Help My Mom

[buadhai]

I'm here in the States visiting Mom, a 77 year old widow. She has sufficient income on which to live well.

However, she has US$300K+ invested with Wachovia in various stocks and mutual funds. The return on investment sucks: only about $4000 in the first eight months of this year.

How should I advise her with respect to this money? She wants it to produce some income, but definitely wants to preserve the capital.

I don't know enough about investing to advise her, other than to recommend she just put it in time certificates of deposit and not worry about it.

Any adivce?

[TRIPxCORE]

If preservation of principal is the utmost priority, then regular CD's with a decent interest rate would be the way for her to go. If she is willing to take a little risk for possibly a better gain, then many options are available to her. Over to you.

[buadhai]

If preservation of principal is the utmost priority, then regular CD's with a decent interest rate would be the way for her to go.  If she is willing to take a little risk for possibly a better gain, then many options are available to her.  Over to you.

<{POST_SNAPBACK}>

She's already got an additional US$300K in CD's. I think she is willing to take a small risk for better gain. But, not much of a risk. But, the risk would have to be small and not involve any sort of trading.

She's been burned by brokers in the past and lost quite a bit when securities tanked in the last decade. So, she's a bit gun shy.

[Firefan]

A very popular choice in that situation is the Vanguard Wellesley fund being 60% fixed income and 40% stocks with a value focus.

You can check it out at Morningstar.com (sorry do not have the ticker right here). Has a VERY low expense ratio for a well managed fund with a good, conservative, track record. No loads Etc.

Mostly US stocks but in your moms case no need to add the currency risk I think (but personally I am all over the world). Cheers!

[chownah]

I do not give advice on stocks but I do know that conventional wisdom is that just because stocks don't perform well in one year is not necessarily a reason to sell them....also I have heard that a good type of stock for stability and consistent dividend yields is Utilities...like electric companies and the such....but I am mostly ignorant about this stuff so check it out (obvioiusly).

[Firefan]

A good Vanguard fund (in my humble opinion) with the mentioned dividend focus is VEIPX yielding 2.5%+. There is also the ETF (exchange traded fund) DVY yielding 3%+ but VEIPX is better diversified. Cheers!

[MyNameIsFarang]

Has she considered investing in a Thai beer bar? That way she wouldn't need to worry whether she's going to lose her money.

What about buying an annuity?

[Spaniel]

Firefans suggestion of the Vanguard Wellesley fund is good advice. You might also want to visit the Vanguard website, www.vanguard.com, and take a look at their Target Retirement 2005 fund. You can also give them a call, 800 523-7877 and ask them to send you their booklet, Facts on Funds. They have lots to foffer and their expenses are about the lowest in the business. This will be a start. Good luck.

[buadhai]

Thanks to all for your advice. I own some Vanguard funds myself, so will get her to have a look there.

[ronz28]

Better Returns at Profunds but you need to manage them more to stay in the current performing sectors.

http://www.profunds.com/prices/performance.asp

[KhunPadThai]

I recommend you read, "Yes, You Can Be a Successful Income Investor" by Stein and DeMuth. They discuss a lot of investment options for producing income and consider risks. Very readable.

Khun Pad Thai

[susah_sih]

She's 77 year old. She does not need any more surprises, given the age. Put her money in bank money market account. Dont put in bank CD as interest is climbing. Many banks try to trick you now by locking into seemingly high interest (but actually low) given an increasing interest rate. Bond fund will also lose money in an increasing interest rate situation like right now. Stock may also lose money. Oil prices and interest rate may hurt some of the stocks.

Best bet is try to look for the highest money market bank accounts that's guaranteed by FDIC. And keep it under US$100,000 per bank/institution.

3.81%APY

CapitalOne/Costco Money Market

Minimum US$5,000

Great if you have Costco membership

http://www.capitalone.com/investments/offe...ostco/index.php

3.80% APY

KeyDirect, part of KeyBank

Minimum US$25,000

http://www.keydirect.com/

3.75% APY

HSBC Online savings account

Minimum US$1

http://www.us.hsbc.com/personal/savings/onlinesavings.html

3.50% APY

Emigrant Direct

Minimum US$1

http://www.emigrant-direct.com/

The above accounts will give return more than US$11,400 (due to increasing interest rates) on US$300,000 deposits, of which are guaranteed 100% by FDIC.

If she is not a US citizen nor US residents then

please feel out W-8Ben form and file it with the banks so that the banks will not withhold the interest, as your mom is not US citizen nor residents. Sometimes it is a good idea to request tax id for your mom using w-9 form and use the same tax id everywhere she opens bank accounts.

http://www.irs.gov/pub/irs-pdf/fw8ben.pdf

http://www.irs.gov/pub/irs-pdf/fw9.pdf

She does not have tax liability but it does not hurt if she files income tax form just to confirm with the IRS that she's not US citizen nor residence and therefore she does not have obligation to pay tax to the US government (by virtue of the W-8Ben form)

I'm here in the States visiting Mom, a 77 year old widow. She has sufficient income on which to live well.

However, she has US$300K+ invested with Wachovia in various stocks and mutual funds. The return on investment sucks: only about $4000 in the first eight months of this year.

How should I advise her with respect to this money? She wants it to produce some income, but definitely wants to preserve the capital.

I don't know enough about investing to advise her, other than to recommend she just put it in time certificates of deposit and not worry about it.

Any adivce?

<{POST_SNAPBACK}>

Edited September 11, 2005 by susah_sih

[Nam Kao]

Downturn coming, move to cash or Rydex Inverse funds

A final short squeeze before they pull the plug

Edited September 11, 2005 by Nam Kao

[Firefan]

Susah; I recommended some better alternatives than her CURRENT funds which include equity and bonds. As she does not really need the money I presumed that was why she had chosen this - to get some growth+keep up with inflation. Probably to pass it on to the family (or whom ever) when passing on.

Also; whether one is taxed on interest in the USA being a non-resident alien (w. W-8BEN form) depends on the double tax agreement with the specific country - where most agreements actually taxes interest.

On a seperate note it is very hard to open a US bank account these days as a non-resident alien - they will say that they accept aliens (Star Wars theme please!) but they need to have a valid adress in the US (not a post box)..

Nam kao; thanks for the insight into the future - I am myself a bit wary about the current market but could never be that confident. Let us know WHEN you go short.

Cheers!

[Mr. Farang]

I recommend BankRate to check out current (and historic) CD & Investment rates.

Add (edit): 5 year jumbo CDs are paying between 4.5 and 4.75 percent, according to BankRate.

Edited September 12, 2005 by Mr. Farang

[lanny]

I'm here in the States visiting Mom, a 77 year old widow. She has sufficient income on which to live well.

However, she has US$300K+ invested with Wachovia in various stocks and mutual funds. The return on investment sucks: only about $4000 in the first eight months of this year.

How should I advise her with respect to this money? She wants it to produce some income, but definitely wants to preserve the capital.

I don't know enough about investing to advise her, other than to recommend she just put it in time certificates of deposit and not worry about it.

Any adivce?

<{POST_SNAPBACK}>

I am not an investment advisor but do help clients from time to time with investment strategies. Without more detail, it is not possible to give specific advice in your mother's case.

Return on investment should include any appreciation (or potential appreciation) not just the current dividend/interest production.

Finally, any change in portfolio structure should take into account the transaction costs of selling her existing holdings. At 77, she does should not undertake any restructuring that will incur substantial brokerage commissions. In other words, it could actually cost more to change than to accept a smaller income.

[Firefan]

Not bad advise Lanny!

Sometimes the best thing to do, is to do nothing.

Cheers!

[malcolminthemiddle]

Susah; I recommended some better alternatives than her CURRENT funds which include equity and bonds. As she does not really need the money I presumed that was why she had chosen this - to get some growth+keep up with inflation. Probably to pass it on to the family (or whom ever) when passing on.

Also; whether one is taxed on interest in the USA being a non-resident alien (w. W-8BEN form) depends on the double tax agreement with the specific country - where most agreements actually taxes interest.

On a seperate note it is very hard to open a US bank account these days as a non-resident alien - they will say that they accept aliens (Star Wars theme please!) but they need to have a valid adress in the US (not a post box)..

Nam kao; thanks for the insight into the future - I am myself a bit wary about the current market but could never be that confident. Let us know WHEN you go short.

Cheers!

<{POST_SNAPBACK}>

So would it be fair to say that CDs are unavailable to non resident aliens?

[Firefan]

Well - they are not saying "NO" they are just coming up with some weird requirements - of which the "valid US address" is the toughest to comply with. I guess if one has friends/office or whatever in the US it could be possible to use that address.

I am sure you can find offshore CDs and high interest accounts.

Cheers!

Susah; I recommended some better alternatives than her CURRENT funds which include equity and bonds. As she does not really need the money I presumed that was why she had chosen this - to get some growth+keep up with inflation. Probably to pass it on to the family (or whom ever) when passing on.

Also; whether one is taxed on interest in the USA being a non-resident alien (w. W-8BEN form) depends on the double tax agreement with the specific country - where most agreements actually taxes interest.

On a seperate note it is very hard to open a US bank account these days as a non-resident alien - they will say that they accept aliens (Star Wars theme please!) but they need to have a valid adress in the US (not a post box)..

Nam kao; thanks for the insight into the future - I am myself a bit wary about the current market but could never be that confident. Let us know WHEN you go short.

Cheers!

So would it be fair to say that CDs are unavailable to non resident aliens?

[TRIPxCORE]

You could get some very good offshore CD's as well. Here is a list from MLN Bank in the Carribean.

Premium Certificate Minimum Deposit Interest Rate

1 Year CD $5,000 5.00%

$25,000 5.25%

$100,000 6.00%

3 Year CD $5,000 5.75%

$25,000 6.00%

$100,000 6.75%

4 Year CD $5,000 5.75%

$25,000 6.25%

$100,000 7.00%

5 Year CD $5,000 6.50%

$25,000 6.75%

$100,000 7.50%

7 Year CD $5,000 6.75%

$25,000 7.00%

$100,000 7.75%

You can visit the website here:

mlnbank.com

[Mr. Farang]

Do *not* advise your 77 year old conservative Mom to put her money in Caribbean banks - a haven for offshore fraud. It is not worth the risk.

http://www.offshorealert.com/

Investment fraud is a standard "way of business" in the Caribbean. Elderly people lose money there every day in white collar crime related schemes and scams.

[malcolminthemiddle]

In the early 80s I lost money to a bank based in the Carribean. For 3 years I worked in Saudi saving my pennies, I then decided to buy a house and brought most of the money onshore for the purchase. A couple of months later I decided to close the account, the cheque bounced, many people lost 000's including elderly people. Lucky I bought the house otherwise I would of lost the lot. The Carribean bank was offering rates higher than the norm.

[Mr. Farang]

In the early 80s I lost money to a bank based in the Carribean. For 3 years I worked in Saudi saving my pennies, I then decided to buy a house and brought most of the money onshore for the purchase. A couple of months later I decided to close the account, the cheque bounced, many people lost 000's including elderly people. Lucky I bought the house otherwise I would of lost the lot. The Carribean bank was offering rates higher than the norm.

<{POST_SNAPBACK}>

Yes, I read of a group of people who were defrauded in St. Kitts in the Caribbean in a real estate, tax shelter, investment scam,

US Investors Seek Return of "Lost" Caribbean Resort Property

LAS VEGAS, NV and FRIGATE BAY, ST. KITTS -- (MARKET WIRE) -- 04/27/2005 -- A group of nearly 120 US investors are entangled in a civil suit in a small Caribbean nation where they claim their money, and the 15 acre resort their life savings were entrusted to build and operate, was "lost." The Claimants before the High Court in St. Kitts, led by representatives Richard Rowe, a Federal Express pilot from Niceville, Florida, and Mark Secrist, an American Airlines pilot from Winchester, Virginia, discovered that they were victims of an apparent investment fraud involving the former and current "owners" of the Angelus Resort, St. Kitts resort in April of 2003. Roland M. Thomas, 55, a British citizen acting as CEO of the Angelus, has denied any knowledge of the investors' interest in the property.

Thomas, during the terminal illness of the former owner of what was once called the Paradise Beach Resort & Casino, took control of the Frigate Bay, St. Kitts, resort in May 2003. Thomas changed the name of Paradise Beach Resorts to the Angelus. According to four "whistle-blower" affidavits by former Angelus employees, Thomas, with the assistance of two local St. Kitts lawyers, allegedly packed and shipped several boxes of records off-island after the court ordered the officers of the Angelus, which would include Thomas, to produce them. The Claimants also allege breach of fiduciary duty by the former owners and officers of the Angelus, who provided what was claimed to be expert business, investment and tax planning services to the Claimants.

Related Information

Seems the victims were induced by promises of high yield on invesment returns and then defrauded.

[buadhai]

I should note that my Mom is a US citizen, living in California. So, she would want investments that limit her tax liability.

Thanks again for all the information and suggestions.

[lanny]

At 77 your mother should not be placing too much emphasis on the tax consequences of her investments. Unless a person is in the very highest income group, taxes should never be the controlling factor. All investors, but older ones in particular, need to concentrate on the economic benefits to accrue from an investment. If the choses investment vehicle produces favorable tax results, that is like icing on the cake -- but it should not be the cake itself.

In my 30+ years of working with taxpayers, I cannot remember a single case where a client came out ahead by placing primary emphasis on the tax results. Remember, it is the amount of money you have left after paying taxes that is important.

In most cases, tax favored investments produce a smaller gross yield than taxable ones. If this discount is more than the tax paid on the higher yield, you end up with less money in the end. For most people, this is the way it workd. People in the top brackets bid tax favored yields down so that their after tax net is still higher. But, at those rates, people paying a lower tax can't win.