Ask Money

Managing savings for parents

Chris Farrell Apr 26, 2011

Question: I have a question and hoping you can guide me here. My parents are assembly workers, they saved up about 25,000 dollars over the past 13 years. They have a 15 years fixed mortgage and no credit card debt. They told me to invest the money for them. I am at a lost here as of what to do with it. It is their go to money. I want to put it somewhere where so that they can get to it fast if they need to. At the same time, I want the money to grow. Short term CD or money market give such low rate that makes it not worth it given the inflation. I suggest they use the money to pay off some of the mortgage but not entirely. Vinh, Houston, TX

Answer: It’s hard enough managing your own money. But the responsibility of managing your parents money? Now that’s tough. My advice is to be conservative with the money. They worked hard for it and, although all of us would like to make money from our money, you also don’t want them to have less when they need it.

I do think it’s important for people to be debt free when they stop working your idea of putting some of the money into the mortgage.

But first, since you are handling the savings for them there are a couple of other things to learn. You want a sense of how this savings fits into the overall financial picture. The answers will affect how you handle the money. For instance, do they have pensions from their factory work? What will they be making from Social Security?

In the meantime, I would stick with high-quality short-term investment like CDs, Treasury bills and the like? Yes, you’ll earn almost nothing on the savings, but you won’t lose principal, either. But this is their go-to, emergency fund money.

I wouldn’t lock up the money long-term–like a 5-year CD or 5-year Treasury note–to reach for a slightly higher yield. I don’t think you’ll get paid enough to take the risk that interest rates go up sometime over the next couple of years. By staying with short-term high-quality investments you’ll be able to reinvest the money at higher interest rates.

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