Portfolio Review for Elderly Parent

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Joined: Thu Mar 02, 2023 8:27 am

Portfolio Review for Elderly Parent

Post by TopperI »

Hello - I'm a first timer poster but have done some homework on the Boglehead approach to investing. My mom has asked for my help in navigating her statements from Morgan Stanley and making cash transfers when needed. In reviewing her statements, I've become uneasy about what I'm seeing. I'd like to hear some Bogleheads wisdom. Do not feel constrained by the questions I've asked. If you see something, say something. Thank you. Here goes:

Emergency funds: $15K in local bank checking account

Debt: Zero.

Tax Filing Status: Single

Tax Rate: Effective Tax Rate - 16% Federal, 2.5% State

State of Residence: Arizona


Desired Asset allocation: 55% stocks / 45% bonds

Desired International allocation: 10% of stocks (this is only my opinion - Mom says "I just don't know anything about it" when asked.)

Approximate size of total portfolio: 1.1M

3.6% cash
25K Morgan Stanley Bank NA - APR: 0.01%
14K Vanguard SHR-TM Inflate Protec (VTIP)
4.5% American BD FD of America F2 (ABNFX) (ER 0.33%)
6.6% American INV CO of Amer F2 (ICAFX) (ER 0.38%)
5.6% Calamos Market Neutral Inc 1 (CMNIX) (ER 0.93%)
7.6% First Eagle Global (SGIIX) (ER 0.86%)
4% FPA Crescent FD Supra Inst (FPCSX) (ER 0.99%)
1% MSIF Ultra-Short Income IR (MULSX) (ER 0.25%)
3.1% T Rowe Spectrum CNSRV Alloc (PRSIX) (ER 0.64%)
2.8% Thornburg LTD TRM Muni 1 (LTMIX) (ER 0.48%)
3.6% Vanguard Star Inv (VGSTX) (ER 0.31%)

Traditional IRA:
3% cash
33K Morgan Stanley Bank NA - APR: 0.01%
8.1% Calamos Market Neutral Inc 1 (CMNIX) (ER 0.93%)
15% First Eagle Global I (SGIIX) (ER 0.86%)
10.6% T Rowe Spectrum Mod Alloc (TRPBX) (ER 0.73%)
8.3% T Rowe Spectrum Mod GW Alloc (TRSGX) (ER 0.77%)
12.6% Vanguard Wellesley Inc Inv (VWINX) (ER 0.23%)

New annual Contributions: None

Is the cash allocation appropriate for an 81 yr old with no debt?

Should the cash be moved to another low risk investment that will provide better than 0.01% APR (e.g., to money market funds or T-Bills)?

I am considering moving the accounts to Vanguard, simplifying the portfolio, and reducing the expenses. Parent is currently paying $7K/yr in advisor fee in addition to expense ratios. What are the tax implications of moving the taxable account?
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Re: Portfolio Review for Elderly Parent

Post by HomeStretch »

Aside from her investments, how much is your mom’s annual income from SS, pensions, annuities, etc.?

How much are your mom’s total annual expenses for everything including income taxes, healthcare and lumpy expenses such as a new car or home repair?

How is your mom’s health? Does your mom have long term care insurance or will she self-fund care expenses, if any?

Your mom’s portfolio could be simplified to use fewer funds and to use lower cost funds. DIY would also save $7k in annual advisor fees.

How is your mom’s risk tolerance? My parents equity % at a similar age was around 40%.

Does your mom have her estate planning in place including a DPOA that names you as her agent so you can assist her with her investments? Has the DPOA been recognized by her bank and brokerage?

Consider Fidelity or Schwab especially if there is a local office. There are past forum threads about POA friendly brokerages. I can say from first hand experience that Fidelity is much more POA friendly than Vanguard. My understanding is that Schwab is too.
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Re: Portfolio Review for Elderly Parent

Post by Sandwich »

TopperI wrote: Sun Sep 17, 2023 3:44 pm ...
3.6% cash
25K Morgan Stanley Bank NA - APR: 0.01%

Traditional IRA:
3% cash
33K Morgan Stanley Bank NA - APR: 0.01%
Is the cash allocation appropriate for an 81 yr old with no debt?

Should the cash be moved to another low risk investment that will provide better than 0.01% APR (e.g., to money market funds or T-Bills)?
Is your Mom open to leaving her Morgan Stanley advisor ? Would Mom be reluctant to a "makeover" of her portfolio and then having it with Vanguard ? Are you comfortable with the idea that if things go "south" that Mom may place blame on you for initiating the changes.

(I personally know a Morgan Stanley account holder. She will not move from MS, pays the advisory fee and has met the advisor in person, on occasion, and also can call on the phone.)

What is actionable for your Mom now is a reallocation of the "cash". The 0.01 % on the cash looks like the "sweep account".

My impression is that Morgan Stanley does not have a "sweep account" option like Vanguard where one can earn 5%+ interest or a decent money market option. Currently, $ 58,000+ of your Mom's cash is generating good income for Morgan Stanley. Consider moving the cash into a safe cash-equivalent such as SGOV while you decide on what asset allocation / fund mix may be better for your Mom.

Do you have information on the unrealized capital gains / losses on the investments in the taxable account ? This information can be valuable as you decide to simplify the portfolio ... perhaps taking gains / losses as you divest from weaker funds and reinvest in stronger funds.
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Re: Portfolio Review for Elderly Parent

Post by Watty »

TopperI wrote: Sun Sep 17, 2023 3:44 pm Questions:
Is the cash allocation appropriate for an 81 yr old with no debt?
I had a hard time understanding your numbers but it looked like maybe 6.6% which is a bit high but it is not really a problem if the cash was in a savings account money market fund which which was earning in the ballpark of 5% but it looks like it is not so that should be corrected.
TopperI wrote: Sun Sep 17, 2023 3:44 pm If you see something, say something.
Generally it is best to not have bonds, and especially TIPS, in a taxable account when you have space for them in tax deferred retirement accounts because of the way that they are taxed.

https://www.bogleheads.org/wiki/Tax-eff ... _placement
TopperI wrote: Sun Sep 17, 2023 3:44 pm What are the tax implications of moving the taxable account?
You can likely move most if not all the taxable investments to Vanguard "in kind" without selling them so there would not be any immediate tax implications when you do that. When you contact Vanguard they will look at the investments and tell you if there is something which cannot be held at Vanguard. In theory the cost basis information should be transferred too but it would be good to print all that out from the Schwab account before the transfer just so you are sure to have a good record of it.

Figuring out the cost basis of the Schwab holdings in the taxable account could be a bit complicated and you need to double check to make sure that the Schwab cost basis is correct. A potential complication is that if the taxable account was also owned by your dad and he passed away then the cost basis may have been stepped up, or partially stepped up, based on the investment price on the day of his death. The way that this works is complicated since it can vary with the state laws and the exact way that the account was titled. People have posted that brokerages sometimes do not automatically do this, or they may not do it right. While you have access to the financial advisor it would be good to ask him or her about the cost basis if you dad was an account owner and he has passed away.


With the funds in the taxable account it would be good to have them changed so that they do not automatically reinvest any dividends, interest, or capital gains distributions. If you can do this online there may be multiple settings or you may need to call their 800 number to have them set it if you cannot do it online. The reason that you want to do this is so that you are not buying any more of the mutual funds that she may not want to keep for the long term. Not reinvesting them will also mean that a year from now all the funds will have been owned for a year so that any gains will be taxed at the lower long term capital gains tax rate. There will likely be some distributions near the end of September since it is the end of a quarter and often there are larger distributions at the end of December near year end. You might want to make this change soon so that the September distributions will not be reinvested.

It will be tempting to just sell off all the funds in the taxable account so that they can be invested better but you need to be cautious about that. There are two potential problems with all that.

1) If she has a lot of capital gains in one year that can trigger additional taxes including taxing more of her Social Security, IRMMA taxes, and NIIT taxes. This could result in a tax bill much higher than the 15% long term capital gains tax that you might be expecting.

2) If she keeps them and they eventually go to her estate then the estate will get them at a stepped up cost basis and the capital gains taxes would never need to be paid.

There is a quote that you will often see here, 'The enemy of a good plan is the dream of a perfect plan.'. Often it is best to leave some less than perfect investments alone in a taxable account since the cost to make them more perfect may be too high.

There should be no tax problems within the IRA for reinvesting the money into better investments.

You might want to have a tax accountant help her figure out what is best for her.

One other thing. If she supports a charity or a church then instead of giving them cash she can give them shares of the appreciated mutual funds instead. Neither she nor the charity would need to pay the capital gains taxes.

If she gives money to her kids or grandkids then instead of cash she could also give them shares of the mutual fund instead. The recipient would still have her cost basis but someone like a 25 year old grandkid might be in the 0% federal long term capital gains tax bracket. Young grandkids who are minors might also be subject to the "kiddie tax" so there are lots of details to consider.

One other thing. People have posted about Vanguard being difficult, or impossible, to deal with when you have power of attorney or if some of the documents are more than 5 years old or not on their forms. If you move her investments to Vanguard make sure that the paperwork is in place for you to manage her accounts while she is still able to give her consent. There are lots of threads and posts about customer service problems with Vanguard and lots of people including myself have moved away from them recently. I had accounts with Vanguard for over 20 years but I moved to Fidelity about a year ago because I had some problems with their customer service. Vanguard does not pay a transfer bonus but many brokerages will pay you a bonus when you move account. I forget to ask for it but I think Fidelity does. If you move somewhere other than Vanguard be sure to ask for a transfer bonus.

Another option would be to just leave it at Schwab but to stop using the financial advisor and paying that fee. She should be able to do just fine at Schwab since they have a generally good reputation. You can even buy Vanguard ETFs there if you want to.
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