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PaperclipPerfector  7d ago (text post)   2351 thread views

Small-Scale Question Sunday for March 30, 2025

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I've found myself in the position of being responsible for my elderly mother's finances. She has 800k to her name and has to earn approximately 20k per year off of it for necessary expenses.

I have a totally different risk tolerance in my station of life than she does, so all of my knowledge kind of goes out the window.

For now I have about 300k of her money in a HYSA, earning 4%. Not really sure where to park the rest.

JP Morgan keeps hassling her about some of their managed funds. Gotta admit I'm kind of attracted to allowing them to manage it (with a 1.3% fee though). They also are pushing an annuity which I just went ahead and declined.

If I just put everything into a CD at this point, it'll more than cover her expenses, but who knows what rates will do in the future and it seems like leaving money on the table (which at her age might be fine to buy some security). Also, she'd love to maintain as much as possible to leave to her 4 children. How would you handle this?

One thing to keep in mind is step up basis. Keeping most of her money in stocks means her heirs don't pay capital gains on the value accrued during her life. That's especially important if you and your siblings are high earners.

My old man's portfolio is all stock. If he ever needs cash I'll gladly cover it so he doesn't have to sell stock that's 3xed, which will magically drop to zero capital gains when I inherit. But the math on that is easier as an only child.

Depending on how old she is, she might be comfortable with withdrawal rate that's greater than the normal 4% that's usually thought of as the "safe withdrawal rate". As others have said, a managed fund is almost always a bad call.

but who knows what rates will do in the future and it seems like leaving money on the table (which at her age might be fine to buy some security)

It is! you're managing your mother's finances, not running a hedge fund

If you don't mind me asking: how old is she? What kind of health coverage does she have? Does she have any sort of pension already?

In her 70s with health problems. She has decent health coverage with medicare and a private supplemental.

Vanguard Target Retirement Income Fund

The Target Retirement Income Fund is designed for investors already in retirement. The fund seeks to provide current income and some capital appreciation by investing in Vanguard index funds. This fund’s allocation to stocks and bonds [30∶70] is the allocation that all Target Retirement Funds are expected to assume within seven years after their designated retirement dates. Investors in this fund should be willing to accept modest movement in share price and be able to tolerate the market risk that comes from the volatility of the stock and bond markets.

Or, if you're feeling risk-averse: Vanguard Total World Bond ETF

  • Seeks to track the performance of the Bloomberg Global Aggregate Float Adjusted Composite Index.

  • Broad, diversified exposure to the global investment-grade bond market.

  • Unique ETF of ETFs structure.

  • Intermediate-duration portfolio, with exposure to short-, intermediate-, and long-term maturities.

  • Provides current income with high credit quality.

Comparison page

Parking all of the 800k in a 4% HYSA will give her 32k per year. What's the problem?

Do not ever go for an expensive, actively managed fund. 1.3% is absurd, unless you've somehow discovered the next Buffett, Lynch, or Marks. Nearly all of them under-perform the index! Of course they're hassling her to go for it, they want her money. Doesn't mean she'll benefit from it. They don't GAF. The vast majority of active managers are even worse at their jobs now than 20 or 40 years ago.

If you want to make the money grow for the next generation rather than just produce 32k per year (probably not enough to beat inflation), put a few hundred thousand in an index fund (the cheapest passive index fund that covers either the US or the world).

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