Question: My wife's family is debating on how best to invest $400,000 that came to my mother-in-law because of a death in the family. My mother-in-law is going to be 90 this year. She is invested aggressively in the stock market because her adviser said she needed a large return to keep her small pot of money from running out. Of course, she took a major hit five years ago when the market dipped, wiping out half her portfolio. (By the way, her living expenses are about $3,000 a month in her facility.)
Now we have this surprise gift of wealth. What do we do with this new pot of money, and what do we do with the old, aggressively invested money in the market? Thank you! Bill, Grosse Pointe, MI
Answer: My advice for her inheritance at her age is Preservation of Principal or POP. I wouldn't do anything fancy or risky--just the opposite. I would put the money into Treasury bills, federally insured savings accounts and certificates of deposit, and the like. You want the value of her inheritance to be stable and the money easily accessible when she needs it. Spend it on her. What remains is her margin of safety..
I'd also take advantage of the healthy stock market--up some 97% from its low of March, 2009--to make her existing portfolio conservative. She shouldn't be at risk to the whims of Mr. Market at her age.
Of course, there are a lot many more questions to ask and answer. For instance, some older people with a strong financial safety net invest in the stock market for their children and grandchildren--not to be cashed in during their lifetime. Is that her desire with the existing portfolio pre-inheritance? And do her finances really allow it? She may have other resources to draw on. There are a number of critical estate planning issues to address. You can deal with these questions while keeping the money safe for her.
Still, my starting point or fundamental baseline for her money is to be conservative with it, to focus on preserving the value of her money, and to spend it on her when its called for. That's how I would approach it if she were my Mom.