[USER]

My wife’s parents changed from assets under management to transferring over their accounts to Fidelity. They are 66 and retired.

This is my suggestion to them for asset allocation. Please let me know what you think.

“My suggestion on your asset allocation (what to invest in).
Option 1: keep 10 years of living expenses (social security plus $25,000 extra per year = $250,000) in money market (currently making 4.38%) plus any other big expense (car $50,000 ect) -$300,000

Invest the rest in the total stock market index fund (fzrox) or the s&p500 (FNILX)

Option 2: more diversification
keep 10 years ($250,000) in money market making 4.38% currently plus any other big expense (car $50,000 ect) -$300,000

The total stock market index fund is 70% s&p 500 (large cap growth) and 30% (large cap value, small cap growth, small cap value)

Invest 70% in the s&p 500 (FNILX). 10% in large cap value (FLCOX). 10% in small cap blend (fssnx). 10% in small cap value (Fisvx).

Say the s&p 500 is down, one of the other asset classes might be up.

If you need to withdrawal you can withdrawal from the asset class that is up instead of the asset class that is down.

Holding these 4 funds is the same as holding Fzrox(total stock market index fund) in 4 different funds instead of 1.”

[Patrick]

Why, under any circumstances, would they need or want 10 years of expenses in cash?

That makes no sense at all.

[Ed]

10 years in cash needs seems a bit extreme. Usually people hold 1-5 years worth.

Not knowing what their total stock/cash allocation % is, and when they need the other money, it’s hard to say if it’s a good strategy.

Where the cash is kept is another question. If it’s held in a taxable account, 250k will generate 10k in interest every year, which will be taxable.

Is the 10k going to be part of their annual spending, thereby lowering the need to 15k?

[Elizabeth]

I’m curious about your in laws. Are they novice investors? If so, this is more detail than they can likely handle.

I’d recommend they have a 1 time meeting with planvision or hello nectarine.

There are a lot of relationship pitfalls that await you if you mix financial guidance and family

[Ruthie]

Do they have Tradional or Roth IRA’s?
No taxes owed on Roth IRA’s.

Are you a financial planner or what qualifications do you have to recommend portfolio allocations?

[Shannon]

They’re going to have to take RMDs in 5 years if they have that type of account.

Are you including that in your decision making

[Jenny]

First, I would refrain from being an unpaid financial advisor to the in-law. If things go well, great.

If not, you will be responsible. Second, 10 years is way too much cash, most people recommend 2 to 3 years.

The average bear market lasts 18 months.

[Rick]

A max safe withdrawal rate portfolio (really it’s your choice of the best 3-5 as the absolute best is usually not that much better and sometimes that one just doesn’t resonate with you) with max 1 year expenses in cash (replenished each year) should be easy to accomplish.

Something like, porfoliocharts and portfoliovisualizer can help.

A safe withdrawal rate portfolio paired with these long period cash buckets are undermining the very design of SWR portfolios.

It’s like buying a car to then push it 20% of the time or walking along with your partner but then doing a bandana tied 3 legged walk 1/5 of the time.

Why do it.

[Amy]

10 years expenses in cash is wildly conservative. Are their expenses really only $20K/year? Does this account for inflation and increasing medical expenses as they age?

People living off of their investments often need more than just a total stock market fund—that’s more appropriate during accumulation.

I wouldn’t suggest an allocation to SCG. SCG is what drags down the performance of SCB funds.

Investors who want the size premium from small-caps choose SCV for that reason.

They should probably leave their investments in whatever the AUM advisor had them in until they can meet with a flat-fee advisor who can review their full financial picture and create a plan for them.

[Jack]

Their current crazy complex mix looks like an advisor trying to make him or herself look useful. We have to know if this is in a taxable account or not.

If it’s in taxable they likely have unrealized capital gains which must be accounted for before selling anything.

If it’s in a tax sheltered account then I’d suggest a more simple 60/40 portfolio with a total US stock market fund and an intermediate treasury fund.

The reason I’d go with simplicity is because you don’t want to manage it for them – give them the tools and they should be able to do it themselves and understand why they are doing it.

[Mark]

Neither. Keeping 10 yrs expenses in cash is insanely conservative. It doesn’t make any sense to me

[Author]

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