My dad is selling all stocks and going 100% cash - HELP!

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
User avatar
Abciximab
Posts: 76
Joined: Wed Mar 21, 2007 7:53 pm
Location: Phoenix

My dad is selling all stocks and going 100% cash - HELP!

Post by Abciximab » Sat Jul 28, 2007 5:43 pm

A few weeks back, I learned that my 50-year-old father was 100% equity in his 401(k). I tried to convince him that he needed to hold bonds to reduce his risk since he's somewhat close to retirement. He scoffed at the very idea of holding bonds since he "doesn't want to miss out on growth."

Today he calls me asking if I think he should move everything into a stable value fund. He's "lost a lot of money" because of the recent decline in the stock market and can't afford to lose more. This is the same guy that thought all was right with the world a month ago and couldn't invest in anything other than stocks. Today he's talking about a global recession, housing market downturn, and so on. My dad wants to be safe so that he can get back in when there are better opportunities, but he swears he's not trying to time the market.

I thought he learned his lesson when he got wrapped up in the tech bubble, lost nearly everything, and then sat out with the money had left when the market went crazy in 2003, but I guess not.

I'm at a complete loss for what to do here. I have a feeling that he just wants me to validate his opinion and give the go ahead. The last thing I want to do is recommend anything, since that makes me responsible if something goes wrong. Other than trying to explain why he needs a preset asset allocation, what to I tell him now?
An investment in knowledge always pays the best interest - Benjamin Franklin

xenial
Posts: 2564
Joined: Tue Feb 27, 2007 1:36 am
Location: USA

Post by xenial » Sat Jul 28, 2007 6:00 pm

Abciximab,

As you seem to have surmised, providing financial advice to a parent is fraught with peril. Two additional ideas:
1. Recommend some reading material, perhaps a free online book or blog.
2. Suggest a fee-only advisor.

Best wishes,
Ken

User avatar
Abciximab
Posts: 76
Joined: Wed Mar 21, 2007 7:53 pm
Location: Phoenix

Post by Abciximab » Sat Jul 28, 2007 6:05 pm

Thanks, Ken. Those are both very good ideas. Another problem is that my dad's heading out of town and wants to pull the trigger by Monday. I think I'll give him my Bogleheads book to read on the plane.
An investment in knowledge always pays the best interest - Benjamin Franklin

User avatar
Adrian Nenu
Posts: 5228
Joined: Thu Apr 12, 2007 6:27 pm

Risk tolerance vs needed return

Post by Adrian Nenu » Sat Jul 28, 2007 6:05 pm

Suggest using my formula based on the '73-'74 bear market on your dad to get some idea of his risk tolerance. Then find some sort of compromise between an asset allocation with suitable risk tolerance and the desired/needed rate of return to reach his financial goals. I have seen these situations many times after the 2000-2002 bear market when investors (co-workers) suddently "discovered" that they are more risk adverse than their asset allocation might indicate. Good luck - you will need it.

Maximum tolerable loss x 2 = Maximum equity allocation

Adrian
anenu@tampabay.rr.com

User avatar
lucky7
Posts: 358
Joined: Tue Mar 13, 2007 5:51 pm

Solution to your problem perhaps,

Post by lucky7 » Sat Jul 28, 2007 6:16 pm

Print out a graph of the last 10 years for the Dow. Corrections are little more than blips.
Also a value cost averager would be buying more now. However for your dad he must set his allocation not out of fear nor greed.
Scotty, beam me up.

jh
Posts: 1786
Joined: Mon May 14, 2007 11:36 am

Post by jh » Sat Jul 28, 2007 6:26 pm

...
Last edited by jh on Thu Jan 17, 2008 3:42 pm, edited 1 time in total.

User avatar
bolivia
Posts: 330
Joined: Mon Jul 02, 2007 9:11 pm

Post by bolivia » Sat Jul 28, 2007 6:31 pm

If your dad will listen to just one thing, have him spend a little time reading this forum!!!

There are tons of topics, and if he can be at least a little open-minded, maybe some of what he reads will keep him from pulling the trigger on Monday. After that, maybe he'll read more and really reconsider what he's doing.

If not, chock it up to 'you can lead a horse to water............'

Bolivia

YDNAL
Posts: 13774
Joined: Tue Apr 10, 2007 4:04 pm
Location: Biscayne Bay

Post by YDNAL » Sat Jul 28, 2007 6:32 pm

A few weeks back, I learned that my 50-year-old father was 100% equity in his 401(k)..... Today he calls me asking if I think he should move everything into a stable value fund.

This is so typical of the investor who doesn't know his/her risk tolerance. Dad needs to learn really quickly the 'guideline(s)' Age in Bonds or 110 - Age = Equities. Adrian deals with it differently with "maximum tolerable loss x 2 = Maximum equity allocation".

You can't help your father further than what you already intend to do. Have him read the Bogleheads Guide to Investing on his trip and perhaps he'll take a different approach with his Asset Allocation.

Best luck. Regards,
Landy

User avatar
frose2
Posts: 628
Joined: Thu Mar 01, 2007 2:10 am

Well

Post by frose2 » Sat Jul 28, 2007 6:40 pm

If last week was really the peak of the S&P 500, and we're headed for another big drop like 1929-32, 1973-75, or 2000-2003, then he's doing exactly the right thing.

You could buy him a gift subscription to the Wiener newsletter. AFAIK Dan has not yet made a "sell all" call, though he did call the peak very accurately on REITs. Don't know what Ken Fisher or Bob Brinker or other timing gurus have to say either. We do know that Jeremy Grantham has been saying for a while that everything is overvalued except managed timber and high quality US stocks.

User avatar
nisiprius
Advisory Board
Posts: 34311
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Relax a bit... there's no rush.

Post by nisiprius » Sat Jul 28, 2007 6:45 pm

I'd suggest trying to talk him into a target-date fund, but, in any case, try to relax a bit.

There is absolutely nothing wrong with money in the bank, particularly if he has enough.

And if it's all money in the bank, there's absolutely no rush to do anything in particular about it. It's pretty darn safe, and right now bank interest is running higher than inflation. Do the math: the difference between putting it into a target-date fund this very minute and letting it rot in the bank for a year and then putting it into a target-date fund isn't going to be the difference between his buying a yacht and eating dog food fifteen years down the road. [/b]

livesoft
Posts: 57156
Joined: Thu Mar 01, 2007 8:00 pm

Post by livesoft » Sat Jul 28, 2007 6:56 pm

Let him go all to cash. If this is just his 401k, then it's not a taxable event anyways. Then he can reinvest into a preset asset allocation once he's got it all figured out. He's a big boy and can play with his own money.

User avatar
Abciximab
Posts: 76
Joined: Wed Mar 21, 2007 7:53 pm
Location: Phoenix

Post by Abciximab » Sat Jul 28, 2007 6:56 pm

Thanks, everyone. Those are all very good suggestions.

I'm just worried because I don't think my parents have enough when they retire. If there's a shortfall, it'll be my responsibility to help out.

I've been trying to convince him to move his old 401(k) money to Vanguard so they can lay out a plan. Luckily, he's receptive to that idea.
An investment in knowledge always pays the best interest - Benjamin Franklin

User avatar
nick22
Posts: 859
Joined: Sun Mar 04, 2007 11:00 am
Location: Ohio

Parents

Post by nick22 » Sat Jul 28, 2007 7:40 pm

I have posted on the same topic before, and it is painful. I have a father that is plagued by overconfidence, and has made every human behavior mistake possible when invsting over the past 40 years. But he cannot admit that I might know more on the topic. He also refuses to believe reading a couple of books will provide any insight. He is from the generation that believes you need an investment "guy" to be successful.

If this is ringing any bells, go with the fee-only advisor. Parents have the great ability to tune their children out. Unless you dad is willing to change his fundamental belief system about capitalism and the markets, he probably needs the hand-holding a pro advisor will provide
Nick22

User avatar
Adrian Nenu
Posts: 5228
Joined: Thu Apr 12, 2007 6:27 pm

If he is dead set against stocks....

Post by Adrian Nenu » Sat Jul 28, 2007 9:08 pm

...have him invest 50% in the Vanguard TIPS fund and the rest in Short Term Bond Index and Prime Money Market. By all means have him read a few books from the Bogleheads' recommended book list. Definitely rollover to a Vanguard IRA rather than continuing to overpay in the old 401k.

Adrian
anenu@tampabay.rr.com

dwbogle
Posts: 144
Joined: Tue Jul 24, 2007 1:08 am

Re: If he is dead set against stocks....

Post by dwbogle » Sat Jul 28, 2007 11:06 pm

Adrian Nenu wrote:50% in the Vanguard TIPS fund


VIPSX (Vanguard TIPS) is yeilding 2.5% + 2.2% inflation to total 4.7%. You can get CDs or MM funds for low 5%. Why do you recommend 50% in TIPS?

marco100
Posts: 763
Joined: Thu Mar 01, 2007 7:09 pm

Dad's AA

Post by marco100 » Sat Jul 28, 2007 11:31 pm

I'm just worried because I don't think my parents have enough when they retire. If there's a shortfall, it'll be my responsibility to help out.


Whoa there.

There's more than an AA issue to be dealt with here.

It's not really your responsibility to "help out" after they retire. If you want to help them, the best help you can give them is now.

It's pretty easy for me to say that given your Dad's panic attack, he should get into a pretty simplified AA with a 50-50 fixed/equity split.

Going all into cash is foolish and irrational.

User avatar
joe8d
Posts: 4247
Joined: Tue Feb 20, 2007 8:27 pm
Location: Buffalo,NY

To abc

Post by joe8d » Sat Jul 28, 2007 11:54 pm

Your father hasn't " lost a lot of money "unless he sells. Last weeks Market Fluctuation has just decressed the value of his stock holdings at the present time.Tell him to hold what stocks he has and direct his new 401K money 100% into Stable Value until he retires or at least until he gets an appropriate mix for his age..
All the Best, | Joe

User avatar
Abciximab
Posts: 76
Joined: Wed Mar 21, 2007 7:53 pm
Location: Phoenix

Post by Abciximab » Sun Jul 29, 2007 12:57 am

Thanks again to everyone for the help. I've convinced my dad to transfer his 401(k) to Vanguard next week. He's still moving into all cash for now, but speaking to an advisor at Vanguard will hopefully be a big help.
An investment in knowledge always pays the best interest - Benjamin Franklin

User avatar
SoonerSunDevil
Posts: 2000
Joined: Mon Feb 19, 2007 10:32 pm
Location: The desert

Re: If he is dead set against stocks....

Post by SoonerSunDevil » Sun Jul 29, 2007 1:04 am

dwbogle wrote:
Adrian Nenu wrote:50% in the Vanguard TIPS fund


VIPSX (Vanguard TIPS) is yeilding 2.5% + 2.2% inflation to total 4.7%. You can get CDs or MM funds for low 5%. Why do you recommend 50% in TIPS?


Because TIPS provide protection for unexpected inflation, and as such, they should yield a slightly lower amount than a nominal bond with the same characteristics. If inflation were to soar to levels seen in the 80's, you'd be very well protected with TIPS. Arguably, the biggest risk to most retirees is that of inflation and I'm unaware of any fixed income instrument that is better at protecting retirees from inflation than TIPS.

John
Last edited by SoonerSunDevil on Sun Jul 29, 2007 10:59 am, edited 1 time in total.

User avatar
WiseNLucky
Posts: 634
Joined: Tue Mar 13, 2007 5:14 am
Location: South Florida

Re: My dad is selling all stocks and going 100% cash - HELP!

Post by WiseNLucky » Sun Jul 29, 2007 7:45 am

Abciximab wrote:A few weeks back, I learned that my 50-year-old father . . . .


I'm so freaking old!

Obviously, your father carried more risk than he was prepared for, the result of which is exactly to be expected: a downturn pushed him to desire zero risk. I think the only thing you can do is to try to get him to leave some of his portfolio in stocks (half would be good) and see if he will read a book. We old men are NOT too old to learn, just stubborn.

Good luck!
WiseNLucky

User avatar
bob90245
Posts: 6511
Joined: Mon Feb 19, 2007 8:51 pm

Post by bob90245 » Sun Jul 29, 2007 8:09 am

I hope it's not to late with one more (different) idea.

Given your dad's propensity to be an active investor, I think it would be a poor idea to turn the whole wad into one balance fund. By the way, I think one balance fund would not be a bad idea -- except not in your dad's case. However, let's modify this a bit.

First of all, get your dad to agree to a "core and explore" approach. The "core" would be the one balance fund that he will not touch. It will be the bulk of the retirement money (somewhere between 70 and 90 percent).

Then he'll have the remainder (10 to 30 percent) be the "explore" part. In this part, your dad is free to move things around, market time, whatever. This will satisfy his need to "do something" when he gets skittish or when he gets to feel bold again.

To summarize, my hunch is that it will be very difficult to turn a person with an active investing mindset into a buy-and-hold Boglehead investor. So do it for the "core" amount. And then he'll have the rest to invest more freely.

User avatar
Adrian Nenu
Posts: 5228
Joined: Thu Apr 12, 2007 6:27 pm

Advice Overload!!!

Post by Adrian Nenu » Sun Jul 29, 2007 8:38 am

Advice Overload !!!

I guess it's better than being ignored.

My thinking is to get your dad to invest 50% in TIPS, 25% in Short Term Bond Index and 25% in Prime Money market. Then get him to read a few books. Once enlightened, he may decide to invest some of the money market allocation into stock funds. It might work, who knows?!

Adrian
anenu@tampabay.rr.com

User avatar
Abciximab
Posts: 76
Joined: Wed Mar 21, 2007 7:53 pm
Location: Phoenix

Post by Abciximab » Sun Jul 29, 2007 1:29 pm

Bob,
That core and explore idea is a great one. I remember reading something about that a while back. That'd be perfect for him because if everything is set up with a rigid allocation, he won't feel like he has any control. I think he'll like this idea.

WiseNLucky,
Don't forget, 50 is the new 30.
An investment in knowledge always pays the best interest - Benjamin Franklin

clay
Posts: 233
Joined: Sat Jun 30, 2007 11:08 am

The worst thing you could do

Post by clay » Sun Jul 29, 2007 2:06 pm

is probably to tell him to leave the money in equities and have the bottom fall out of the market. Moral: What makes for good financial advice is not necessarily good for family relationships.

If he would just park it all in VG's prime money market fund, he could do fine for at least awhile (no telling how long) while he sorted things out without worrying. At 50 he probably needs some equities, but he also needs to be able to sleep at night.[/b]

User avatar
jeff mc
Posts: 2711
Joined: Mon Feb 19, 2007 9:42 pm
Location: minnesota
Contact:

Post by jeff mc » Sun Jul 29, 2007 2:08 pm

if he's been all equity for at least all of 2007, he's still up YTD... i'd consider his move to cash right now as 'locking in some gains'... i don't view it as a train wreck. let him pull back, transfer to VG, figure out his risk needs, and reallocate. oh, well. this is not an 'expensive lesson'... it's a lesson that paid well ('07 ytd returns)

User avatar
bob90245
Posts: 6511
Joined: Mon Feb 19, 2007 8:51 pm

Post by bob90245 » Sun Jul 29, 2007 5:40 pm

The problem with sitting in cash to "sort things out" is that there is always something that will compel a skittish investor to keep everything in cash. (Has there ever been a time when the stock market "sorts things out?")

No one knows the direction of stocks in the short-term. So the better approach is to develop an equity-fixed split with the goal to sleep at night during both good times and bad. Set this equity-fixed split for at least for the "core" of the portfolio (70 to 90 percent). Then choose one balanced fund or one target retirement fund that matches that equity-fixed split.

Just my two cents...

User avatar
Ted Valentine
Posts: 1556
Joined: Tue Jul 10, 2007 10:28 am
Location: Music City USA

Re: Dad's AA

Post by Ted Valentine » Mon Jul 30, 2007 12:33 pm

marco100 wrote:Whoa there.

There's more than an AA issue to be dealt with here.

It's not really your responsibility to "help out" after they retire.


Wow. If s/he doesn't help his father (assuming he really needs it) who should?

When did it become an American value that children don't have to care for their elderly parents?

marco100
Posts: 763
Joined: Thu Mar 01, 2007 7:09 pm

Re: Dad's AA

Post by marco100 » Mon Jul 30, 2007 1:03 pm

Ted Valentine wrote:
marco100 wrote:Whoa there.

There's more than an AA issue to be dealt with here.

It's not really your responsibility to "help out" after they retire.


Wow. If s/he doesn't help his father (assuming he really needs it) who should?

When did it become an American value that children don't have to care for their elderly parents?


Unless the father gives the child control over the father's financial affairs, where exactly is the obligation?

windingpath
Posts: 30
Joined: Thu Apr 12, 2007 3:23 pm

Post by windingpath » Mon Jul 30, 2007 1:34 pm

Seriously, if a 5% dip could have such strong emotional impact on his financial decisions, it's probably better for him to stay 100% (or 90%) in cash/bond. If he lost a lot more than 5% last week, then the first order of business is probably to get a more diversified equity portfolio. Just my 2 cents.

User avatar
redbeard
Posts: 311
Joined: Fri Jun 08, 2007 9:36 am
Location: Dallas, Texas

Re: Dad's AA

Post by redbeard » Mon Jul 30, 2007 2:28 pm

marco100 wrote:
Ted Valentine wrote:
marco100 wrote:Whoa there.

There's more than an AA issue to be dealt with here.

It's not really your responsibility to "help out" after they retire.


Wow. If s/he doesn't help his father (assuming he really needs it) who should?

When did it become an American value that children don't have to care for their elderly parents?


Unless the father gives the child control over the father's financial affairs, where exactly is the obligation?


This is an awful situation to be in! I would assert that it is worse than being the parent of a highly irresponsible teen. In the case of a parent with an adult child who insists on continuing bad behavior despite every opportunity to to change, no one will judge a parent who chooses to cut the financial cord. However, when the irresponsible one is the parent at or nearing retirement, the child has even less authority but the expectation is an unlimited willingness to provide some sort of safety net if (really when) something goes wrong for the parent's retirement.

I wouldn't try to talk him out of selling his stocks at this point and taking some time to understand his long term plans and goals. Hopefully this very act of panic selling will make it a little easier to quantify the nature of his problem to either him or a financial advisor. Hopefully he takes the opportunity to learn from the process and put a strategy in place that he can stick to. Beyond that, all I can say is work on accepting the fact that you can't be responsible for your parents, and aren't obligated to bail them out if they insist on making unwise moves. If you have siblings, depending on the family dynamic it might help to discuss it some with them as well.

In my own case my mother is 68 and before she relocated from CA to TX this spring she spent her retirement funds down to next to nothing (she also gets the minimum SS, since she elected to start receiving it at the youngest possible age). Fortunately she had more equity in her CA house than she knew, so there is still enough for her to live on if she sticks to a budget. However, I'm not convinced that she really learned her lesson from the whole experience; she really doesn't seem to accept the idea of a budget. I only mention this so you know you aren't the only one agonizing over this kind of problem. I've lost more nights of sleep over this than I care to admit. Hang in there!

Post Reply