Retiree's savings at risk

It's impossible to say without knowing a lot more about her situation.

How old is she? How much money does she need? What other sources of income does she have? What is her risk tolerance?

This last question is particularly important. If you're surprised to find out the composition of her portfolio, it suggests that there was never a serious effort to answer that question. If there was no answer a year ago, there is still no answer.

Here are two possible scenarios:

1) You move 40% into bonds and money market, the stock market recovers to its level a year ago, and instead of getting her $700,000 back, she then has $575,000. 2) You don't move 40% into bonds and money market, the stock market loses another 50%, and instead of $262,500 she has $187,500.

In other words, if she moves money into bonds now, she is locking in past losses and forgoing possible future gains in order to defend against possible future losses. Depending on her situation, that may or may not be a wise move. There's no way to know without knowing much more about her situation and preferences.

To whom do the trust's contents go after your mother passes and the trust dissolves? Considering this. alongside the needs of the person receiving the trust income, is customary when determining how to invest the trust's contents.

Also, how much income does she receive from the trust each year, and who or what determines this amount? If her trust income is low enough, then she may not see much loss of it, since it is likely coming from dividends. So far, only bank dividends have been cut (and drastically for several banks).

Lastly, to double check, is the bank the sole trustee of the trust?

Lots of questions here. First, if your Mom was 100% invested in Vanguard's S&P500 fund it would be worth $414,400 minus what she draws. I think the first thing I would do is find the agreement she has with the bank. Make sure the portfolio is being managed as described in the contract. I can't imagine that a retiree's portfolio is 99% in stocks especially if it's purpose is to generate income.

Not many people have 99% of their entire portfolio in stocks, least a retiree who lives off her savings. Time for a serious talk with said bank and trust manager to see what's up with that. Perhaps a consideration that the trust was mismanaged.

As to what to do now, the stock market has actually returned to low valuation. I can't tell you if it's going to go up from here, but certainly now is a very good time to be in stocks.

On Nov 25, 5:05 am, tighwad wrote: [snip]

Can you tell use which stocks and which funds? Or, as others have asked, something more in the area of what the management agreement is?

In typical Wall Street fashion, all stocks have been herded into the slaughter house. Selling out at what may well be a market bottom - at least an intermediate one - is rarely a good idea. ALL the money is looking for "a safe place" right about now. A lot of people are in similar situations to hers. Had it been 40% bonds, the losses might have been the same as they are now. Given the low interest yields available in Treasuries today, she may be better off invested in stocks and stock mutual funds, but which stocks and funds is vital information.

Actually, I'd say more like $420K (can't forget dividends), but that's irrelevant. The point is that this 99% stock portfolio has underperformed the S&P 500. In addition, the OP's mother is quite likely paying dearly for that privilege. That's not a good situation.

Personally, I have no problem with an all-stock portfolio, even for a retiree. But that porfolio has to be properly diversified. One of the the primary purposes of adding bonds to a stock portfolio is to smooth out volatility. Unfortunately, the OP's mother has already suffered through the recent volatility. Switching a portion of her portfolio to bonds NOW will not undo that damage.

Finally, I whole-heartedly agree with Andrew's assessment of the situation. If the OP's mother switches to bonds now, she will lock in the losses she has already suffered. True, it will help defend against future losses, but at the cost of future gains. Is that the right move? That's not something this newsgroup can decide.

Best of luck, Bill Woessner

I don't know a lot about individual stocks, but it seems like they are in well-known (blue chip?) companies (names that sound familiar to my ear); like Comcast, Godman Sachs Group, Medtronic Inc., and At&T. There are 11 stocks (about 30%) of the portfolio.

Many of the mutual funds are from Huntington (International Equity, New Economy, Dividend Capture). There is also a 1000 growth index fund and a foreign growth index fund, and a couple other funds in addition.

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My mother is in her late 70's. She doesn't have much else to live on except this trust. She can't afford to take many risks. She doesn't know much about investing. She still has not taken a close look at what is in her portfolio, I had to tell her.

I am concerned that is she moves a lot of her money into bonds, the balance of the trust will be permanently, and seriously reduced. I think she should move some of her money into bonds. I don't know how much. 99% in stocks seems foolishly risky for a retiree no matter how the market is doing.

I don't know much about trusts. I'm assuming it's similar to having money in an IRA.

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It would be helpful if you could tell us the name and location of that bank. Readers of this newsgroup who might be considering putting their money there could find the information useful.

Also a list of the particular stocks and mutual funds included in the portfolio, as well as the conditions of their purchase (loads, management expenses, how and why the bank chose those particular products, etc.), as well as how lthe bank is paid for its management duties would be informative.

I can ask my mother about the contract. I doubt if she knows what it says. She's pretty much hands-off. She seems to have left things up to the bank, and doesn't know much about what they're doing. The account had apparently been doing pretty well up until recently.

I don't know if the bank can sell anything in the trust like an IRA. It may be that she can only get a percentage of its earnings. Maybe that's why the bank has been investing so aggressively? I don't know. I don't know much about trusts.

She is going to have to call the bank and ask them what they can legally divulge to her. Try to get the questions I asked earlier answered.

An alternative is to see if your stepfather's family has a copy of the legal documents setting up the trust. It is not going to be difficult reading. The income she is permitted will be clearly spelled out, unless the lawyer who prepared the document was an idiot (never say never). In particular, are the trustees allowed to cash in principal to pay whatever income the trust says she is allowed? With the step- family, this may be a touchy situation, as I am sure you can imagine.

As far as the bank investing aggressively, the biggest concern with banks as trustees is churning: They want to buy and sell often to rack up transaction fees for themselves. But the fact is they make a pretty penny just from sitting there being trustee without the benefit of any transaction fees.

A quick scan of mfea.com suggests that Huntington funds are load funds, which means that your mother has paid a sales commission to whoever invested her assets in those funds.

I'd like to suggest some supplemental reading:

Talking about "locking in" losses is irrelevant. If she has $375 K now, the fact that she started the year with $700 K should not affect her asset allocation going forward, especially since exchanging some of the money from a stock mutual fund to a bond mutual fund should not incur fees or taxes. What does matter is one's forecast of future risk and return on stocks, bonds, and other assets, and her tolerance for risk. I think corporate bonds offer better risk-adjusted returns than stocks at present, for reasons I have discussed in other messages.

Actually, it might. If your objective is to have the least risky portfolio that you expect to provide a particular amount of income, then it seems to me that it is reasonable to change your asset allocation as the portfolio's value changes.

For the record, Mr. Merriman had mutual funds and they folded. I would consider another source.

You really should have this situation reviewed by an attorney, with a copy of the trust in-hand. Bracketing two extremes, depending on facts: you might be unable to change the investments or trustee, and the mix might be exactly what was specified; you might have a cause of action against the trustee for breach of duties, and the mix is nothing like what was specified or dictated by state law. The reality is probably somewhere in between. But I don't think this is a question for MIFP as it requires some familiarity with the law of trusts in your home state, a reading/interpretation of the trust document itself, and then a review of what actually has been done.

-Tad

I don't think my mother would want me to give out the name of the bank and location. I'm trying to be somewhat anonymous.