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DGI For The DIY
(04-13-2021, 09:21 AM)EricL Wrote:
(04-13-2021, 09:05 AM)ken-do-nim Wrote: Hi Eric,

You're a great son!

Putting my engineer hat on, before we get started on the implementation, let's nail down the requirements.  How much income, if any, do your parents need?  Then we can come up with an overall target yield for the portfolio, and work towards that.  Second, will they want you managing it, or will they take ownership?  What is their risk tolerance?  Do they plan to use the money to buy something or go on an extended vacation in the foreseeable future?

I haven't been given any income requirements. They've been retired for several years, so any extra income will be on top of what they've already been living on. However, they are going from owning a home to renting, so monthly costs will increase.

Talking with my dad, he wants some dividend income, but is fearful of investing a big lump sum. He's been expecting a market crash for the last five years and is worried about losing principal. 

I don't think there will be much management done with the portfolio. It will generally be buy and hold with collecting dividends for some extra spending money. They can peel off shares as needed to supplement income if needed. They have other retirement savings as well, so this is new money coming into the fold after selling their house of 40+ years.

Also, this is assuming $100k invested with roughly $50k being held in cash for reserves and for buying a few things and going on trips they've wanted to take for a while.
And you should respect that fear because at some point it will happen.  It's good they will sell a few shares off.  They need to enjoy some of your inheritance while they have their health. Big Grin  

On a side note I tell my daughter I am leaving her a sizeable portfolio.  What year she can legally access it depend a lot on how she manages her personal finances.  I will make good on that threat.  I tell her the "Cat Foundation" is always looking for donations if she doesn't heed my warnings lol.  Now I need to find an actual Cat charity and will them $1K so I don't wreck a good 20 year joke.  She isn't all that fond of cats lol.
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Granted I have never built a retirement portfolio, but my understanding is that 5% can still be allocated to growth. I think there is a huge difference between ARKW and gambling in Vegas, but there has to be an acceptable ETF that grows nicely. VGT perhaps? (Vanguard Information Technology)
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(04-13-2021, 10:14 AM)ken-do-nim Wrote: Granted I have never built a retirement portfolio, but my understanding is that 5% can still be allocated to growth.  I think there is a huge difference between ARKW and gambling in Vegas, but there has to be an acceptable ETF that grows nicely.  VGT perhaps?  (Vanguard Information Technology)

XLK and XLV are the two funds I included to add a growth component to the portfolio. They've both produced better than double-digit annual returns over the last decade.

XLK top holdings: AAPL, MSFT, V, NVDA, MA, PYPL, INTC, ADBE, CRM, AVGO

I own six of the ten personally, and am comfortable with this list for my parents.

XLV top holdings: JNJ, UNH, ABT, ABBV, PFE, MRK, TMO, LLY, MDT, DHR

I own five of the ten, and again am quite comfortable with the list.

With a dad that is more worried about capital preservation than capital gains, I'm not interested in any more speculation than this.
My website: DGI For The DIY
Also on: Facebook - Twitter - Seeking Alpha
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(04-13-2021, 09:23 AM)fenders53 Wrote: I assume your parents are just a little older than I am.  I am trying to think how this looks in two years.  I like almost all the names you've chosen.  I guess the thoughts that come to mind after a quick look are these.

-Get rid of some redundancy...  XOM/CVX, PM -MO, ATT-VZ.  These stocks practically mirror each other. One too many DIV ETFs.  This list is adequately diversified already.  
-I think you could find a better industrial than MMM after the run up.
-Don't do a lump sum entry on the individual stocks you know are 20% or more overvalued today. Just a token position for now.  I can name names but I think you know.  
-Park some of the funds where they are fairly safe briefly.  In a list this long some deals will happen soon enough.  Just make sure you can buy at least the first dip or two.  
-Don't DRP the individual stocks.  Use the proceeds to buy more immediate income on dips.  You can grow the income quarterly like you do with your own port.  That would seem like the best direction to focus for them.

1. I have redundancy because I am buying the individual stocks for a bit of an income boost, but I'm not confident enough in XOM and T to put it all solely in them for the sector.
2. MMM still yields 3%, and I see it as a safe yield.
3. I'm guessing this would be bought out over the course of 6-12 months. I don't think they'd be comfortable doing it in one fell swoop.
4. I'm thinking they'll keep $50k in cash, with this $100k going into brokerage that will be invested over several months.
5. I don't think we will drip or reinvest dividends in anything. Just let them pool over time for withdrawal. I want to keep accounting as simple as possible for tax purposes since this would be a taxable account.
My website: DGI For The DIY
Also on: Facebook - Twitter - Seeking Alpha
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(04-13-2021, 10:30 AM)EricL Wrote:
(04-13-2021, 09:23 AM)fenders53 Wrote: I assume your parents are just a little older than I am.  I am trying to think how this looks in two years.  I like almost all the names you've chosen.  I guess the thoughts that come to mind after a quick look are these.

-Get rid of some redundancy...  XOM/CVX, PM -MO, ATT-VZ.  These stocks practically mirror each other. One too many DIV ETFs.  This list is adequately diversified already.  
-I think you could find a better industrial than MMM after the run up.
-Don't do a lump sum entry on the individual stocks you know are 20% or more overvalued today. Just a token position for now.  I can name names but I think you know.  
-Park some of the funds where they are fairly safe briefly.  In a list this long some deals will happen soon enough.  Just make sure you can buy at least the first dip or two.  
-Don't DRP the individual stocks.  Use the proceeds to buy more immediate income on dips.  You can grow the income quarterly like you do with your own port.  That would seem like the best direction to focus for them.

1. I have redundancy because I am buying the individual stocks for a bit of an income boost, but I'm not confident enough in XOM and T to put it all solely in them for the sector.
2. MMM still yields 3%, and I see it as a safe yield.
3. I'm guessing this would be bought out over the course of 6-12 months. I don't think they'd be comfortable doing it in one fell swoop.
4. I'm thinking they'll keep $50k in cash, with this $100k going into brokerage that will be invested over several months.
5. I don't think we will drip or reinvest dividends in anything. Just let them pool over time for withdrawal. I want to keep accounting as simple as possible for tax purposes since this would be a taxable account.
I like this plan.  I'd let you manage my money and I consider that a high compliment.  I am glad you are averaging in.  Doesn't even matter if it turns out to be wrong.  It's appropriate risk management for this portfolio, at this time in market history.
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(04-13-2021, 10:14 AM)ken-do-nim Wrote: Granted I have never built a retirement portfolio, but my understanding is that 5% can still be allocated to growth.  I think there is a huge difference between ARKW and gambling in Vegas, but there has to be an acceptable ETF that grows nicely.  VGT perhaps?  (Vanguard Information Technology)
The only flaw in your ARKW advice is it's not appropriate for this "customer".  Investing 5% in insanely overvalued companies by most any measure is better left for somebody midway in the accrual stage.  VGT is way down on the risk scale.  I have owned it. IN any event Eric knows how to put a modest amount of growth into this port.
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(04-13-2021, 10:25 AM)EricL Wrote:
(04-13-2021, 10:14 AM)ken-do-nim Wrote: Granted I have never built a retirement portfolio, but my understanding is that 5% can still be allocated to growth.  I think there is a huge difference between ARKW and gambling in Vegas, but there has to be an acceptable ETF that grows nicely.  VGT perhaps?  (Vanguard Information Technology)

XLK and XLV are the two funds I included to add a growth component to the portfolio. They've both produced better than double-digit annual returns over the last decade.

XLK top holdings: AAPL, MSFT, V, NVDA, MA, PYPL, INTC, ADBE, CRM, AVGO

I own six of the ten personally, and am comfortable with this list for my parents.

XLV top holdings: JNJ, UNH, ABT, ABBV, PFE, MRK, TMO, LLY, MDT, DHR

I own five of the ten, and again am quite comfortable with the list.

With a dad that is more worried about capital preservation than capital gains, I'm not interested in any more speculation than this.

I'm embarrassed that I completely missed seeing those two when I looked through the portfolio.  It's funny how when you don't recognize something, sometimes you mentally discount it.  Yes, those are great.  Well done.
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(04-13-2021, 11:15 AM)ken-do-nim Wrote:
(04-13-2021, 10:25 AM)EricL Wrote:
(04-13-2021, 10:14 AM)ken-do-nim Wrote: Granted I have never built a retirement portfolio, but my understanding is that 5% can still be allocated to growth.  I think there is a huge difference between ARKW and gambling in Vegas, but there has to be an acceptable ETF that grows nicely.  VGT perhaps?  (Vanguard Information Technology)

XLK and XLV are the two funds I included to add a growth component to the portfolio. They've both produced better than double-digit annual returns over the last decade.

XLK top holdings: AAPL, MSFT, V, NVDA, MA, PYPL, INTC, ADBE, CRM, AVGO

I own six of the ten personally, and am comfortable with this list for my parents.

XLV top holdings: JNJ, UNH, ABT, ABBV, PFE, MRK, TMO, LLY, MDT, DHR

I own five of the ten, and again am quite comfortable with the list.

With a dad that is more worried about capital preservation than capital gains, I'm not interested in any more speculation than this.

I'm embarrassed that I completely missed seeing those two when I looked through the portfolio.  It's funny how when you don't recognize something, sometimes you mentally discount it.  Yes, those are great.  Well done.
I am just making conversation here.  

It would take hours to look at a portfolio like this and give sound advice.  He threw it out here for discussion over the course of days.  I give plenty of portfolio advice to others.  I try to be mindful what's appropriate for person who is putting their skin in the game.  We are all different risk bands.  On a scale Level #1 is a US treasury.  A safe and balanced ETF is a #3.  JNJ as in individual stock is a #4/5 still subject to a serious capital pullback in a bad market.  AVGO/AAPL is #6/7.  Triple leveraged and buying options is Level #10.  ARKW is right up there based on their holdings.

You seem comfortable with level 9/10 risk, at least when the bull is running.  I enjoyed some early retirement years because I stayed invested at level 7 with real money and most of the time my level 9/10 blew up on me eventually.  I may come off as very conservative but I am still invested at 5/6 risk level with just a bit of #8 thrown in.  My mother is at level 1.  She would stress losing any of her capital.  Eric should honestly assess where his parents are.  The overall port mix should not significantly exceed their risk tolerance.  This is supposed to be easy at retirement age but bonds checked out of the game and it will likely be years before they make good sense.  Averaging in makes sense because the ability to buy into some higher yields on a correction will take the sting out of some temporary capital loss.  But sector ETFs are prone to dip 30% with very little reasoning, and stay there for a year or more.  XLK is plenty of risk.  The upper limit for this port.  I think it will work out fine but we never know.
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Great point about the lack of bond alternatives. The problem with level 1 investing is that it is generally below the inflation rate, so it's actually in my opinion high risk - it is guaranteed to lose money.

I'm honestly not sure what I'd be invested in now if I were retired. Probably a large amount in AT&T. It's a shame Disney no longer has a dividend.

Oh, and btw I don't think all triple-leveraged funds have the same amount of risk. CURE for instance isn't very volatile compared to say NAIL.
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(04-13-2021, 11:56 AM)ken-do-nim Wrote: Great point about the lack of bond alternatives.  The problem with level 1 investing is that it is generally below the inflation rate, so it's actually in my opinion high risk - it is guaranteed to lose money.

I'm honestly not sure what I'd be invested in now if I were retired.  Probably a large amount in AT&T.  It's a shame Disney no longer has a dividend.

Oh, and btw I don't think all triple-leveraged funds have the same amount of risk.  CURE for instance isn't very volatile compared to say NAIL.
I do understand all 3X is not the same.  I think you know I meant SOXL or TQQQ.  You have some balance in the total port that I often fail to acknowledge.  I am just averse to excessive leverage.  If the average 80yr old loses 10% they run back to the safety of level #1 where they will never get their money back.  That's a bad ending so just avoid it.  At least they won't lose anymore capital is their thought.  People bail from their 401K equities on every market crash in mass.  There is nowhere to hide and slowly get it back now.  

I am 18 months from the time I can retire for real.  You can watch it play out in real-time lol.   Maybe I'll keep selling doors at HD for a few more years and pay my taxes.  Or maybe I won't if the market runs another 20%?  I better go by some SOXL on the next dip lol.
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