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Long Term View: Advice for the Son of a Widow

Feb 11, 2016 8:00:00 PM
Author: Scott Hanson

Scott and Pat help Paul decipher the best investment philosophy for his recently widowed mother.



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Read Full Audio Transcript:

Scott Hanson: Let's talk with Paul. Paul, you're with Hanson McClain.

Paul: I'm trying to figure out what's a good allocation. My mom has just become a widow. What I'm trying to understand is what's the right type of allocation? She's in her late 80s, owns a house outright. They probably have pensions, probably 60K a year, and they've got about 500K in IRA accounts. And I just wanted to figure out...she's probably going to outlive my dad by probably 7 to 10 years I would imagine, and I wanted to make sure she was set up appropriately from allocation for her portfolio.

Scott Hanson: Is she probably like a traditional family where you father took care of all the finances?

Paul: Yeah, pretty much.

Pat McClain: And how involved do you think your mother will be in the allocations of the portfolio?

Paul: She's pretty trusting in that she trusts some certain people as far as what they can provide her for advice and such.

Pat McClain: How about with...so here's the...

Scott Hanson: Does she have an adviser? Did your parents have an adviser they've been with?

Paul: Yeah, she does. I'm just trying to figure out what the right blend is or right mix.

Pat McClain: Yeah. So here's the difficult situation you're in, which is your mother probably trusts this adviser and it's probably fine, right?

Paul: Yeah.

Pat McClain: It's probably fine, but you look at things and you're like, "Really? Is this appropriate for Mom to own Facebook or Google or whatever, XYZ Company?" But as long as it's not a large percentage of the firm, I don't think there's a whole lot of...as long as it's not a large percentage of the portfolio, I don't think there's a whole lot of danger in holding those individual positions.

Paul: Okay.

Pat McClain: So the best thing you can do is to sit down with the adviser and your mom, all I the same room, and say, "Just give me the philosophy. Tell me how you're managing it and what is my stock-to-bond ratio? In my stock, what is the portion that is international? How much is large? How much is mid? How much is small?" And the adviser should know all of that for that individual portfolio. I would not encourage you to try to switch advisers.

Paul: Right, yeah. No, that's not on my mind at all. I just wanted to understand the mix and is it appropriate.

Pat McClain: And the only way you're going to get there is to sit down with the adviser and your mom in the room together, or if the adviser will sit down with you alone. Your mother doesn't have to be there, as long as he has the permission to talk about your mother's portfolio because he can't share anything with your mom's portfolio unless your mother gives him permission.

Paul: Right, right, right, okay.

Pat McClain: And we don't know how big of a role your father played in this, either.

Paul: Right, yeah. He was...how would I say? I would say more conservative than most would be in how he invested. And when I saw some of the stocks in there, they're not a large amount but I just didn't understand the right blend if you will, or what percent should be international. What should be a large cap, what should be bonds, how that should all be put together?

Scott Hanson: Yeah, and...

Paul: Yes …

Scott Hanson: I was going to say there's not a textbook answer, but I guess you can get a textbook that would give you an answer. But there's no one answer. In a lot of companies, these are real personal decisions. So someone in their 80s, one could argue: "Well, wait a minute. Look how old your mother is, she should be extremely conservative. Why have any risk at all at this age?" But someone could also say, "Look, she's in her late 80s. She's not going to spend all of these dollars in her lifetime, so some of these dollars clearly still have a long-term time horizon for them so they could be more aggressively invested." If it were my mother in her late 80s, I'd probably still have maybe 40% in equities.

Pat McClain: Yeah, at least. I wouldn't see anything wrong because it's highly unlikely an income that's providing her...

Scott Hanson: But she's got her income who is providing her...

Pat McClain: ...$60,000 a year. She's not probably even spending all of that, right?

Paul: Okay. Okay, got it.

Scott Hanson: These dollars aren't going to be spent. If somehow she ends up needing long term care, there's a home that's got a bunch of equity in it plus her pension income.

Pat McClain: Yeah. Even if the adviser had 60% equities at this age, it wouldn't bother me at all. It wouldn't even phase me. The reality is maybe the adviser is taking more of a long term view of these dollars. Maybe your father did, too, realizing "I'm not ever going to use them so I should invest them as if it was my son or my daughter or whoever was going to inherit the dollars," right?

Paul: Got it, okay.

Pat McClain: So timelines...

Scott Hanson: I think it'd probably be a good idea for you to visit with the adviser.

Pat McClain: Without your mom in the room.

Scott Hanson: Yeah. I'd get your mom's permission. And just say, "Hey, look, I just want to understand this. I'm not trying to usurp your role." The best thing that could happen, frankly, Paul, is that the dollars are managed just fine, your mom trusts this adviser, they can continue working together because if you suddenly say, "Hey, Mom, I don't know about this." Let's say if it's a high C or even a B, that's probably going to be better than trying to displace him with something new.

Pat McClain: Oh, absolutely.

Paul: Sure, sure.

Pat McClain: So I would just sit down with the adviser and say, "Hey, we appreciate you working with my mom and dad. I don't want to change; I just want to understand." And if the adviser says it's 60% equities and this is why your dad managed it like that and why I managed it like that, I'd be fine with that.

I have clients. I have a client that's in his late 70s and his portfolio is 80% equities. And every time I talk to him, he says, "What do I care? I'm only going to live another 10 or 15 years and I'm never going to spend the money." He said, "I realize that over time, this kind of portfolio will give me the highest rate of return and that is so much more that will go to my children." Is that textbook? You couldn't get further away from textbook. But at the same time, I have clients that are in their late 70s that have 20% of their portfolio in equities. So it just depends on the client.

Paul: Okay.

Pat McClain: All right?

Paul: Okay, great. Thanks, guys. Have a good day.

Scott Hanson: Thanks.