Investment Recommendations for Providing Significant Capital Security and a Decent Return

Q. I would appreciate specific investment recommendations for my 72 year old mother that would provide significant capital security with decent returns.

A. I will be happy to offer some suggestions, but I need to understand more about her situation.

Does she need to use income off of the portfolio? If so, how much per year?

How has she invested in the past and how is she currently invested?

Is this retirement or non-retirement money?

How much does she have in investable assets?

Is she wanted some growth or just stable interest with no principal
fluctuation?

Q. Thank you so much for getting back to me. My mother only uses money from her portfolio when unforeseen expenses (large) arise- doesn't take regular monthly withdrawals. Actually, we might want to budget 5k or so annually, just in case. She has 45k in a 7 month CD, 80k in a variable annuity, 30k in another variable annuity and 30k in an IRA(only retirement money out of all of these rolled over from a 403k). Her monthly income is about 3k. As I think I said, she's 71 in pretty good health except for back/hip pain and she has a long-term care policy. She wants a little of both- steady interest with modest risk/potential for some growth. Guess we're looking for a happy medium. By the way, I have her IRA in a highly rated bond mutual fund- just moved it there. I've done a lot of research on "safe" mutual funds but I’m having a lot of difficulty sifting through these and making final determinations and levels of diversification.

Thank you for any advice on specific products/diversification you might be able to provide.

A. I have several comments.

First, she has way too much money in Variable Annuities. Unless she has
Been in them for 10 years and has great gains, you should look at moving that money out of those as soon as possible. If there are still surrender penalties then take the 10% per year they give you as a free withdrawal and move that money elsewhere.

Secondly, it sounds like she only has 25% in short-term investments
Like CD's. A CD is significantly different even from the best bond fund. I would use some of that Variable Annuity money to increase her CD level. Bond funds, in my opinion, are not the best place to be in a rising interest rate environment. I would put that money in CD's as well. It will keep it from losing money and will give you some interest while we wait for interest rates to move up over the next year or so.

You mentioned that she is willing to take moderate risk for a little growth.

I use a strategy of higher-yielding stocks, closed-end funds and foreign securities that are paying dividends of 6-10%. There is some fluctuation of principle, but if you get 8% a year in dividends that helps offset any fluctuation. These should be seen as a 5 year hold.

There can also be about 25% in growth-oriented equities. The problem
Is that there is a substantial risk of loss in equities even over a 5 year period, so you will have to monitor them closely and be ready to take action to protect the money. For mutual funds, I like Clipper Fund and Dodge & Cox as some good all around large caps.

For mid caps I like Calamos Growth. You can also use some low-cost
ETFs. IJH for mid-caps, IWM for small caps, EFA and EEM for international. I use these on a daily basis for my clients, but I actively manage them.

I've developed a proprietary system that is designed to significantly
Reduce the potential for loss so that people don't have to worry about taking the huge losses they suffered in 2000-2002.

I hope this helps!

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