The longer your parents live, the more likely it is they’ll need help managing their money—in particular, their investments. It’s smart to discuss and to prepare your parents for that possibility, sooner rather than later. Here are some things to consider.
When parents may need your help
- They ask for help. Perhaps they simply want to get it off their plates and focus on other areas of their lives. Or maybe one parent handled the financial matters and isn’t able to continue, and your other parent is at a loss about how to proceed.
- Signs that indicate they need help. You notice the memory lapses or physical issues that make it difficult for them to go to the bank or talk with their financial professional.
- They may be susceptible to phone or online scams. They might be tempted by an investment “opportunity” that promises big rewards with little risk. Or, maybe there is an irresponsible friend who sees your mom or dad as easier targets.
- Their assets and investments are too complex. As they age, your parents may need help developing strategies for preserving as much of their capital as possible. That could mean juggling payout schedules of annuities and other investments, for instance.
How to offer your help
- Be empathetic. Taking on the management of your parents’ investments may be emotional for them as they may feel like they’re losing some independence.
- Look out for their best interests. Make sure you all understand how much assistance they’ll need to live comfortably and safely. The more they need, the more it will cost for their living situation.
- Discuss sources for income. If their monthly income from Social Security, pensions, IRAs and their investments aren’t enough to cover those monthly expenses, they’ll need to tap their investment portfolio. That’s also why it’s important to ensure that those assets last as long as possible.
Parental finances could get complicated. One way to simplify may be to consider consolidating their investments into a portfolio of mutual funds.
Consider mutual funds
Mutual funds embrace a range of investment vehicles, offering the flexibility and variety to tailor and adjust your parents’ holdings based on their needs, objectives and tolerance for risk.
Here are some of the ways a mutual fund investment portfolio could be designed, based on specific needs and goals:
- Do your parents need more income? Consider a fixed-income mutual fund that invests in government or corporate bonds that may generate a steady return. (Be aware, though, that bond funds—like stock funds—carry risk and can lose money).
- Do they want capital appreciation for future generations? An equity fund is intended to deliver higher returns than fixed-income funds, though they also carry a higher risk of loss of capital than bond funds.
- Do they want some growth—but with somewhat less risk? A moderately conservative asset allocation fund may be the way to go. This type of fund typically allocates more money into bonds and cash than in equities.
While there are no guarantees on returns—and mutual funds do carry risk and may lose money—they would allow you and your parents to spread the risk over numerous stocks, bonds and other investments. This diversity could allow returns on one investment to help balance or even outweigh a loss in another. You also can change investment options and weights as your parents’ financial needs change.
- Before things get too complicated, talk with your parents.
- Let them know that you’re willing to help manage their finances whenever they are ready.
- Ask them to share details of their portfolio with you so you’re prepared to step in when the time comes.
- You may wish to discuss wills, trusts and other estate planning matters.
- Other issues might also arise, such as long-term care and insurance matters.
- If your parents are having difficulty making decisions and managing their affairs, you may want to encourage them to name you or a sibling as their power of attorney.
- You may all benefit by meeting with an attorney who specializes in estate planning.
The sooner you can discuss these topics and make plans to handle them, the easier it will be for you and your parents to ultimately make the transition.
Whatever you decide, make it clear to your parents that you have their best interests in mind. And, be transparent in your dealings. Regularly review the performance of their assets and the options they have available and keep things as simple and clear as possible.