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If you were me, age 82 living on a pension and Social Security with both qualified and brokerage account investments evenly split and with the goal of leaving as much as possible to our children…
how would you allocate your investments?
I have 55% in domestic stock mutual funds, but including 20% in one stock. 4% foreign stocks, 27% bonds and 14% in short term cash.
None of this is the result of a grand strategy. It is the result of 401k investment options and trying to match them in a rollover IRA and just picking a few mutual funds, mostly index funds.
Most of the bonds are municipal funds of different duration. In recent months I have cut back some reinvesting to build more cash. I just had a shaky feeling about the markets, but probably not logical.
The bond fund interest and the individual stock dividends are intended to provide an additional income stream, if needed, to cope with inflation in the future or to provide income for Connie (age 86) as a survivor when pension income and SS will be less.
I make no claim to being a astute investor, especially one who puts research and effort into investing.
What would you do differently?
You and your wife are in your 80s and it seems that what you are doing is working out good for you. If you feel it is sound and you are comfortable with it I would just keep your plan going forward.
Here are a few thoughts.
I think you can afford a higher stock allocation. You didn’t say so in this post, but I believe you’ve said earlier that your expenses are covered by guaranteed income streams. One could argue that means you have no need for bonds or significant cash. I’m not one of those and would want to keep some bonds and cash, but I think you can afford to have much more of your portfolio in stocks than you do. (Like you I’m at ~60% stocks, but I’m in my early 60s with a spouse approaching 60, and do not have guaranteed income streams covering all our needs.)
I would increase the amount of international and smaller capitalization stocks you have. These are more volatile, but according to Morningstar both are undervalued, and given your guaranteed income streams you aren’t relying on the portfolio. I’m not saying go crazy here, just some tilt.
I would agree 20% in stock is too much, but this single stock risk would matter more if you were relying on your portfolio, which you are not. And, it sounds like it has significant embedded capital gains. I wouldn’t have let it get that high, but at this point I would agree with you on leaving it alone and letting your heirs benefit from the step up, obviously not reinvesting.
I also think if you did nothing that would also be fine.
Afterthoughts –
If I ever did need to sell stock, I’d make it from that 20% holding. Despite agreeing with you about leaving it to to heirs, it would make me uncomfortable.
Adam Grossman did a piece on how to conduct a portfolio audit that would be worth reading as you think about this.
Appreciate your comment. I’m going to look into the international
I think it’s sound. You definitely don’t have too much in international, but no need to make changes if you’re not comfortable.
With 4 kids and over a dozen grandkids to inherit your wealth, your investment horizon is theoretically infinite, so I don’t think it’s too aggressive.
Thank you. Appreciate the insight.
20% in one stock is far too much risk. If your goal is to leave much to the kids you might consider lowering your stock allocation. What tax bracket would that hit if you sell. Too late for roth conversions LIGHTEN up at age 82 as the mkt is OVERVALUED according to Buffett
Generally that would be good advice, but with my next RMD we will be in the 24% and maybe 32% bracket because of low cost basis on the stock.
Also my thinking was to leave to the children and let them take advantage of the step up provision.
in the meantime there is risk.