September 28, 2020
By Rahul Iyer
There are many reasons that might lead to you having to manage your mother’s portfolio. What is important is that you are in a position to do so wisely. There are some differences with how you would manage an older person’s portfolio than you would manage yours. This article outlines some principles that would guide me as I manage my mother’s portfolio.
If my mother has spending needs that are not properly supported by what she receives in her pensions, Social Security benefits or annuities, then I would devise a strategy to meet her spending needs with investments. Bonds or CDs may not yield enough income; therefore, creating a balanced portfolio that is growth-oriented and that creates income may be the best option.
Investment always involves some amount of risk. These risks are typically poor or negative returns on investments, loss of money, or being overrun by inflation. By diversifying my mother’s portfolio, I would be reducing the risk that she would face.
With an aged parent, liquidity is very important. It must be easy to turn investments into cash to relate to spending needs. This means that investments like annuities and real estate may not be the best options for her portfolio. These usually involve substantial fees to sell. I would choose investments that can be easily liquidated without having to tackle huge fees or losses.
If you are not careful, inflation can eat up all the gains of an investment portfolio. As prices increase on my mother’s usual expenses, she will need to have gains or an increase in cash flow that exceeds this. This makes it important to keep or to add stocks to her portfolio. Inflation-protected bonds and commodities are also great options.
It is impossible to avoid taxes and expenses. The law does provide some ways in which you can keep these on the low. Through the use of tax-advantaged accounts and proper tax management, the tax involved in the management of her portfolio can be reduced. By choosing investment options with lower fees, the fees involved can also be reduced.
While I would not take everything a financial advisor shares as gospel, they can be very helpful in pointing you in the right direction and shifting your perspective on the direction of the investment portfolio. Seeking assistance from a financial advisor does not only mean going to an employee of a financial institution, but it can also mean consulting with someone who understands investing and is able to give excellent advice.
Increasing my mother’s cash flow from her portfolio, reducing her risk, and ensuring liquidation may very well be the most important factors that I would focus on. This will ensure that she is able to enjoy peace of mind knowing that she will have ease of access to her funds while her portfolio is growing.