What is best asset allocation for $300K to be used to supplement future income of 53 y/o low income woman?

Question

I am to be named trustee for my aunt's inheritance. She makes less than $20K per year and has had some problems in the past managing money. The trust allows me some lattitude in making disbursements to her or for her benefit and am thinking of investing the entire amount in a balanced mutual fund (like the Vanguard Wellington fund) that invests in stocks (65%) with a healthy dose of bonds (35%). If historical rates of return are consistent with the past, I should be able to give her a little over $1,500 per month (with annual CP adjustments) without the money running out (assumming she lives into her mid 80's).

Any thoughts would be appreciated.

Answer 1

I would suggest looking at companies that pay dividends, particularly those that pay higher than the stock market's average. Dividend paying stocks provide a form of current income and usually have lower (reasonable) growth expectations priced in, so that you have a decent shot at capital appreciation, when and if value investing comes back in vogue. Since she's 53, I would consider her longevity into your asset allocation decision, as she likely has 30 + years of drawing down the portfolio, which would suggest an allocation mix with less fixed income securities, but again, that's where the dividend income helps out. Hope this helps you, good luck.

Answer 2

I did a similar case for my client once using $300k as well and my client is 55 yr old.

Use a mixture of annuity, fixed deposits and insurance. The money will never run out and this arrangement is of no risk.

Low risk alternatives include investing into unit trusts that pay a fixed/guaranteed return every year. These days, there are funds that guarantee high rates.

At the same time, please get the appropriate insurance for health and long-term care insurance, otherwise no amt of money will ever be enough!

Speak to a Financial Planner and he will be able to help you.

Answer 3

I wouldn't invest the whole amount in one mutual fund at all.

30% in a global mutual fund
20% in bonds
25% in large cap
15% in mid cap
10% in small cap

Wellington owns such a narrow strip of the market it is risky to me.

BTW, you might want to do something like that in a Fidelity Annuity (you can still pick your mutual funds) - they don't charge a fee, but they wrap it in an annuity which can have some tax benefits for your aunt.

Answer 4

50 50 stocks and bonds I think

at 60 do 60% bonds 40% stocks

etc.