Portfolio Help for Disabled Parent

Hrux

All,
I'm really struggling with how best to structure a portfolio for a friend of mine whose parent is disabled. His mother is 64 years old and needs to live off her social security income. Unfortunately, social security is not sufficient enough to cover all her medications so she needs to also earn some monthly (quarterly) income off her savings. Her portfolio size is quite small ($50,000) and I am very confused on what type of investment risk she should take in order to achieve a 4-6% income stream while mitigating the risk of loss of principal.

I have been contemplating the following and would greatly appreciate and advice from the great wisdom of this forum. Thanks in advance.

Generally I try to limit a position size to a max of 10-15% however in this situation I would prefer a simple structure. My thoughts:

$20,000 in RiverPark Strategic Income (RSIIX)
$10,000 in Osterweis Strategic Income (OSTIX)
$10,000 in Doubleline Total Return (DBLTX)
$10,000 in FPA New Income

One issue I have with the proposal above is FPA New Income may not be able to achieve a high enough income stream. Please help!

Hrux

Happy Easter Everyone,
Perhaps a better question to solicit feedback is....Are there any income producing funds with an aim towards capital preservation that one could recommend I research further? Perhaps the Intrepid Income fund?

cman

Unfortunately, there is no investment instrument that you can depend on to produce rewards without risk even if it might seem so at the moment. But you are looking at a 10-20 years time frame and the risk of a "stress condition" that will severely affect any instrument is real. The margin here is so small that such an event may have catastrophic consequences if you need decent income and you don't have the power of compounding.

The best you can do is to diversify which will reduce returns. Also include capital gain producing conservative instruments not just income because you can sell gains periodically and they help diversify from similar risks such as interest rates.

I would also start thinking outside the box a bit. Depending on what the financial situation of her son is, it may be possible for him to transfer some of her risk to himself since he will have a much longer time frame to earn and ride out downturn. Current income and capital growth are conflicting but you can spread them between two entities that have different capabilities. This is what annuities do at a high level.

There isn't enough money here to use a third party annuity but start thinking along the lines of the son creating an "annuity" for her where he takes on the risk of short term short fall if it happens by supplementing with his own funds but gaining more over the long term in total returns without as much of a need for short term capital preservation.

There is no middle man here to pay. I am sure people here can help you create such a portfolio where it is designed for required minimum income in good times and for total returns over the long term. It can be a win-win situation.

There may be cultural, financial, personal relationship issues that may make this infeasible but this would be the most pragmatic approach to try in this situation.

bee

I have dealt with this issue with an elderly parent who had minimal monthly income (under $1,000) and a small nest egg of about the same size as you stated. I started by creating a financial plan that had two main components (a budget of how money was being spent and a list of sources of money).

An examination of the budget will help identify where money is spent, but more importantly, might provide ideas where money could be saved by minimizing expenses and prioritizing services. For us, this meant doing a very detailed budget and trimming where possible.

The second issue to explore is whether your friend's parent qualify for financial assistance. There are a whole host of programs that could help make ends meet. I was able to more than double my parent's monthly income by exploring what programs where available to her. This made her $50K less critical to her day to day needs and has become more of an emergency fund. Be aware that most financial assistance programs are tedious and very detailed. Many have a method of means testing the applicant and therefore might not become available until assets fall further from where they are now. Make a list of these local community, state and federal assistance programs and make them part of the overall financial plan. As he / she reach these lower thresholds be sure to have all the paperwork in order to process the request.

Attempting to only concentrate on the $50K investment to produce a meaningful amount of income might backfire due to market risks, unplanned expenses, or merely longevity.

The $50K has to be part of the plan...its just not enough to solve the problem of "too much life at the end of the money". That's why I realized I needed to dedicated more attention to lowering expenses and finding additional financial help.

Good luck!

cman

@bee, excellent advice. Sometimes, it is easier to deal with less key lime pie than try to squeeze more juice than a lime can hold. We often forget that.

Hrux

Thanks Cman & Bee for taking the time to comment. Much appreciated

DavidMMP

My comments is not related to your investment suggestion request. If your friend's parent have trouble to fill the drug prescription due to lack of copayment, there are many foundations existed and are mainly funded by pharmaceutical companies. He or she can contact the drug company and they can direct them to appropriate foundation for help. It require the patients to fill income verification form. It's easy process but not many know that, especially for expensive drug, it worth the effort.