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Post by saratoga on May 17, 2023 22:12:41 GMT
A retired friend of mine (over 75 years old) seeks some investment advice. He is fairly well-off. He owns some properties.
Steady income from the properties covers all his current expenses. He also has several (3 to 4) million dollars in banks.
He has no tax-advantaged accounts. He is receiving SS but SS income is relatively unimportant for him.
How about the following portfolio advice?
1. Invest about 1 million plus immediately and gradually add investments afterwards. In particular, invest: 2. 1/2 million plus to TRAIX (T. Rowe Price Capital Appreciation). 3. about 300K to VOO/VTI, about 150K to SCHD, about 150K to QQQM/VGT, about 100K to T. Rowe Price Global Stock TRGLX.
Any comments? Advisability of TRAIX in a taxable account?
Dividend investing may suit him best but I proposed equal amount to SCHD and QQQM/VGT since QQQM/VGT are doing much better.
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Post by franks on May 17, 2023 23:11:45 GMT
Sounds to me that, at age 75, your friend has already won the game. Why tempt the markets' fates, unless he has a desire/need to augment what he already has. Some ultra-safe CDs sound good to me.
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sgra
Lieutenant
Posts: 58
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Post by sgra on May 17, 2023 23:47:43 GMT
I'm onboard the general sentiments of franks. What's the driver to invest now? The suggested picks are good in themselves but without context of purpose, it's hard to recommend. My largest holding happens to be TRAIX in tax-advantaged accounts. It throws off a lot CG and income each December, so much that I would not personally hold it in a taxable account. See www.morningstar.com/funds/xnas/traix/performance under "Distributions" tab for details. |
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Post by johntaylor on May 18, 2023 15:49:07 GMT
Have some -- not all -- TRAIX in a taxable acct, but in a Leibnizian best possible world shouldn't be there.
As others said, might be tempting fate to play a game already won.
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Post by saratoga on May 18, 2023 16:21:22 GMT
Thank you all for your comments. Let us say he has 4 millions at a bank and 6 million worth of income generating physical real estate (my estimate).
Investing say, 1.5 - 2 million of that 4 million in the market should not be that risky and he can afford the risk. Whether or not he has won a game depends on how he sees things.
I am sure he would not mind a little more income. Some investment experience could be good for his mental health as well.
As for TRAIX, dividends and long-term capital gain are fine: he can spend them since long term capital gain is not important to him.
Interest income is a tax problem but if he puts that money in CDs, he will get interest income also.
Anyway, I will propose maybe 300K TRAIX considering the tax inefficiency and 200K USPA T. Rowe Price Equity Research etf. When the etf managed by Giroux comes out, I will suggest adding some of it as well.
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Post by FD1000 on May 18, 2023 19:16:36 GMT
Thank you all for your comments. Let us say he has 4 millions at a bank and 6 million worth of income generating physical real estate (my estimate). Investing say, 1.5 - 2 million of that 4 million in the market should not be that risky and he can afford the risk. Whether or not he has won a game depends on how he sees things. I am sure he would not mind a little more income. Some investment experience could be good for his mental health as well. As for TRAIX, dividends and long-term capital gain are fine: he can spend them since long term capital gain is not important to him. Interest income is a tax problem but if he puts that money in CDs, he will get interest income also. Anyway, I will propose maybe 300K TRAIX considering the tax inefficiency and 200K USPA T. Rowe Price Equity Research etf. When the etf managed by Giroux comes out, I will suggest adding some of it as well. TRIAX at $300K is less than 10% of his portfolio, why bother. For a LT hold, I would use TRAIX/PRWCX(moderate/flexible allocation) + VWIAX/VWINX (conservative allocation). TRAIX has lower than 1% annually in distributions in the last several years. |
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Post by franks on May 18, 2023 19:50:16 GMT
Saratoga--another idea for your friend occurred to me. Since he is well-off and seems not to need any more current income, would he consider actually making investments in all or some of the funds you mentioned, or some other funds, with the sole purpose of making philanthropic gifts with the income and capital gains? Or, if he would prefer more passive investing, he could establish a donor-advised fund with a local community foundation. In this way, he could aim to benefit members of his community or other causes, national or international, that are meaningful to him.
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Post by johnsmith on May 18, 2023 19:52:14 GMT
What's wrong with a
25% US Total, 25% International Total, 50% intermediate bonds?
or something similar?
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Post by saratoga on May 18, 2023 20:40:18 GMT
Franks, although your suggestion is great, it is up to him to make such an investment. Although he is well off, he is not super-rich and he has a large family (a number of grand children).
He also worked unusually hard all his life to make that money starting from the bottom. So, I assume he has a strong bequest motive.
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sgra
Lieutenant
Posts: 58
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Post by sgra on May 19, 2023 2:36:02 GMT
TRAIX has lower than 1% annually in distributions in the last several years.
Year Div STCG LTCG @price Distrib.
2022 $0.5412 $0.0179 $2.3235 $29.63 9.73%
2021 $0.4000 $1.3800 $1.6800 $36.33 9.52%
2020 $0.4400 $0.3998 $1.9200 $33.42 8.26%
2019 $0.5100 $0.3692 $0.9700 $30.92 5.98%
Saratoga, good luck with recommendations. At the least, it will stimulate discussion between you and your friend.
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Post by FD1000 on May 19, 2023 3:54:26 GMT
TRAIX has lower than 1% annually in distributions in the last several years.
Year Div STCG LTCG @price Distrib.
2022 $0.5412 $0.0179 $2.3235 $29.63 9.73%
2021 $0.4000 $1.3800 $1.6800 $36.33 9.52%
2020 $0.4400 $0.3998 $1.9200 $33.42 8.26%
2019 $0.5100 $0.3692 $0.9700 $30.92 5.98%
Saratoga, good luck with recommendations. At the least, it will stimulate discussion between you and your friend.
Yep, I was wrong, I looked at Yahoo where they show only Div. The fund has huge CG. |
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Post by saratoga on May 19, 2023 4:30:45 GMT
Yes I saw the distribution figures from Morningstar. As I said, I do not mind stock dividends (and long-term capital gains) but here interest dividends are mixed in.
Anyway to separate the two?
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Post by saratoga on May 19, 2023 15:49:52 GMT
Johnsmith, Your suggestion may be great for some people. Actually, I am suggesting what to invest in for about half of 4 million dollars.
This friend can invest the rest in bond, cd, money market, etc. I am also more US-centric in my investing bias - although I am open to changes.
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Post by johnsmith on May 19, 2023 16:07:51 GMT
Johnsmith, Your suggestion may be great for some people. Actually, I am suggesting what to invest in for about half of 4 million dollars. This friend can invest the rest in bond, cd, money market, etc. I am also more US-centric in my investing bias - although I am open to changes. fair enough,
so why aren't you using US total market and be done? What makes any other choice better than VTI?
That's the question I would ask before investing in anything else.
like from my perspective: International - is cheaper than US Bonds - I need something to counter a falling US stock market
So that's why I would go for International + Bonds.
What's the reason for your choices other than US bias?
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Post by Fearchar on May 19, 2023 17:03:34 GMT
If he hasn't ever really invested then he's probably rather risk adverse.
As such he should consider 3 month T-Bill (5.31%) or some of the better money market funds.
VMFXX, Vanguard Federal Money Market 7 day SEC yield 5.03% ($3K minimum)
or
SNAXX, Schwab Value Advantage Money Fund® – Ultra Shares current 7 day SEC yield 5.05% ($1M minimum)
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Post by saratoga on May 19, 2023 20:18:29 GMT
Johnsmith,
I recommend VTI/VOO since I believe that they should serve a pillar of a portfolio.
A problem with these index funds (especially for newcomers to investing) is their volatility.
PRWCX roughly matches the performance of VOO over time with much less volatility.
You can reduce volatility with an index based balance fund such as VBIAX.
The following is a comparison of PRWCX with VBIAX over 10 years.
PRWCX performance 10.40% Tax cost ratio 2.16%. Sharpe ratio 0.79 VBIAX performance 7.37% Tax Cost ratio 0.79%. Sharpe ratio 0.54
In my friend's case, he will largely consume annual income so tax cost is a concern but less so.
I also think VWIAX is a great conservative choice so I will recommend it also.
Fearchar,
That is what I think also. I will recommend that he move a big chunk from his bank to VMFXX.
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