Announcement Am I right to be worried about my retired parents' investment strategy?

[snoopy7548]

You're right to be worried, but unless they ask for help you shouldn't really force it. You can suggest the best strategy but it's ultimately their decision. You certainly don't want to be in a position where you have them change their investments only to head straight into a bear market and everything becomes your fault.

If your dad is used to these double- and triple-digit returns, anything else is going to disappoint him, whether it's the correct strategy for the long-term or not.

 

[zinfamous]

Or at the very least, non-invested funds that can be utilized if and when the market has a downturn.

I guess if these are high-dividend funds, then it's probably less of an issue than it appears to be. If they are making decent income on dividends with these stocks, then a 30%, 40% drop doesn't really matter over a couple of years. Just wait, recover, keep that untouched income as dividends largely stay the same...maybe buy some more cheap stocks with the dividend income.

 

[ultimatebob]

He's 68.

Yeah... that that age, he really needs to be more diversified. If there is another 2008 type 50% stock market crash, his portfolio isn't going to bounce back quickly enough for him to live off of the income.

He doesn't need to move all of his money out of tech stocks, but he should move at least half of it.

 

[JTsyo]

Do they need more money? And how much of that money they want to get is worth the risk of losing 40-60% of their investments and taking years to recover? Sounds like they've already 'won the game' since they're retired so why are they still playing so much and risking losing what they've won? If it were me I would be very worried. Of course they've done well - the stockmarket has largely done exceptionally well over the last 11 years. That won't continue. How do they survive if they're still invested in 10 tech stocks and those crash? Is that 'no more international trips this year' or is that 'knocks on fuzzy's door because they can't afford food'? (Do they have annuity, pension, social security etc to fall back on and cover basic needs?)

If your dad wants to keep doing his own investing, doing it with a subset of funds would be a good way to scratch that itch without risking the entire portfolio. Normally you don't do that with more than 10% of your portfolio but hell even 25% of their portfolio for his 'play money' would be better than 100%. Put the remainder in a split of stock index funds\bond index funds such that the entire portfolio comes close to a 60/40 stocks\bonds split* and they'll have something much more likely to retain principle for them to live on.

*Much debate on the overall best ratio, risk level comfort in retirement and how much treasuries should play into this

Yea, we need a fuller picture. There could be multiple income streams (401ks, Social security, real estate) and this is just the money that he has saved up. Like everyone says though this is a dangerous game. You would think with the dip back at the end of last year he would have seen a glimpse of how fast things can go south.

 

[ctbaars]

Don't worry. What good will that do you? Visit your family regularly and talk to him. But don't badger him. Worry will lead to badgering.
Don't you think he knows all this information already?

 

[ultimatebob]

Don't worry. What good will that do you? Visit your family regularly and talk to him. But don't badger him. Worry will lead to badgering.
Don't you think he knows all this information already?

Maybe he's trying to protect his inheritance, so he can get himself a rabbit farm when they die

 

[Red Squirrel]

Speaking of investments I feel kinda bad for my parents, they did this investment thing about 15-20 years ago with a financial advisor that involved taking a 100k loan and investing it. Unfortunately that investment went to crap and they had to pay back the loan out of pocket. They are still paying that now and my dad has to keep working even though he wants to retire. He's hoping to have it paid off this year since he paid off the house a few years ago so been able to put more on it. Sucks to basically lose 100k though, that's money that could have bought a lot of things like build a garage and do other major home improvements.

Sometimes it's best to stick to basic investment strategies than trying fancy/risky stuff. Do that stuff with play money that you already have that you're willing to lose but not for retirement. I have a couple grand into penny stocks myself. I might lose it all, or I might win big, but it's a risk that won't really affect me that much other than the bummer of losing a few grand.

 

[ctbaars]

How were they paying the loan in the beginning? For this to work, your return needs to be a minimum of "loan payment amount" + "taxes on investment gain". This idea only works for the most riskiest of dividend investments.

 

[Red Squirrel]

How were they paying the loan in the beginning? For this to work, your return needs to be a minimum of "loan payment amount" + "taxes on investment gain". This idea only works for the most riskiest of dividend investments.

The idea was suppose to be that the interest of the investment was higher than the interest of the loan, so the interest was used to pay off the loan over time and as the investment grows you can put more money on the loan. But yeah, that did not pan out very well for them.

I never even thought of the taxes.... even if it DID work out you would end up losing out at the end in taxes unless the return is actually high enough to covercome that. It may be possible that it was setup as some kind of TFSA though but not sure how that would work as there is a limit to how much you can put in a TFSA.

 

[s0me0nesmind1]

Speaking of investments I feel kinda bad for my parents, they did this investment thing about 15-20 years ago with a financial advisor that involved taking a 100k loan and investing it. Unfortunately that investment went to crap and they had to pay back the loan out of pocket. They are still paying that now and my dad has to keep working even though he wants to retire. He's hoping to have it paid off this year since he paid off the house a few years ago so been able to put more on it. Sucks to basically lose 100k though, that's money that could have bought a lot of things like build a garage and do other major home improvements.

Sometimes it's best to stick to basic investment strategies than trying fancy/risky stuff. Do that stuff with play money that you already have that you're willing to lose but not for retirement. I have a couple grand into penny stocks myself. I might lose it all, or I might win big, but it's a risk that won't really affect me that much other than the bummer of losing a few grand.

No. Simply no.

Sometimes' it's best to not listen to humans - because humans have a natural cognitive bias to cater to oneself. When it comes to investing hundrends upon thousands (and millions) of dollars? Fuck people, I'll trust machines a million times over with index funds.

I mean, it's only my life and retirement account were talking about, no biggie?

 

[Red Squirrel]

This was something that they did a long time ago, and like I said, it didn't work. No they're not going to do it again obviously and I am not even suggesting they do. Not sure where you're getting that.

 

[Red Squirrel]

No. Simply no.

No what? I'm not suggesting anything, I was just saying a story of an investment strategy that did not work out.

 

[JimKiler]

My dad did the same thing with the market in the late 90's he invested in company stock that became over $1 million but he did not put any of it in bonds and when the market suffered in the early 2000's he never recovered. He did not know about moving invested towards more conservative funds as he got older. He is not broke but his retirement took a huge hit.

 

[Tweak155]

I just read a book from the guy that created Investor's Business Daily. One of the things he teaches is to set your maximum loss point at 8% on any stock so you have opportunity to recover if you happen to pick incorrectly.

While your dad doesn't need to follow this exact rule, he should have a strategy in place to protect himself from losses. You're guaranteed to be wrong at least somewhat often, but a good investor will have strategies to minimize the impact from this.

 

[ultimatebob]

I'll bet that the OP's dad did pretty good with his investment policy over the past six months. I'd imagine that he'll probably continue to do OK for at least the next six months, unless something really unexpected happens and/or it looks like we're going to have an anti business socialist for our next president.

Perhaps you should try to convice him to lock in those gains now, bunny man!

 

[whm1974]

I'll bet that the OP's dad did pretty good with his investment policy over the past six months. I'd imagine that he'll probably continue to do OK for at least the next six months, unless something really unexpected happens and/or it looks like we're going to have an anti business socialist for our next president.

Perhaps you should try to convince him to lock in those gains now, bunny man!

What do you mean by Anti Business Socialist for our next President? Are you a member of John Birch Society by any chance?

John Birch Society - Wikipedia

en.wikipedia.org

 

[ultimatebob]

What do you mean by Anti Business Socialist for our next President? Are you a member of John Birch Society by any chance?

John Birch Society - Wikipedia

en.wikipedia.org

I'm talking Bernie Sanders, obviously. Love him or hate him, you gotta admit that Wall St is not going to be happy if he somehow gets in charge and the market will react accordingly.

 

[whm1974]

I'm talking Bernie Sanders, obviously. Love him or hate him, you gotta admit that Wall St is not going to be happy if he somehow gets in charge and the market will react accordingly.

The Market as in people buying and selling goods and services will be just fine. And just when Wall St had anything to with the actual Market?

The Market didn't begin with Wall Street and will continue long after the death of Wall Street.