My parents have about $500,000 in taxable mutual funds. They are ready to transition out of equities and into a more principal protected position, such as CD's or bonds. We are discussing some of the issues that will arise such as long term capital gains, etc. I am just beginning to research bonds vs. CD's vs. Jumbo CD's.... I understand the basics of the aforementioned, but I am trying to vet out the pros and cons of each. They do not need this money to be income producing as they have pensions, a paid off house, and a healthy amount in savings. At their age, they, as am I, are becoming concerned with volatility and we feel that they need to protect their principal with a much more conservative position. They are fine with making a much lower return for the peace of mind that their principal will be protected moving forward. Thoughts, opinions, advice, etc. are all welcomed. Thank you in advance.
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Food for thought since you mentioned volatility and opinions... volatility has and will always exist. Risk is the only reason there’s a return above zero for any investment. There’s always a reason to move out of the market and into something “safer”. In the end, do whats best for your parents...
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You are correct, poor choice of words, they are looking to reduce risk exposure, thus they are willing to accept a lower rate of return to preserve capital vs. long term growth.Originally posted by Planner View PostComment
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If they are with Vangard slowly sell mutual funds and start buying shares of BND. Rates are horrid so unless they are nearly the end of their life sure would be nice to keep $250-$300 in mutual fundsComment
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I'd echo this. I'd slowly transition into a more balanced portfolio of both equities and bonds but I wouldn't completely ditch equities. I don't view an all bond or even an all cash portfolio as properly diversified for any age person. They don't need the income and you mention they have healthy savings, which I assume means money outside of the $500k mentioned above, then if equities have a correction it doesn't appear they would have to sell off into that weakness to live on. If your parents are still fairly young I'd still be looking for growth on that taxable account. $500k isn't nothing but its not like you can't run out of money type money either.Originally posted by scott123456789 View PostComment
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I agree with this. Jumbo 1 year CD is below 0.2% most places right now. Really not much better than a savings or money market checking.Originally posted by Throwin Darts View PostComment
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Agree with some of the above. There is risk, in not taking enough risk, and your principal being eroded away by inflation. I don’t see a scenario where the entire 500k should be in bonds or cash unless there is invested assets outside of the 500k that lies within equities which would provided much needed balance. Even 30 or 40% equity exposure over the entire portfolio will give it some legs, help it keep up or pass inflation and preserve their purchasing power. Very easy to preserve the monetary amount (500K) but It won’t be 500K in today’s dollar down the road with current CD rates.
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