Investing For Seniors Made Simple in CT or NY

Seniors, generally have money, but many don't have a lot of investment knowledge.  In addition, many fall into what I call the “black hole”.  That means they have from $50K to $800K to invest. In Fairfield County CT and Westchester County NY, thats not a lot of money.  It is enough to have to invest, but not enough to attract the good money managers who are going after the big bucks.  

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Investing for Seniors

They generally need the investment income to supplement their Social Security or pension.  Sometimes the investment is done by the Guardian or Conservator or under a Power of Attorney. Investment is a big issue in Elder Care and Estate Planning.  Sometimes the issue can be addressed within the Will or Living Trust.  Sometimes your Elder Lawyer can help guide you.  Your investments can also effect your income tax, estate, and probate proceedings.  Certainly, investment of the assets is a big issue in a Special Needs Trust and can effect your Medicaid planning.   There can be state specific laws that effect investment in CT and NY so things can be a little different if you live in Newtown or Mount Kisco. 

How to invest your money, who to trust, and where to put your money are tough questions. 

The good news is that there are some simple answers that will get you 80% of the way there…which is way ahead of the general public.

First, you need to decide how to allocate your money between stocks and bonds to get maximum return and minimum risk.

Second, you need to diversify across both the world (US is only 33% of the world stock market) and asset classes to minimize risk. 

Third, you should keep your costs low (2% cost on an 8% return is 25%).

To do all the above, you can 1. Try to do it yourself, 2. Hire a professional investment advisor, or 3. Use one of the packaged solutions.

The statistics show it is difficult to do it yourself.  It requires a lot of knowledge, time and effort, and yields sub optimal results.  Generally, Seniors are not well advised to do it themselves unless they are already skilled at it.  

That leaves you with hiring an advisor or using a packaged solution.  The research shows that hiring an investment advisor is expensive, but a lot better than trying to do it yourself.  Often the packaged solution is a good Walmart solution at a low cost.

The problem with the investment advisor route, is you then have to find and vet a good investment advisor….and how do you do that?  If you have a good investment advisor who you trust and does well for you, stick with them; they are worth their weight in gold. 

If you don't have an investment advisor, you have to choose one.  Generally, most investment advisors are “active investors” buying and selling to try to achieve a higher yield than the market (the research shows they ultimately don't get the higher yield).  This is an expensive method to invest (2% per year or more).  The NYT has a recent article which details that active mutual funds don't beat the market.  

There is also a new breed of investment advisors that are low cost and use index funds or ETF's.  They are an interesting option which achieves most of the above at a cost not too much higher than the packaged solution.   If you hire investment advisor, just make sure they have a fiduciary duty to you and are not just investing on a suitability standard

With the packaged solution, you rely on the mutual fund company for their investment advice.  While it is often of the Walmart variety, it is generally good, backed by research, relatively unbiased, low cost and will get you 80% of the way there. 

What is a packaged solution?  The targeted allocation mutual funds offered in many 401K plans are a great example.  They invest the money based on your age and change the allocation as you age.  Normally, they use lower cost mutual funds.  Just put the money in and forget about it. 

In addition, Vanguard has its LifeStrategy Funds that are the all in one funds; you just pick the allocation.  Fidelity also has target date and target allocation funds as do all the big mutual fund companies.  

The rule of thumb on allocation is the stock allocation should be 100 minus your age for long term funds.  For instance, if you are 30, stocks should be 70% and bonds 30%.  If you are more aggressive, go to 80% stock and if you are more conservative go to 60% stock or less. 

Generally, the longer the time frame, the more you want in stock because the returns are higher over time and you can wait out the periods of volatility and low returns. 

And, don't forget that long term bonds, while thought of as a safe vehicle, can lose a lot of value if interest rates go up.   The longer the maturity of the bond, the more it will go down when rates go up.

Everyone should consider annuities for a portion of their assets.  Annuities can help establish a base monthly income which can never go down.  In addition, annuities move the investment risk and longevity risk to the insurance company.  The rule of thumb is an annuity will pay about 1/200 monthly of the amount invested at age 65.  For instance, if you invested $100,000 in an annuity, it would pay you $500 a month for life.  

So go forth and invest fearlessly.  Just do it right and either use a packaged solution or an investment adviser. 

 

Elder, Wills, Estates, Trusts, Special Needs Tax & Business Law; Attorney John Sweeney

Sweeney Legal, LLC, provides legal, practical, and business counsel to Seniors, families, and businesses in the Fairfield, Connecticut area, including the communities of Bridgeport, Bethel, Brookfield, Danbury, Darien, Easton, Fairfield, New Canaan, Newtown, Norwalk, Redding, Ridgefield, Stamford, Weston, Westport and Wilton. John is also licensed in New York serving Westchester County including the towns of Bedford, Lewisboro, Mount Kisco, North Salem, Pound Ridge, and Somers.

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