70% rate for deposits of $100k or more. That policy comes with a 7% surrender charge, plus a market value adjustment, if she surrenders before the 3 years is up. NYL has the very highest ratings from the rating agencies.

There are many other MYGAs offered on Blueprint.

Another attractive offering is on Gainbridge.life, which is offering a 2.30% rate for a three year MYGA. The surrender charge is a maximum of 3%. It’s not available in all states, and the underlying insurer is rated B++ by AM Best.
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willthrill81
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Re: Need Help With My Mom's Cash Hoard!

Post by willthrill81 »

chrisfire24 wrote: Sat Nov 21, 2020 9:47 am But with respect to the cash, she has not directly asked me to be honest. I just figured a bond fund in a taxable account might allow her to squeeze out a little extra with minimal risk.
I would flat out ask her why she wants so much cash. Is her job insecure? How many years of annual expenses does her cash position currently cover?

You may want to show her recent data on inflation and how that compares to her bond funds. It's mathematically impossible for bond yields to just break-even with inflation on a pre-tax basis unless interest rates fall even further, inflation falls even further, or some combination of both.

You note that 55% of her portfolio is in stocks. That's a very reasonable number for someone her age. As a result, it's probably not so bad for her to have so much in cash. I'm not sure what Sallie Mae is paying her, but a high-yield savings account with Ally is currently paying .6% interest.
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ResearchMed
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Re: Need Help With My Mom's Cash Hoard!

Post by ResearchMed »

willthrill81 wrote: Sat Nov 21, 2020 11:20 am
chrisfire24 wrote: Sat Nov 21, 2020 9:47 am But with respect to the cash, she has not directly asked me to be honest. I just figured a bond fund in a taxable account might allow her to squeeze out a little extra with minimal risk.
I would flat out ask her why she wants so much cash. Is her job insecure? How many years of annual expenses does her cash position currently cover?

You may want to show her recent data on inflation and how that compares to her bond funds. It's mathematically impossible for bond yields to just break-even with inflation on a pre-tax basis unless interest rates fall even further, inflation falls even further, or some combination of both.

You note that 55% of her portfolio is in stocks. That's a very reasonable number for someone her age. As a result, it's probably not so bad for her to have so much in cash. I'm not sure what Sallie Mae is paying her, but a high-yield savings account with Ally is currently paying .6% interest.
But
chrisfire24 wrote: Sat Nov 21, 2020 9:49 am Including the cash, she has about 55% in stocks (mostly US), 15% in bonds, and the remaining in cash.
How much is that condo worth, given it's included in the total of $1 million... plus approx $300k in cash.
chrisfire24 wrote: Sat Nov 21, 2020 9:09 am -Net Worth: $1M (including a conservative estimate of her condo)
So just how much is actually in equities to allow for longer term appreciation?
She's only 57.

RM
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Watty
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Re: Need Help With My Mom's Cash Hoard!

Post by Watty »

chrisfire24 wrote: Sat Nov 21, 2020 9:49 am
Including the cash, she has about 55% in stocks (mostly US), 15% in bonds, and the remaining in cash.
55% stocks may a bit conservative but it is a perfectly reasonable asset allocation for a 55 year old.

With interest rates being so low many bonds are risky since they may be clobbered if (when ?) interest rates or inflation go back up. That makes holding cash instead of bonds a reasonable choice too.

Frankly you suggesting that she should "invest" the money, presumably in the stock market, is bad advice.

She may be a bit conservative but she is doing great.

You might want to ask her for her advice about how you should invest your money instead of trying to tell her how to invest hers.
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BL
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Re: Need Help With My Mom's Cash Hoard!

Post by BL »

I second looking up I-Bonds at treasuryDirect.com for info.
Tied up for one year, loss of 3 mo. interest if sold before 5 years.

I get 0.9% on CDs at Navy Federal Credit Union, nothing to brag about.
Hebell
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Re: Need Help With My Mom's Cash Hoard!

Post by Hebell »

My Lord, do not put her cash in a bond fund.

I third the comments here about using TreasuryDirect I-bonds. These are distinct from EE bonds, don't get them confused.

If interest rates go up, her bond fund holdings will lose value in the near term (varies by the effective duration of the holdings).
Bottom line - you do NOT want to be the person who tells Mom you just lost 2-10% of her cash value.
Bond funds, in this environment, are not particularly safe. Particularly when the pandemic still has yet to play itself out in the repricing of credit risk.
lws
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Re: Need Help With My Mom's Cash Hoard!

Post by lws »

Please leave the lady's money alone.
Give her your opinions only if she asks you.
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GerryL
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Re: Need Help With My Mom's Cash Hoard!

Post by GerryL »

Have you pointed out to her that her cash is losing value due to inflation? Can you show her a graph that illustrates how much her cash will lose to inflation over the next 10-20 years?
DarkHelmetII
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Re: Need Help With My Mom's Cash Hoard!

Post by DarkHelmetII »

chrisfire24 wrote: Sat Nov 21, 2020 9:09 am Hello All,

Looking for some advice to help my Mom better manage her investments. Specifically, I would like to address her cash hoard.

Background
-Age: 57
-State: IL
-No debt of any kind
-Net Worth: $1M (including a conservative estimate of her condo) <<<Just hit this milestone last week...yay!!!
-Tax Bracket: 22% (but it's close depending on bonus)
-Sallie Mae Cash: $249K @ .55 (just under the FDIC Limit)
-Fifth Third: $50K (pennies every month in interest)

I will not be able to convince her to rebalance (i.e. putting bonds in her 401K and buying stocks in a taxable using the cash hoard).

Any recommendations on what to do with a significant chunk of this cash that she does not need anytime in the short to mid future? Her job is fairly safe and I am not concerned with minimizing taxes per se as the way I see it...it would just be nice for her to earn more on her money without me having to help manage it (that's worth something).

Thank you!

Chris
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JoeRetire
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Re: Need Help With My Mom's Cash Hoard!

Post by JoeRetire »

chrisfire24 wrote: Sat Nov 21, 2020 9:09 am Looking for some advice to help my Mom better manage her investments. Specifically, I would like to address her cash hoard.
Has she asked for your help?
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
checkyourmath
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Re: Need Help With My Mom's Cash Hoard!

Post by checkyourmath »

Inflation is at 2 percent according to the Fed so is in like 35 years when she is 92 she will have half the purchasing power. Cash is a luxury in the world of toilet paper scares. Generally I hate the idea of holding something worthless but I would wait until the recession has figured itself out. I have a mother that is the same way. It is a generational thing. There are a lot of people in that group that are comfortable with financial advisors, mutual funds, and paying someone to do their taxes. My recommendation for you as a family unit is to make sure she has a Roth and also making sure she doesn't take SS until 70. The Retiree Portfolio Model spreadsheet is the greatest thing since sliced bread. As a family you want to maximize the overall amount of money available for her and future generations.
finite_difference
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Re: Need Help With My Mom's Cash Hoard!

Post by finite_difference »

I would leave $50k cash at 0.55%, maybe $10k at the other bank, and then allocate the rest so the portfolio is 60% stock (Vanguard Total Stock Market), 40% bond (Vanguard Total Bond) or whatever asset allocation is desired.

Everyone hates bond funds these days but I prefer Vanguard Total Bond and Vanguard Intermediate Term Tax Exempt over cash.
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Eagle33
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Re: Need Help With My Mom's Cash Hoard!

Post by Eagle33 »

At 57 she is ready to plan her retirement. I suggest you buy her Jane Bryant Quinn's book "How to Make Your Money Last: The Indispensable Retirement Guide" for Christmas. You can purchase one for yourself so you both can form a 2-person 'book/personal financial' club and discuss what you are reading together. Get a broad understanding and a plan before trying to solve perceived problems.
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chrisfire24
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Re: Need Help With My Mom's Cash Hoard!

Post by chrisfire24 »

I appreacite all of the comments!

To be fair to my Mother, it helps her sleep at night knowing she has a massive amount of cash (that has to be worth something).

Ultimately, I will likely leave it alone, but just having the conversation is super helpful!
Carol88888
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Re: Need Help With My Mom's Cash Hoard!

Post by Carol88888 »

I sort of feel what ever amount of cash a person wants to hold, that's the right amount. Your mom knows she could get better returns elsewhere but she still chose to hold the cash.

End of story.
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Re: Need Help With My Mom's Cash Hoard!

Post by Dottie57 »

Eagle33 wrote: Sat Nov 21, 2020 11:58 pm At 57 she is ready to plan her retirement. I suggest you buy her Jane Bryant Quinn's book "How to Make Your Money Last: The Indispensable Retirement Guide" for Christmas. You can purchase one for yourself so you both can form a 2-person 'book/personal financial' club and discuss what you are reading together. Get a broad understanding and a plan before trying to solve perceived problems.
Good book. Worth the money.
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Re: Need Help With My Mom's Cash Hoard!

Post by nguy44 »

chrisfire24 wrote: Mon Nov 23, 2020 3:26 pm I appreacite all of the comments!

To be fair to my Mother, it helps her sleep at night knowing she has a massive amount of cash (that has to be worth something).

Ultimately, I will likely leave it alone, but just having the conversation is super helpful!
I agree with this approach. I am with her on having enough cash to be able to sleep at night. I am a few years older than your mother and have more than she does in cash, and I am fine with it.

With 55% in stocks that is a good allocation if she is comfortable with it.
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Stinky
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Re: Need Help With My Mom's Cash Hoard!

Post by Stinky »

chrisfire24 wrote: Mon Nov 23, 2020 3:26 pm I appreacite all of the comments!

To be fair to my Mother, it helps her sleep at night knowing she has a massive amount of cash (that has to be worth something).

Ultimately, I will likely leave it alone, but just having the conversation is super helpful!
Mama knows what’s best for her.

Thanks for letting us know how this turned out.
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Re: Need Help With My Mom's Cash Hoard!

Post by SmileyFace »

chrisfire24 wrote: Mon Nov 23, 2020 3:26 pm I appreacite all of the comments!

To be fair to my Mother, it helps her sleep at night knowing she has a massive amount of cash (that has to be worth something).

Ultimately, I will likely leave it alone, but just having the conversation is super helpful!
Move all her cash to FAANG stocks. JUST KIDDING!
Leaving it alone is what I was thinking. You don't want to be responsible for putting her safe/secure cash in jeopardy.
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