Mother (retired, owns home, steady pension covering living costs) and brother (collects a rent, self-employed, owns home) want to invest a sizeable amount and asking me to either plan or manage (oh dear) the investment. At the very least suggest a portfolio allocation. The idea is to make very few if any trades at all other than rebalancing, not add to it, just let it sit and not be cash.
My initial thought considering their situation and needs, which I know 100%, was something like:
This isn’t meant to be market beating or even matching, just to allow for some long-term growth while providing enough liquidity if and when needed.
My problem is the obvious one: investing for someone else, especially first degree relatives. Gut feel says “suggest an allocation and funds to use but don’t actually touch it/do it”.
Funny how when it’s for someone else I become a ton more conservative than for myself.
money needed during next 12 months should be in MMF or alike
Money needed during next 1-5 years should be in fixed income with matching duration
Rest can be in Gold, Stocks and long duration bonds
If no money is needed for next 5 years (because it’s covered with other income) then this question is more about risk profile and less about cash flows and needs. In that case a balanced portfolio (50% Equity , 45% Fixed income , 5% Gold) could make sense.
It would be good to also show them a bit how the portfolio might behave over the 10 year period in three scenarios
beginning 1 July 2007 (peak before GFC)
beginning on 1 April 2020 (bottom after Covid)
beginning 1 Jan 2014 (seemingly normal time)
I picked these time stamps intentionally because new investors should understand that any of this might happen and that would shape their experience. I might do this scenario analysis for my portfolio too just to see
What is the country of residence? In Switzerland we are shortly approaching negative interest rates where it won’t make much sense to hold bonds instead of cash.
Greece, so UCITS distributions and capital gains are tax free, any fixed income allocation would most likely be in EUR as that’s the currency and we don’t want to think about currency faff.
Re @Abs_max that’s all good and I agree in principle, the issue is it’s one thing seeing it and another living it. Emergencies can be covered by insurance, which they both have, and their foreseeable living needs are covered by their existing income but know both of them get anxious about money…
It is difficult as the longer you leave it, the more the perception of putting at risk something you held for a long time.
I ask because I wonder if it is due to some kind of FOMO motive which can be a red flag and how likely they are to hold through ups and downs.
I’d also caution on advice and handling: you will always get blamed for the falls. So make sure they know the risks and are willing to hold long term.
I’d add maybe REITs and commodity ETFs to diversify reducing 5% stocks, 10% cash. But even this might be ‘too risky/volatile’. If so, an option would be to reduce stock component further and put into bonds/cash.
Yeah that’s the thing, I don’t want to take the responsibility and in the back of my mind no matter how much I think “we’re not like that, I’d never be blamed” I think there is a possibility still that it could harm relationships.
Yeah, that’s why I thought 30-35% stocks, sort of a ringfenced bucket which “we don’t ever look at”, and the bulk of the rest in something slowly chugging along but not stagnant like cash.
Re advisors: I told them categorically: DO NOT dare to walk into a Greek bank and ask the question, you’ll get fleeced bad with 2% entry costs and 1-2% TER mutual funds.
Sounds okay to me to get things rolling.
But please keep in mind that Long duration Bond ETFs might also have similar psychological impact like Equity ETFs because they depend a lot on interest rates.
So something to explain to them that over time they recover but in between they can also move up and down
I am not driving the discussion, just responding when asked. I feel they’re more primed about it in terms of the mindset of having a clear sense of expected income and spending, potential for emergencies, and realization that cash sitting for 15 years is actually in the negative in a big way. Or maybe there’s the feeling of familiarity because someone very close to them has been doing this for a while.
I am pretty sure I won’t take over though, I’ll suggest a few funds and allocations and things to look out for - mostly understanding costs and how to keep them as low as possible.
There are UCITS assets allocation and target date funds with fixed income in EUR. Might be an option. Like buying bunch of target date funds and use money when they mature.
Another option is a high dividend strategy ETF. You can get around 3% payout per year without selling anything. Will result in insufficient wealth consumption, but there are worse things in life.
I would highly suggest a one ticker solution then.
Line item risk is real, especially with managing or recomending for others.
And that makes “managing” it extremely easy.
The Vanguard Lifestrategy etfs are perfect for this. They have 20-80% stocks / 80-20% bonds in 20% step versions.
I have most of my mom‘s money in the 60% stocks 40% bonds (hedged to €) etf for example.
For your mom the 40% stocks 60% bonds is probably most appropriate.
Maybe separate some extra 5-10% as cash buffer
They are neatly packaged for 0.25% total TER, tax free rebalancing, you basically get portfolio management for free with them.
They have accumulating and distributing versions, depening on what‘s most appropriate.
What is the goal of the investment? I know people who invest the money because they want to leave as much as possible as an inheritance. But IMHO, that’s stupid, because in that case you could also just take an advance on your inheritance. Then you would have full responsibility and could already do whatever you want with it now, instead of only when you’re old yourself.
Yes, one of the big things I got from “die with zero” is that we should give early.
After a while money becomes ‘worthless’ partly mechanically due to inflation, but mostly because you are too old to use it. By the time people realise and give it away, it might also be too late as giving to your kids when they are in the 50s is of course welcome, but may not make a big difference.
There were times in my life where receiving money would have been a huge help and stress relief. Now it would just increase a number on a bank statement and have no actual impact on my day to day life.
Totally agree with you
One fund is problème the best solution in.this case. My mum has also a Vanguard Life Strategy 40 for a few years now. Easy and efficient!
I have thought about it, making the stock allocation total to 65%, with 30% being in UCITS JEPI (the other 35% to all-world) for the reason that they’ll see that it’s “doing something” (ie they’d be getting cash every month) all the time, hence take some of the stress off, if it comes, it’s tax-free there, and they’ll be able to either pool or reinvest or consume.
That’s also a very valid option, likely again the distributing version and being very hands off, I’m just wary of suggesting an all-eggs-in-one-basket approach, despite trusting Vanguard personally. I feel for them it’s probably best to mentally and visually separate things. No decision has been made, just in the process of them feeling around the idea and asking questions.
There’s no clear goal other than not stack cash that’s invariably spent in silly things like supermarket and bills. I would be very against the idea of seeing this as part of my inheritance.
Eh, they’re both fine financially, not rich but without unmet needs either, and I’m earning well here and not in need of asking for help thankfully. Tbh maybe the issue is that there’s no clear goal about this other than not to sit on cash for 15+ more years!
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just to see
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