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Helping Mom

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Art360
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Helping Mom  Reply with quote  

Hi everyone, trying to help my Mom out. I was talking to her about her 401k and when we ended up looking at it I noticed she's only getting about 1-2% returns but her balance is nowhere near where it should be. I explained needing to take some risk, smarter ways to accomplish this like S&P 500 and some other options like target retirement hybrid funds. Unfortunately with her work she must go through the company's financial planner to make changes. I advised going into about 4-6 funds and gave some recommendations. Looking at the changes that took place, he went into 16 different funds still focusing on bonds and cash equivalents with minimal allocations to any stock based plans.

My thoughts are for her to go into S&P, 2030 retirement fund, some international fund and perhaps real estate- 25% each but wanted to get thoughts out there. She has approximately 10 years until retirement and my goal here is growth with limited risk. I appreciate any feedback. Once I have a plan I will most likely call the planner myself to ensure he does the changes that make sense. Thanks again for any perspective.
Post Sun Apr 21, 2013 7:06 pm
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oldguy
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quote:
10 years until retirement and my goal here is growth with limited risk.


What you are looking for doesn't exist - risk and return are directly proportional If you want a higher return you must look for more risk. She probably is looking at a 20 to 25 years timeline.

I retired 15 years ago and I've haven't used much of my 401k except for the RMDs each year - the other 96% of the 401k keeps growing.

IMO she should be invested at about 50%/50% - the 50% stocks will provide some risk, growth, to offset inflation. And the 50% bonds will buy the safety she needs due to her short time horizon. And then she can adjust the mix every couple of yrs to add more safety.

The 50/50 mix - the 50% stocks should get about 11%/yr and the 50% bonds should return about 4%/yr, for a combined return of 7.5%/yr. Later, a 25%/75% mix would get about 5.7%/yr.

No need for 16 funds, 6 funds - just keep it simple - a SP500 Index Fund for stocks and a Bond Fund for the bonds (the GNMA bond fund is a common one). Or, the Target 2030 that you suggested will do the whole thing - it has the things that you point out - SP500, Bonds, an International component - a one-stop-shop.
Post Sun Apr 21, 2013 8:49 pm
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Art360
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Thanks! I was thinking along the same lines but wanted to see if there may be somethingi wasn't considering.
Post Mon Apr 22, 2013 5:10 pm
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