I have been receiving excellent feedback from many posters here that has helped me monitor my 90-year old Mom’s trusts at USB. I plan on acting early this summer on the good suggestions to hire lawyer/financial consultant.
Many posters are already familiar with my Mom’s situation. For those of you who are not, I want to protect my Mom’s money as much as possible at this point, so have told USB to invest Conservatively, enough to hopefully cover inflation. Since our family is long-lived, Mom could live another 10 years. Mom is cognitively impaired, which has a good chance of worsening over time. If so, her current $70k Assisted Living, Medical and prescription expenses could easily exceed $100k annually.
What I would most like now is not recommendations for any specific mutual funds or other investment changes. Instead, what I am hoping for are your opinions about the overall Portfolio and investment diversifications – especially given Mom’s age and her goals. The Portfolio below is actually the combined 4 USB Rochester Portfolios (thus the duplicates). The numbers after the investment name reference which account. 2030 is the Living Trust Mom herself set up and this, along with 1420 both have step-up basis tax wise, 9080 and 1370 do not have step-up basis.
I am especially interested in your evaluation of how the Investment Manager has done over the years, in general (if possible), so I have included the year each investment was made to give you an idea of how long investments have been held and at what economy point they have been purchased. There are a lot of very intelligent and capable investors here that have widely different portofolios that work for them, so it would really help me to get diverse point of views. Though most investments just seem to be decades+ “buy and hold”, there are quite a few changes in 2009 and 2010 as that was the time I learned just enough to feel the investments (which previously held more stocks) weren’t protecting Mom enough, so I asked the manager to rebalance what he could to lower her overall risk.
Most importantly, do you see any major problems in the overall diversification of these combined portfolios? Is it possible for you to give a generalized “rating” of this portfolio? Can you tell me anything about this Manager’s investment philosophy that could make it detrimental to Mom?
I'm sorry this is long – I know it’s asking a lot for you to even take the time to read this, much less give me your comments. Cathy
P.S. I SPENT A LOT OF TIME ADDING SPACES SO THIS WOULD LINE UP RIGHT - looked right in draft, but skewed in final.
% Name Ticker Weight Date Purchased Stock Industry/Fund Category
0.4 FAIXX-1stAmer Cash Acct (9080) CASH$
0.5 Cash FAIXX 1st AmerPrime (1370) CASH$
0.5 CASH-1stAmeric FAIXX (2030) CASH$
0.3 CASH FAIXX 1st Amer (1420) CASH$
2.0 Nuveen Short-Term Bond I (2030) FLTIX 2010 Short-Term Bond
0.5 Nuveen Inflation Protected(1370) FYIPX 2010 Inflation-Protected Bond
1.5 Nuveen California Tax-Free (1420) FCAYX 1997 Muni California Long
2.4 Nuveen California Tax-Free (1370) FCAYX 1997 Muni California Long
6.3 PIMCO Total Return Instl (1420) PTTRX 2009, 2010 Intermediate-Term Bond
8.3 PIMCO Total Return Instl (2030) PTTRX 2009, 2010 Intermediate-Term Bond
7.6 PIMCO Total Return Instl (9080) PTTRX 2009, 2010 Intermediate-Term Bond
8.7 PIMCO Total Return Instl (1370) PTTRX 2009, 2010 Intermediate-Term Bond
1.7 Nuveen Total Return Bond I (1370) FCBYX 2010 Intermediate-Term Bond
1.7 Nuveen Total Return Bond I (9080) FCBYX 2010 Intermediate-Term Bond
1.3 Nuveen Core Bond I (1420) FFIIX 2010 Intermediate-Term Bond
2.0 Nuveen Core Bond I (9080) FFIIX 2010 Intermediate-Term Bond
2.6 Wells Fargo Company (2030) WFC 1995 Banks - Regional - US
0.6 Bank of America Corp (1420) BAC 1994 Banks - Regional - US
0.6 Bank of America Corp (9080) BAC 1911 Banks - Regional - US
2.1 Coca-Cola Company (1420) KO 1994 Beverages - Soft Drinks
0.7 Accenture PLC (9080) ACN 2003, 2009 Business Services
1.9 Hewlett-Packard Company (9080) HPQ 1911 Computer Systems
0.3 Target Corporation (1420) TGT 2003 Discount Stores
1.8 3M Company (9080) MMM 1911 Diversified Industrials
3.7 3M Company (2030) MMM 1975 Diversified Industrials
1.9 3M Company (1420) MMM 1994 Diversified Industrials
1.3 General Electric Company (1420)GE 1994 Diversified Industrials
0.7 General Electric Company (9080)GE 1911 Diversified Industrials
2.0 General Electric Company (2030) GE 1919 Diversified Industrials
1.4 Abbott Laboratories (9080) ABT 1992 Drug Manufacturers - Major
1.3 Bristol-Myers Squibbpany (2030)BMY 1986, 1987 Drug Manufacturers - Major
0.7 Merck & Co, Inc. (1420) MRK 1994 Drug Manufacturers - Major
2.9 Caterpillar Inc. (9080) CAT 1911 Farm & Construction Equipment
1.9 Procter & Gamble Company (142)PG 1994 Household & Personal Products
3.1 Nuveen Equity Income I (1370) FAQIX 2003 Large Value
0.3 Zimmer Holdings, Inc. (1420) ZMH 1994 Medical Devices
0.3 Zimmer Holdings, Inc. (2030) ZMH 1986, 1987 Medical Devices
0.6 T Rowe Price Mid-Cap Value (9080TRMCX 2010 Mid-Cap Value
2.9 Schlumberger, Ltd. (9080) SLB 1911 Oil & Gas Equipment & Services
3.1 ExxonMobil Corporation (2030)XOM 1919 Oil & Gas Integrated
2.3 ExxonMobil Corporation (1420)XOM 1994 Oil & Gas Integrated
3.2 General Mills, Inc. (2030) GIS 1973 Packaged Foods
1.0 Sealed Air Corporation (1420) SEE 1994 Packaging & Containers
1.4 AT&T, Inc. (1420) T 1994 Telecom Services
0.7 Credit Suisse Commod Ret(1370)CRSOX 2009, 2010 Commodities Broad Basket
0.6 Credit Suisse Commod Ret (1420) CRSOX 2009, 2010 Commodities Broad Basket
0.5 Credit Suisse Commod Ret (9080) CRSOX 2009 Commodities Broad Basket
0.3 iPath DJ-UBS CommodIndxETN (2030)DJP 2010 Commodities Broad Basket
0.6 Nuveen Real Estate Secs I (1420) FARCX 2010 Real Estate
0.3 Nuveen Real Estate Secs I (9080) FARCX 2010 Real Estate
1.2 Nuveen Real Estate Secs I (1370) FARCX 1996 Real Estate
0.7 iShares MSCI Emerging Index (1420)EEM 2009 Diversified Emerging Mkts
0.5 American Funds EuroPacific (1420) AEPFX 2009 Foreign Large Blend
0.8 American Funds EuroPacific(9080) AEPFX 2009 Foreign Large Blend
1.2 iShares MSCI EAFE Index (9080) EFA 2008, 2010 Foreign Large Blend
0.5 Scout International (1420) UMBWX 2009 Foreign Large Growth
MOM RST COMBINED MOM RST COMBINED 100.0
Comments
delimited on the (
% Name Ticker Weight Date Purchased Stock Industry/Fund Category
I prefer MFunds and ETF's to stocks but that is me.
It makes it even busier because I had to combine investments from 4 portfolios to be able to give you an overview of all Mom's trusts at this location. I thought this was easier than submitting 4 separate portfolios since the input I want is on the combined investments.
So what I'm really interested in is the quality of the overall diversification of the combined portfolio and, given the purchase dates, whether what seems to me to be very inactive management for decades is desirable.
Cathy
Beyond that, a deeper analysis would require more information and also a lot more time than I for one would dedicate. Some hint of questions requiring more info:
- Is the cash/bond allocation adequate for possible future expenditures (I don't know and don't want to know the size of the portfolio, but without that it is impossible to match the dollar amount in the portfolio with the projected expenses); is the amount in cash/short term bonds adequate; do you anticipate the need for 12, 16, or 24 hour aides (yes, even in assisted living)? Other add on services on the horizon?
- What are the terms of the trusts - generally speaking, a trust is a legal individual, and so managing four trusts must be in done in the interest of the four "individuals", and not necessarily coordinated in the interest of your mother (again, depending on the trust terms). So does aggregating them even make sense, given the legal overlay?
- You continue to focus on taxes (emphasizing that some trusts get step ups, others don't). Remember that it is not a guaranteed step up, it could be a step down as well. So managing for tax consequences may not be as simple as it first appears. And part of that management gets back to the trust agreements - which trusts are set up to provide living expenses, how they coordinate that, etc.
- Looking at a stock and asking whether it has been a good investment in a relative vacuum is futile. What else was in, not only these trusts, but any other portfolios over the years? (We don't know what was in the trusts prior to your partial overhaul.) An individual investment may not have done well, but may have been a good diversifier at the time. Also, one doesn't even know what the security was years ago - did T (AT&T) represent a purchase of AT&T in 1994, or was it a purchase of Southwestern Bell, or of Pacific Telesis, or Ameritech or Bell South, or Southern New England Tel, or ...? Then there's ExxonMobil, etc.
- When you say that the trusts used to hold more stocks (rather than funds) it isn't clear whether that means a higher allocation to stocks, or individual stocks rather than stock funds. Individual stocks can provide adequate diversification, depending the number and types of stocks; they also facilitate tax management. So owning individual stocks in a large portfolio is not necessarily a bad thing. Was the portfolio truly static - no reallocations, no rebalancing? What about dividends? Were they reinvested or all distributed? Same for funds as for stocks?
I admit to being curious about companies acquired in 1911. I doubt the trust (9080) existed a century ago (though that's a guess). So it sounds like someone purchased these stocks long ago, and subsequently gifted them to the trust (thus retaining the acquisition date for tax purposes). But that doesn't help us gauge whether holding these stocks made sense, since we don't really know the date the trust received them, nor do we know what gain was built into the gift - that could affect the decision to hold or sell.
As you can see, lots and lots of questions. Too many to deal with here (at least for me).
Receiving opinions like yours indicating that this may be a reasonable portfolio for Mom's age and main wish to mainly just protect her principle at this stage would actually be such a relief for me. Though I am very pleased with the results so far of the one Trust of Mom's that I have been managing, I still don't have any illusions that 9 months of investing means I am a seasoned investor - especially when the last 9 months have had enough periods that have been generally good for almost any portfolio.
Re cash allocations. USB has all the dividends put into cash accounts, so apparently the accumulation is enough for them to pay their fees and pay Mom a quarterly distribution. The manager has capped distributions at 3.56% annually, turning down my recent request for 4%-5% minimum annual distribution. The smaller percentage used to cover Mom's expenses, but after the large losses in 2008-09, the balance which this percentage is based was reduced signifcantly.
When Mom's expenses accelerate enough that the distributions from all her trusts, plus social security and her Long-term Care payments are substantially lower, I have sufficient funds of hers in Credit Union money market and shorter term of laddered cd's to cover a fairly major extra amount. But we will first reduce or eliminate Mom's annual gifts to my sister and my family. I've made sure that Mom has at least 2 years of reduced expenses plus accessible funds even if her care reaches $150k/year and her income does not increase.
The reason I combined the 4 trusts is that, though they were originally set up by different people, these 4 all have Mom has the sole beneficiary (instead of other family members also), so the bank investor combines these as a total portfolio, which I thought was reasonable if the diversification of the combined accounts was reasonable.
Your questions regarding the specific investments are intelligent and very reasonable. Several I don't have answers for, which is why I have decided to consult with another Estate Attorney and Fee-Only Financial advisor in a couple of months (you don't by any chance live in Southern California, do you?). I do believe that the original Family Trust was set up by Will Mayo before his death in 1911, with most of the subsequent Trusts set up by my grandmother and grandfather (including the 9080 trust). All the investments I posted I took directly from a report I requested, which was called "Taxlot Detail Without Totals", which includes all the original trade dates (which is what I used).
The stock investments I mentioned that were held previously were stocks and not mutual funds. I have only been able to track back specific investment changes for 3 years, which was the time my Mom moved to Assisted Living. My sister had thrown away all previous statements and trust documents when she cleaned out Mom's condo. I requested, and received, copies of at least some of these trusts.
I wanted to answer your questions as best I could. But I certainly wouldn't expect you to spend any more time than you already have in responding, which has been so helpful to me. THANK YOU AGAIN!
Cathy
Just want to say that I appreciate and always follow your well-thought-out inqueries and the discussions that follow (and I suspect that I am not the only one to do so). While they do not correspond exactly to my situation, there is much useful information and food for thought. (Ex: My g'father's will left all his affairs to be managed by the Trust Company, as it was unthinkable back in that day that a widow could possibly deal finances!! (Smile!)) I wish I could do as well as you!
I know you appreciate the time various board members have taken to comment, and would like them, as well as you, to know that others appreciate their comments as well.
I'm sure my great grandfather and grandfather felt the same way as yours - that women shouldn't have to deal with such a man's world of finances in those days, even if they could. Times have changed, haven't they.
I love this Group! So many members from FundAlarm (and now MFO) have taken considerable time to help me with my myriad of questions over the last year and a half. I attribute the majority of my knowledge and learning to them. And, by reading most of the other postings regularly and checking out many of the links, I feel that members here are my strong "safety net" in case I get too cocky and think I know more than I do.
Anyway I entered your holdings into a M* Instant X-ray and it indicates that in total the portfolio is roughly a 50:50 mix of stocks and bonds but nearly all US based. Pityfull low foreign exposure in this day and age I think but maybe that's by design. The stock portion in general mimics the S&P 500 but is currently favoring Sensitive holdings (communication, energy, technology, industrials) over Cyclical (basic materials, financial, real estate). Nothing really to get over excited about I don't think.
The equity portion is heavily tilted toward large caps (93%) fairly equally disbursed amongst LV-LB-LG with the remainder small & midcap. The bond portion indicates an medium quality (97%) with a moderate rate interest sensitivity bias (78%) - right smack dab in the middle of the 9-box square.
Bottom line I don't believe that USB is doing you any harm but one could probably just put this thing on autopilot and walk away. Just looking at your trade dates suggests that they are not churning your mom's assets nor are they taking outside risks. Take a break, count your blessings and maybe give up the fight with your sister.
I'd link you directly to the Instant X-ray I used but all you will see is a new, blank form for you to fill in. However that link is here: http://portfolio.morningstar.com/NewPort/Free/InstantXrayEntry.aspx?entrynum=50&runMode=MSTAR
I entered all of Mom's (and our) Portfolios in M* a year ago as soon as I felt I was able to even understand what to enter. I have checked their Portfolio analysis and, though there is some very useful information, their evaluations are pretty generic and they seem to be especially poor in evaluating the bond portion - and I trust many posters here more than I do M* - thus my request for input here.
I learned enough from this Forum and reading as much as I could to feel that there should be at least some international exposure - especially with my (and many others here) that the U.S. is bound for some big trouble with a dysfunctional government. So I did ask the investment manager late last year to add some. He did add a small amount, and recently told me he is planning to add a little more (in international stocks, and not mutual funds apparently). So I am grateful that he is trying to be accommodating to me.
Most importantly, the responses like yours have calmed me enough to feel that I can relax a bit, for a few months anyway. I felt it would have been necessary to take more immediate action if the consensus was that the investment manager's investment choices have been - or are likely to in the near future - be harmful to Mom's financial security.
So right now it will just be nice to not have to take any more action or have to make any more decisions for a while.
P.S. (Hope this is ok to add in this Forum) We had to take Mom to the hospital on Sunday (first time she has had to in 40+ years). She had bad cold, which turned into pneumonia. They are taking care of that but Mom still has very low oxygen level, so lots of follow-up care will be needed - though, thankfully, not life threatening now and we should be able to bring her back to Assisted Living today. I'm mentioning this because I wanted to emphasize to anyone reading this how important it is to have any loved ones take the time to complete a legal Health Directive WHILE THEY ARE HEALTHY. Mom has always been quite adament about not wanting to be kept alive by a machine and made it quite clear in the Directive what her wishes are. This is especially important if you have sisters like mine who had opposite views. It's so easy to put this off for "another time."