Mother in Law wants help investing 70K

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teacher2163
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Mother in Law wants help investing 70K

Post by teacher2163 »

My mother in law asked me to help her invest around $70,000 that they just came into. I have learned not to give unsolicited advice. My in laws have Social Security income, no debt, and probably $500,000 in CD's. My father in law is 85 and My mother in law is 70. I believe that they are able to meet their monthly expenses on Social Security, and have a little left over. The money in CD's is, in their minds, for emergencies. I am not going to try to talk them into doing anything with that money, and I doubt they would be willing to talk too much about their financial situation. My thought was to put the money into the Wellesley Income Fund at Vanguard if they want to be more conservative, or if they want to be a little more aggressive I was thinking the Wellington Fund. This will be a set it and forget it kind of thing. Would either of these funds be appropriate for the situation? I apologize that I don't have a more complete financial picture, but I am giving you what I know. As always, thanks in advance for the great input on this forum.
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Raymond
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Re: Mother in Law wants help investing 70K

Post by Raymond »

teacher2163 wrote: Mon Feb 01, 2021 9:34 am My mother in law asked me to help her invest around $70,000 that they just came into. I have learned not to give unsolicited advice...
Hahaha! The first question I was going to ask was "Did she ask for your help?" :sharebeer

The Wellesley or Wellington funds would be good, in my opinion, but ask her about their risk tolerance.

If they are risk-averse, there's nothing wrong with more CDs.

A Groucho Marx story:

Groucho was once walking around the New York Stock Exchange when one of the traders on the floor asked him: “Groucho, how do you invest your money?” Groucho answered: “All in bonds.” The trader asked: “But Groucho, they don’t pay much return.” Groucho said: “They do when you have a lot of 'em!”

I know, bonds aren't CDs, but you get the idea.
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lakpr
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Re: Mother in Law wants help investing 70K

Post by lakpr »

In the words of YNAB (paraphrasing), "give every dollar a job to do".
Restated, the question is -- what is the intended purpose of this money?

If your in-laws themselves do not know what to do with the money, then the safest and simplest solution is to stick in the CDs with the highest yield they can find.

If the intended purpose for this money is perhaps to pass it on to heirs -- then it is better to gift it to such heirs now. At $30k per person per year that they can gift it to (without having to file gift tax returns), the money would not last more than 2 years anyway.

OR, perhaps stick it all into Vanguard Total Stock Market Index, and designate the intended beneficiaries as heirs so they will inherit it with stepped-up basis. This path does carry the risk of principal loss, though.
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Re: Mother in Law wants help investing 70K

Post by dwickenh »

Seems like they are good candidates for Wellesley as it is a hands off fund that is conservative. It is my best suggestion for people with limited ability to take on risk while still supplying a decent return. YMMV.

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Re: Mother in Law wants help investing 70K

Post by vineviz »

teacher2163 wrote: Mon Feb 01, 2021 9:34 am My thought was to put the money into the Wellesley Income Fund at Vanguard if they want to be more conservative, or if they want to be a little more aggressive I was thinking the Wellington Fund.
I agree with others that knowing more detail about their intention (e.g. why are they "investing" this money but not the $500k in CDs) is crucial for making a good decision.

That said, I can say that I'd certainly favor something like Vanguard LifeStrategy Conservative Growth Fund (VSCGX) over something like Wellesley Income. It doesn't sound like they actually need more income currently which makes me the think the better-diversified VSCGX would be a more prudent choice.
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delamer
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Re: Mother in Law wants help investing 70K

Post by delamer »

If they have no money in stocks or bonds at their ages, I wouldn’t start now. The fluctuations in value would make them uncomfortable.

Put it in CDs.
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7eight9
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Re: Mother in Law wants help investing 70K

Post by 7eight9 »

As conservative investors your in-laws might like fixed annuities. These days they are paying better than CDs.

A fixed annuity is an insurance contract that pays a fixed rate of interest for a "set term", usually ranging from one to ten years. After the set term, a new fixed rate is offered for the next term. One popular form of a fixed annuity is a "multi-year guaranteed annuity", or "MYGA", also referred to as a "CD annuity".
Learn more about fixed annuities --- https://www.bogleheads.org/wiki/Fixed_annuity

There was a good thread recently titled Purchasing MYGAs - Blueprint Income vs. Gainbridge vs. Canvas that might be worth a look.
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Re: Mother in Law wants help investing 70K

Post by retired@50 »

teacher2163 wrote: Mon Feb 01, 2021 9:34 am My father in law is 85 and My mother in law is 70.
...
I believe that they are able to meet their monthly expenses on Social Security, and have a little left over.
Given the facts above, will they still be able to meet their monthly expenses when one of them passes?

I'd consider one of the LifeStrategy funds at Vanguard or the W & W pair that you already know about. This money, and the $500k in CDs might be called upon to provide some monthly income at some point in the future.

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Re: Mother in Law wants help investing 70K

Post by Pops1860 »

I would not consider annuities or any other investment besides 'cash deposit' in appropriate investment account. From your description, they seem to have a good income stream and cash (CDs) reserve for their situation. If it ain't broke, don't fix it. :D

Regarding the 'new' $70K, I would discuss with them their reason for asking you for advice at this time, i.e., are they concerned about something with their existing CDS?, or, are they just looking around to see if something better is out there? If the latter, risk tolerence discussion is most important, many people at that age have very low risk tolerence, and sleep well at night.

They may just be asking you to 'confirm' that what they are doing is a good thing (staying in CDs), which, in their situation, would be totally appropriate.

IF they seem newly interested in exploring more investment options (and understand the risks involved), then the funds discussed in previous posts seem like good options.

I suggest that you and they remember this is not an 'all or nothing' decision. If they want to test the waters, you can suggest they invest some of the $70K in the 'new' mutual funds, and the rest in a set of laddered CDs. Then, as they gain experience with maket volitility, they can continue to invest more $$ in the mutual funds as the CDs mature. Or NOT!

Bottom line - suggest you discuss with them why they are asking for your advice at this time, and IF you end up suggesting something more than just continuing CDs, take it baby steps at a time.
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eye.surgeon
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Re: Mother in Law wants help investing 70K

Post by eye.surgeon »

Lifestrategy income would be a reasonable choice also.
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FelixTheCat
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Re: Mother in Law wants help investing 70K

Post by FelixTheCat »

The parents have 100% of their money in safe fixed income investments. They probably will want something that is safe and will at least grow with inflation. I bonds? Tips?

I suggest Vanguard's Personal Advisor Service. PAS should provide a complete financial picture of their financial situation prior to making a recommendation.
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annu
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Re: Mother in Law wants help investing 70K

Post by annu »

If you plan to be their guy for anytime market changes, fluctuates, goes down for them or not up enough, not worth the hassle man. I had similar request, and found them a reliable financial guy, who works on fee, and was there to help them along the way, ensuring they do not get some bad advise.

But the amount of money you will be saving them, not worth the hassle man....my folks similarly were mostly into fixed income, the financial guy earned every cent he made :D :) 8-)
lakpr
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Re: Mother in Law wants help investing 70K

Post by lakpr »

FelixTheCat wrote: Mon Feb 01, 2021 12:34 pm The parents have 100% of their money in safe fixed income investments. They probably will want something that is safe and will at least grow with inflation. I bonds? Tips?

I suggest Vanguard's Personal Advisor Service. PAS should provide a complete financial picture of their financial situation prior to making a recommendation.
I-Bonds, TIPS are excellent advice.

Based on the recent feedback from posters who do have VPAS or did have VPAS, I am not sure that they are worth it. They are offering cookie-cutter advice, such as suggesting a mix of long-term domestic bonds, intermediate-term domestic bonds, short-term domestic bonds, long-term international bonds, intermediate-term international bonds and short-term international bonds. The taxable investments themselves are also being urged to change to ETF share classes.

Not everyone needs six different bond funds or their ETF equivalents in their portfolio. When we asked the posters why VPAS suggested six different bond funds, not one came back and updated with the reply from Vanguard, and in the absence of contrary, we must conclude that even VPAS guys have no clue why.
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teacher2163
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Re: Mother in Law wants help investing 70K

Post by teacher2163 »

Thanks for the great responses. To answer a couple questions and address some concerns from the responses. First, I appreciate the advice on the CD's, managing their expectations for their money, and the risk of being the guy responsible for the money decreasing in value. I am going to further look into LifeStrategy funds at Vanguard. As far as them worrying about returns, I don't know if they would look at the fund every day or never. A good thought that I hadn't considered is how they would live off of just one income. My father in law's social security is pretty significant, as far as social security goes, and my mother in law's is quite small, so I think the remaining spouse would have enough income. They are very frugal people. My brother and sister in law and ourselves are in a position where we could help down the road if necessary. Hopefully, it does not come to that. I need to have a talk about what their goals are, and what their financial situation actually is. Right now, I'm kind of guessing from tidbits said over the years. Of course, they are of the generation that doesn't really want to talk about finances.
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Re: Mother in Law wants help investing 70K

Post by delamer »

teacher2163 wrote: Tue Feb 02, 2021 6:09 am Thanks for the great responses. To answer a couple questions and address some concerns from the responses. First, I appreciate the advice on the CD's, managing their expectations for their money, and the risk of being the guy responsible for the money decreasing in value. I am going to further look into LifeStrategy funds at Vanguard. As far as them worrying about returns, I don't know if they would look at the fund every day or never. A good thought that I hadn't considered is how they would live off of just one income. My father in law's social security is pretty significant, as far as social security goes, and my mother in law's is quite small, so I think the remaining spouse would have enough income. They are very frugal people. My brother and sister in law and ourselves are in a position where we could help down the road if necessary. Hopefully, it does not come to that. I need to have a talk about what their goals are, and what their financial situation actually is. Right now, I'm kind of guessing from tidbits said over the years. Of course, they are of the generation that doesn't really want to talk about finances.
I am going to push back on the idea that “they are of the generation that doesn’t really want to talk about finances.”

My husband and I are just a few years younger than your MIL, and my kids are fully informed about our finances. I, in turn, knew was going on with my parents’ finances and to some extent my in-laws.

This is much more a matter of personal choice and family patterns than it is generational.
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Ikihi
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Re: Mother in Law wants help investing 70K

Post by Ikihi »

teacher2163 wrote: Mon Feb 01, 2021 9:34 am My mother in law asked me to help her invest around $70,000 that they just came into. I have learned not to give unsolicited advice. My in laws have Social Security income, no debt, and probably $500,000 in CD's. My father in law is 85 and My mother in law is 70. I believe that they are able to meet their monthly expenses on Social Security, and have a little left over. The money in CD's is, in their minds, for emergencies. I am not going to try to talk them into doing anything with that money, and I doubt they would be willing to talk too much about their financial situation. My thought was to put the money into the Wellesley Income Fund at Vanguard if they want to be more conservative, or if they want to be a little more aggressive I was thinking the Wellington Fund. This will be a set it and forget it kind of thing. Would either of these funds be appropriate for the situation? I apologize that I don't have a more complete financial picture, but I am giving you what I know. As always, thanks in advance for the great input on this forum.
I think the Wellesley fund is an ok choice, but the bonds in the portfolio have a moderate amount of interest rate risk because they are mostly investment grade with 8 years effective duration. Remember we are at the end of the bull bond market.
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Re: Mother in Law wants help investing 70K

Post by delamer »

Ikihi wrote: Tue Feb 02, 2021 1:07 pm
teacher2163 wrote: Mon Feb 01, 2021 9:34 am My mother in law asked me to help her invest around $70,000 that they just came into. I have learned not to give unsolicited advice. My in laws have Social Security income, no debt, and probably $500,000 in CD's. My father in law is 85 and My mother in law is 70. I believe that they are able to meet their monthly expenses on Social Security, and have a little left over. The money in CD's is, in their minds, for emergencies. I am not going to try to talk them into doing anything with that money, and I doubt they would be willing to talk too much about their financial situation. My thought was to put the money into the Wellesley Income Fund at Vanguard if they want to be more conservative, or if they want to be a little more aggressive I was thinking the Wellington Fund. This will be a set it and forget it kind of thing. Would either of these funds be appropriate for the situation? I apologize that I don't have a more complete financial picture, but I am giving you what I know. As always, thanks in advance for the great input on this forum.
I think the Wellesley fund is an ok choice, but the bonds in the portfolio have a moderate amount of interest rate risk because they are mostly investment grade with 8 years effective duration. Remember we are at the end of the bull bond market.
No one knows if we are at the end if anything.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Ikihi
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Re: Mother in Law wants help investing 70K

Post by Ikihi »

delamer wrote: Tue Feb 02, 2021 1:15 pm
Ikihi wrote: Tue Feb 02, 2021 1:07 pm
teacher2163 wrote: Mon Feb 01, 2021 9:34 am My mother in law asked me to help her invest around $70,000 that they just came into. I have learned not to give unsolicited advice. My in laws have Social Security income, no debt, and probably $500,000 in CD's. My father in law is 85 and My mother in law is 70. I believe that they are able to meet their monthly expenses on Social Security, and have a little left over. The money in CD's is, in their minds, for emergencies. I am not going to try to talk them into doing anything with that money, and I doubt they would be willing to talk too much about their financial situation. My thought was to put the money into the Wellesley Income Fund at Vanguard if they want to be more conservative, or if they want to be a little more aggressive I was thinking the Wellington Fund. This will be a set it and forget it kind of thing. Would either of these funds be appropriate for the situation? I apologize that I don't have a more complete financial picture, but I am giving you what I know. As always, thanks in advance for the great input on this forum.
I think the Wellesley fund is an ok choice, but the bonds in the portfolio have a moderate amount of interest rate risk because they are mostly investment grade with 8 years effective duration. Remember we are at the end of the bull bond market.
No one knows if we are at the end if anything.
Well do you think interest rates will be further cut? Do you think interest rates could go negative?
delamer
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Re: Mother in Law wants help investing 70K

Post by delamer »

Ikihi wrote: Tue Feb 02, 2021 1:22 pm
delamer wrote: Tue Feb 02, 2021 1:15 pm
Ikihi wrote: Tue Feb 02, 2021 1:07 pm
teacher2163 wrote: Mon Feb 01, 2021 9:34 am My mother in law asked me to help her invest around $70,000 that they just came into. I have learned not to give unsolicited advice. My in laws have Social Security income, no debt, and probably $500,000 in CD's. My father in law is 85 and My mother in law is 70. I believe that they are able to meet their monthly expenses on Social Security, and have a little left over. The money in CD's is, in their minds, for emergencies. I am not going to try to talk them into doing anything with that money, and I doubt they would be willing to talk too much about their financial situation. My thought was to put the money into the Wellesley Income Fund at Vanguard if they want to be more conservative, or if they want to be a little more aggressive I was thinking the Wellington Fund. This will be a set it and forget it kind of thing. Would either of these funds be appropriate for the situation? I apologize that I don't have a more complete financial picture, but I am giving you what I know. As always, thanks in advance for the great input on this forum.
I think the Wellesley fund is an ok choice, but the bonds in the portfolio have a moderate amount of interest rate risk because they are mostly investment grade with 8 years effective duration. Remember we are at the end of the bull bond market.
No one knows if we are at the end if anything.
Well do you think interest rates will be further cut? Do you think interest rates could go negative?
I have no idea; it’s irrelevant to the way I invest and we don’t need to take out loans anymore.

What I do know is that some people on this forum seemed sure they couldn’t continue to fall a couple years ago, but here we are.

And maybe more importantly, I don’t know how long the current rates will remain in effect and neither does anyone else. Therefore, we can’t know if “we are at the end of a bull bond market.”
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Ikihi
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Re: Mother in Law wants help investing 70K

Post by Ikihi »

delamer wrote: Tue Feb 02, 2021 1:30 pm
Ikihi wrote: Tue Feb 02, 2021 1:22 pm
delamer wrote: Tue Feb 02, 2021 1:15 pm
Ikihi wrote: Tue Feb 02, 2021 1:07 pm
teacher2163 wrote: Mon Feb 01, 2021 9:34 am My mother in law asked me to help her invest around $70,000 that they just came into. I have learned not to give unsolicited advice. My in laws have Social Security income, no debt, and probably $500,000 in CD's. My father in law is 85 and My mother in law is 70. I believe that they are able to meet their monthly expenses on Social Security, and have a little left over. The money in CD's is, in their minds, for emergencies. I am not going to try to talk them into doing anything with that money, and I doubt they would be willing to talk too much about their financial situation. My thought was to put the money into the Wellesley Income Fund at Vanguard if they want to be more conservative, or if they want to be a little more aggressive I was thinking the Wellington Fund. This will be a set it and forget it kind of thing. Would either of these funds be appropriate for the situation? I apologize that I don't have a more complete financial picture, but I am giving you what I know. As always, thanks in advance for the great input on this forum.
I think the Wellesley fund is an ok choice, but the bonds in the portfolio have a moderate amount of interest rate risk because they are mostly investment grade with 8 years effective duration. Remember we are at the end of the bull bond market.
No one knows if we are at the end if anything.
Well do you think interest rates will be further cut? Do you think interest rates could go negative?
I have no idea; it’s irrelevant to the way I invest and we don’t need to take out loans anymore.

What I do know is that some people on this forum seemed sure they couldn’t continue to fall a couple years ago, but here we are.

And maybe more importantly, I don’t know how long the current rates will remain in effect and neither does anyone else. Therefore, we can’t know if “we are at the end of a bull bond market.”
Interest rates are currently near zero. Since they can’t really be cut, that’s the end of existing bonds appreciating in price from interest rate cuts. If interest rates start climbing long term investment grade bond funds could decline in price IMO.
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Re: Mother in Law wants help investing 70K

Post by vineviz »

Ikihi wrote: Tue Feb 02, 2021 1:33 pm Interest rates are currently near zero. Since they can’t really be cut, that’s the end of existing bonds appreciating in price from interest rate cuts. If interest rates start climbing long term investment grade bond funds could decline sharply in price.
Bond yields can go down or up from here, and you shouldn't believe anyone who tells you that they know which is more likely. Nor should you believe anyone who tells you they can go up but not down.

More importantly, long-term bonds are appropriate only for long-term investors. Short-term bonds are appropriate only for short-term investors. You know which of those YOU are, and that tells you everything you need to know about which bond durations YOU should hold.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Mother in Law wants help investing 70K

Post by Watty »

Another fund to consider would be the Vanguard Target Date Retirement Income fund.

It might seem silly but one advantage of that is that name stands out as being something that is conservative and appropriate for them so that if it does dip then they may be more prone to stick with it until it recovers.

If it does do badly for a while then it could also be less awkward about you having picked a bad investment for them since it is clear that it was an appropriate investment for them.

After they have had it for while they might even feel more comfortable with it and then consider putting some of their other CD money into it too.
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Re: Mother in Law wants help investing 70K

Post by delamer »

Ikihi wrote: Tue Feb 02, 2021 1:33 pm
delamer wrote: Tue Feb 02, 2021 1:30 pm
Ikihi wrote: Tue Feb 02, 2021 1:22 pm
delamer wrote: Tue Feb 02, 2021 1:15 pm
Ikihi wrote: Tue Feb 02, 2021 1:07 pm

I think the Wellesley fund is an ok choice, but the bonds in the portfolio have a moderate amount of interest rate risk because they are mostly investment grade with 8 years effective duration. Remember we are at the end of the bull bond market.
No one knows if we are at the end if anything.
Well do you think interest rates will be further cut? Do you think interest rates could go negative?
I have no idea; it’s irrelevant to the way I invest and we don’t need to take out loans anymore.

What I do know is that some people on this forum seemed sure they couldn’t continue to fall a couple years ago, but here we are.

And maybe more importantly, I don’t know how long the current rates will remain in effect and neither does anyone else. Therefore, we can’t know if “we are at the end of a bull bond market.”
Interest rates are currently near zero. Since they can’t really be cut, that’s the end of existing bonds appreciating in price from interest rate cuts. If interest rates start climbing long term investment grade bond funds could decline in price IMO.
No, if interest rates climb then long-term bonds WILL lose value.

The point is that no one knows when or if that will happen. The status quo could continue for 10 years, or it could be upended in 10 days.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Ikihi
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Re: Mother in Law wants help investing 70K

Post by Ikihi »

delamer wrote: Tue Feb 02, 2021 1:45 pm
Ikihi wrote: Tue Feb 02, 2021 1:33 pm
delamer wrote: Tue Feb 02, 2021 1:30 pm
Ikihi wrote: Tue Feb 02, 2021 1:22 pm
delamer wrote: Tue Feb 02, 2021 1:15 pm

No one knows if we are at the end if anything.
Well do you think interest rates will be further cut? Do you think interest rates could go negative?
I have no idea; it’s irrelevant to the way I invest and we don’t need to take out loans anymore.

What I do know is that some people on this forum seemed sure they couldn’t continue to fall a couple years ago, but here we are.

And maybe more importantly, I don’t know how long the current rates will remain in effect and neither does anyone else. Therefore, we can’t know if “we are at the end of a bull bond market.”
Interest rates are currently near zero. Since they can’t really be cut, that’s the end of existing bonds appreciating in price from interest rate cuts. If interest rates start climbing long term investment grade bond funds could decline in price IMO.
No, if interest rates climb then long-term bonds WILL lose value.

The point is that no one knows when or if that will happen. The status quo could continue for 10 years, or it could be upended in 10 days.
Yes I know, that is basically what I said : “if interest rates start climbing long term investment grade bonds could decline in price”. That is true, interest rates might not rise for years.
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Re: Mother in Law wants help investing 70K

Post by FelixTheCat »

lakpr wrote: Mon Feb 01, 2021 1:27 pm Based on the recent feedback from posters who do have VPAS or did have VPAS, I am not sure that they are worth it.
VPAS is great for people that do not want to do their own research. Not everyone wants to read Boglehead wikis or read countless posts in the forums.
Felix is a wonderful, wonderful cat.
Ikihi
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Re: Mother in Law wants help investing 70K

Post by Ikihi »

vineviz wrote: Tue Feb 02, 2021 1:38 pm
Ikihi wrote: Tue Feb 02, 2021 1:33 pm Interest rates are currently near zero. Since they can’t really be cut, that’s the end of existing bonds appreciating in price from interest rate cuts. If interest rates start climbing long term investment grade bond funds could decline sharply in price.
Bond yields can go down or up from here, and you shouldn't believe anyone who tells you that they know which is more likely. Nor should you believe anyone who tells you they can go up but not down.

More importantly, long-term bonds are appropriate only for long-term investors. Short-term bonds are appropriate only for short-term investors. You know which of those YOU are, and that tells you everything you need to know about which bond durations YOU should hold.
Many of the mutual funds I hold have under 2 year effective durations and they are long term holds for me because they throw off 3%+ income. Buying a vanguard fund because it has low fees may not be the best strategy moving forward if the fund has risky interest rate issues.
Last edited by Ikihi on Tue Feb 02, 2021 1:59 pm, edited 1 time in total.
delamer
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Re: Mother in Law wants help investing 70K

Post by delamer »

Ikihi wrote: Tue Feb 02, 2021 1:51 pm
delamer wrote: Tue Feb 02, 2021 1:45 pm
Ikihi wrote: Tue Feb 02, 2021 1:33 pm
delamer wrote: Tue Feb 02, 2021 1:30 pm
Ikihi wrote: Tue Feb 02, 2021 1:22 pm

Well do you think interest rates will be further cut? Do you think interest rates could go negative?
I have no idea; it’s irrelevant to the way I invest and we don’t need to take out loans anymore.

What I do know is that some people on this forum seemed sure they couldn’t continue to fall a couple years ago, but here we are.

And maybe more importantly, I don’t know how long the current rates will remain in effect and neither does anyone else. Therefore, we can’t know if “we are at the end of a bull bond market.”
Interest rates are currently near zero. Since they can’t really be cut, that’s the end of existing bonds appreciating in price from interest rate cuts. If interest rates start climbing long term investment grade bond funds could decline in price IMO.
No, if interest rates climb then long-term bonds WILL lose value.

The point is that no one knows when or if that will happen. The status quo could continue for 10 years, or it could be upended in 10 days.
Yes I know, that is basically what I said : “if interest rates start climbing long term investment grade bonds could decline in price”. That is true, interest rates might not rise for years.
You said “could,” I said “will.”

My point was that we know what will happen if interest rates rise. But people who think they know when that will happen — and make investment decisions on that basis — are kidding themselves.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
delamer
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Re: Mother in Law wants help investing 70K

Post by delamer »

Ikihi wrote: Tue Feb 02, 2021 1:54 pm
vineviz wrote: Tue Feb 02, 2021 1:38 pm
Ikihi wrote: Tue Feb 02, 2021 1:33 pm Interest rates are currently near zero. Since they can’t really be cut, that’s the end of existing bonds appreciating in price from interest rate cuts. If interest rates start climbing long term investment grade bond funds could decline sharply in price.
Bond yields can go down or up from here, and you shouldn't believe anyone who tells you that they know which is more likely. Nor should you believe anyone who tells you they can go up but not down.

More importantly, long-term bonds are appropriate only for long-term investors. Short-term bonds are appropriate only for short-term investors. You know which of those YOU are, and that tells you everything you need to know about which bond durations YOU should hold.
Many of the mutual funds I hold have under 2 year effective durations and they are long term holds for me because they throw off 3%+ income. Buying a vanguard fund because it has low fees may not be the best strategy moving forward.
You do get that if your fund’s share price rises and it continues to pay the same dollar amount of interest/dividend per share, that the percentage return will fall?
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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Re: Mother in Law wants help investing 70K

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lakpr
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Re: Mother in Law wants help investing 70K

Post by lakpr »

FelixTheCat wrote: Tue Feb 02, 2021 1:52 pm
lakpr wrote: Mon Feb 01, 2021 1:27 pm Based on the recent feedback from posters who do have VPAS or did have VPAS, I am not sure that they are worth it.
VPAS is great for people that do not want to do their own research. Not everyone wants to read Boglehead wikis or read countless posts in the forums.
You do have a point. People who do not want to educate themselves will pay a price for financial education, and VPAS is the least evil of them all.
Edit: before this gets taken completely the wrong way than I intended ... I will offer that I am not interested in educating myself about the inner workings of my car, and will take it to a mechanic at the slightest trouble. I am just saying that either educate oneself or pay a price for help.
dbr
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Re: Mother in Law wants help investing 70K

Post by dbr »

Throwing the $70k in with the $500k in CDs would seem an obvious no brainer.

What is causing her to suddenly want to "invest" in something else. CDs, by the way, are already an investment.
Ikihi
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Re: Mother in Law wants help investing 70K

Post by Ikihi »

delamer wrote: Tue Feb 02, 2021 2:00 pm
Ikihi wrote: Tue Feb 02, 2021 1:54 pm
vineviz wrote: Tue Feb 02, 2021 1:38 pm
Ikihi wrote: Tue Feb 02, 2021 1:33 pm Interest rates are currently near zero. Since they can’t really be cut, that’s the end of existing bonds appreciating in price from interest rate cuts. If interest rates start climbing long term investment grade bond funds could decline sharply in price.
Bond yields can go down or up from here, and you shouldn't believe anyone who tells you that they know which is more likely. Nor should you believe anyone who tells you they can go up but not down.

More importantly, long-term bonds are appropriate only for long-term investors. Short-term bonds are appropriate only for short-term investors. You know which of those YOU are, and that tells you everything you need to know about which bond durations YOU should hold.
Many of the mutual funds I hold have under 2 year effective durations and they are long term holds for me because they throw off 3%+ income. Buying a vanguard fund because it has low fees may not be the best strategy moving forward.
You do get that if your fund’s share price rises and it continues to pay the same dollar amount of interest/dividend per share, that the percentage return will fall?
My opinion is that the lower duration is an advantage in a rising rate environment because they will reinvest quicker into newer bond issues once the old one is done. That newer issue will pay a higher coupon due to higher interest rates. My investment strategy is a rising rates strategy because rates could rise for years.
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Re: Mother in Law wants help investing 70K

Post by vineviz »

Ikihi wrote: Tue Feb 02, 2021 1:54 pm Many of the mutual funds I hold have under 2 year effective durations and they are long term holds for me because they throw off 3%+ income. Buying a vanguard fund because it has low fees may not be the best strategy moving forward if the fund has risky interest rate issues.
This isn't the strategy of a long-term investor, though. It's a speculative trade.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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vineviz
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Re: Mother in Law wants help investing 70K

Post by vineviz »

delamer wrote: Tue Feb 02, 2021 1:45 pm No, if interest rates climb then long-term bonds WILL lose value.
I think it's wise to be more circumspect. There are definitely plausible scenarios in which yields go up without long-term bonds literally losing value. In other words, the price of the bonds could fall but the reinvestment of the coupon payments could result in a growing total value.

In fact, even if you knew with 100% certainty that the yield on 30-year Treasury bonds would double over the next two decades you STILL couldn't be sure that a short-term or even intermediate-term bond fund would outperform a long-term bond fund over that time period.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Ikihi
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Re: Mother in Law wants help investing 70K

Post by Ikihi »

vineviz wrote: Tue Feb 02, 2021 3:13 pm
Ikihi wrote: Tue Feb 02, 2021 1:54 pm Many of the mutual funds I hold have under 2 year effective durations and they are long term holds for me because they throw off 3%+ income. Buying a vanguard fund because it has low fees may not be the best strategy moving forward if the fund has risky interest rate issues.
This isn't the strategy of a long-term investor, though. It's a speculative trade.
It has been a bull market for bonds from 1980 to 2020. Moving forward, interest rates can’t drop the same level they did during that time period. While we don’t know if and when interest will rise, long term bonds can’t repeat the results of that time period. In my opinion, what I’m doing isn’t “speculative”; I see it as managing interest rate duration because interest rates could increase.
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vineviz
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Re: Mother in Law wants help investing 70K

Post by vineviz »

Ikihi wrote: Fri Feb 12, 2021 11:10 am It has been a bull market for bonds from 1980 to 2020. Moving forward, interest rates can’t drop the same level they did during that time period. While we don’t know if and when interest will rise, long term bonds can’t repeat the results of that time period. In my opinion, what I’m doing isn’t “speculative”; I see it as managing interest rate duration because interest rates could increase.
Yields are lower now in both real and nominal terms than they were in 1980. That doesn't just impact the expected returns of long-term bonds: the future returns of short-term bonds is likely to be lower as well.

But don't kid yourself: bond yields can go up, go down, or stay the same. There are no structural bounds on bond yields, so please don't build an investment strategy around an assumption we know isn't true.

You're not the only one who doesn't grasp the speculative nature of the bet you're making, but a speculative bet it is.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
delamer
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Re: Mother in Law wants help investing 70K

Post by delamer »

Ikihi wrote: Fri Feb 12, 2021 11:10 am
vineviz wrote: Tue Feb 02, 2021 3:13 pm
Ikihi wrote: Tue Feb 02, 2021 1:54 pm Many of the mutual funds I hold have under 2 year effective durations and they are long term holds for me because they throw off 3%+ income. Buying a vanguard fund because it has low fees may not be the best strategy moving forward if the fund has risky interest rate issues.
This isn't the strategy of a long-term investor, though. It's a speculative trade.
It has been a bull market for bonds from 1980 to 2020. Moving forward, interest rates can’t drop the same level they did during that time period. While we don’t know if and when interest will rise, long term bonds can’t repeat the results of that time period. In my opinion, what I’m doing isn’t “speculative”; I see it as managing interest rate duration because interest rates could increase.
Yes, interest rates could increase. But even if they do, you can’t know when.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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