Unfortunately, I’ve also learned it’s very difficult for “kids” to give advice to the parental generation about their investments. It only came up because he had a pension lump sum rollover to invest and I was fairly confident in my Vanguard advocacy. I gave him info, not advice, as in here are the brochures (days before online prospectuses). Here are the Morningstar reports. That’s where I’m putting your granddaughter’s college funds. He decided to go with someone his employer referred him to – a broker who everyone else also used.
There were 17 years during which he could have changed his investment, but this broker became his “friend” and I’m sure FIL’s loyalty prevented action. When we were clearing out our ILs’ house after their deaths, there were a couple of phone messages from this particular broker, whose name I recognized later among FIL’s address book and on his Putnam statements. I can only guess he was calling to “advise” the family on what to do about the account because he probably saw the obits. Shudder.
Yes, my FIL has a “good friend from church” who handles his IRA. He seems to have enough money, so we stay out of it. I can’t imagine the conflict it would cause if any of the kids tried take a close look at his investments, or make suggestions on investment choices. For now I try to figure that his gift to us was making/keeping enough money so that he does not depend on us.
On that note, I plan to remind the kids next time they are home where our wills, trusts, and account information are. Not sure when we’ll sit down with them and talk about what’s in the accounts. My dad did that for us about the time the last one graduated from college, so maybe we are about due.
FA’s are often quite pleasant to talk to. No wonder people think a “good friend” is taking care of their money.
Attorneymom - we had a similar experience with our FA in the past. Since we had 60/40 allocation, we knew we could not expect to match S&P but still. One thing I have to say in defense of FA’s is that they could be quite helpful in down market. I think with a right supervision FA can be helpful if they can stick to their fiduciary role.
For the general public, I am not sure which is a greater issue; limited choices in their 401k or lack of financial advise.
I have been lurking on this thread from the beginning. It is informative and entertaining. Thanks to all for contributing.
@dstark, I’ve been working with the calculator you recommend at Financial Mentor .com. I like it better than any other I have tried. A question: is the “expected average annual return on investment” what I expect before or after inflation? So if I expect 3% inflation and 6% return for a net of 3% actual growth, should I use 6% or 3% in this field? Thanks.
“However, I do tend to leave a certain closet door open. Doesn’t bug me. Bugs her… And I hear about it…every single time I leave that closet door open.”
Your wife might want to do what my mom does. Put a large sticker on the door with bold black marker that says, “CLOSE DOOR”. My mom has put those stickers all over the house for my dad, though I wonder if it helps or if he just ignores them. Certainly the one that says, “FLUSH TOILET,” doesn’t seem to have an impact…
Regarding the calculator, what annual rate of return do you think is reasonable? Obviously, past performance is not indicative of future performance, but do you consider an 8% return unreasonable for equities? Or should I resort to historical rates for the S&P 500.
Also, for the inflation number, is 3.5% reasonable? What’s your opinion?
dstark,
Its that pesky health insurance cost unknown that is the most worrisome variable, And if we moved closer to the kids we’d have a mortgage again. Have enjoyed that being absent of late.
Attorneymother, DH uses a 4% return when he runs this stuff, IIRC. Hopefully its conservative.
I agree it’s better to be conservative so as not to overstate our preparedness. I’d like to think that we’re going to keep a large % in equities and that’s the portfolio I’m trying to project. It’s hard to throw it all together for a good picture unless you have a stable asset allocation and its consistent rate of return.
I am also going to leave out the 1-year liquidity for living expenses that should always be safely in money funds.
AttorneyMother, I am very conservative. I do not want to run out out of money. I also can not die with zero. I have to take care of one of my kids.
So… You are going to get a conservative view.
The last 15 years the stock market has returned something like 5 percent a year. That was after a stock bubble… So the returns are low…
i would run 5 percent for equities and 3 percent returns in treasury bonds. If you are invested in other bonds… Maybe a little higher rate for bonds.
Inflation has averaged about 3 percent for a very long time. I would probably go with 3 percent. 3.5 percent is ok.
So this would give me a base…
Then maybe I would run another calculation with 7-8 percent returns for stocks.
I traded for a long time…I am not as sure as other people where the stock market is going. If the stock market does better, I will be pleasantly surprised.
William Bernstein probably errs on the side of caution, and these are his predicted REAL rates of return (ie after accounting for his prediction of 2% inflation):
Thank you. I’m not a trader, so I stick with plain index funds, etc. There were some awful years around 2000-2? and 2008-9 but I was inert. I’m not sure what I would have done with a FA, probably still not much. That has turned out well for us since the recovery and especially for the past couple of years.
Yes, thanks for the chart & your thoughts @ixnaybob & @attorneymother. I would like to leave some funds behind for one of my kids, unless she is able to make a full recovery and able to hold a full-time job in the near future. We are keeping our fingers crossed (cautiously optimistic), but no guarantees as she has been battling this chronic condition for over a decades without significant progress.
@AttorneyMother, there are other people who anticipate higher returns, but I imagine that there were quite a few people in Japan who expected better than they got for decades. It is concerning that equities recovered so quickly in recent memory; it makes us think that it will always be a quick and sure recovery in equities. The person who wins on their first trip to Vegas is usually the one who develops a gambling problem.
You did well to do nothing during the previous declines. “Don’t do something, just stand there” worked for me also, but we have to realize that it might not always.
I think that, if one can, over-saving is a wise thing to do. If I have saved too much, the worst that will happen is that we will leave too much to our children and charity. Under-saving for anyone, but especially someone who has to think beyond his personal lifespan, is a very asymmetrical risk.
