My Sister's Portfolio: A Professional Mess

[Scanner]

Well, I met with my sister and we went over her finances.

She's an interesting case. She has $60,000 sitting in an online savings account. That's what I call her "slush" fund. She doesn't really hold down a steady job, she kind of drifts, does some contract work, and lives ultra-frugal. No kids. No husband. No debt.

So, she wants that amount as a cushion to live for a year should she decide not to work.

Okay. . .that's fine. Here's where it gets interesting.

Then, in her 401(k) from Apple, she has about $23,000 split among 6 funds, most of it in Fidelty ContraFund (about $12,000) and about $5,000 in Fidelty Growth and Income. The rest is small amounts in other MM's and otehr funds I have to get familiar with.

Then, she goes self-employed - her SEP-IRA is split among 5 Putnam funds, all back-end loaded but they diminish over time. A financial advisor put her in these. This is about $13,000.

So, she has about 11 funds with $36,000 that I have told her to compress into 5. I am trying to work it out whether to rollover her Apple account into her SEP-IRA (per the other thread).

Emotionally she is attached to the ContraFund, which has done the best for her (it does have a Morningstar 5 rating).

Her SEP-IRA, which was professionally advised, hasn't really earned anything past her contributions (since the year 2000) of 13K. But. . .she seemed to only add to her SEP-IRA before market corrections instead of dollar cost averaging so I am not sure I can blame the advisor here. In other words, she just threw money at it every once in awhile.

Still. . .since 2000, I would think some of that money would have grew.

The Putnam funds tend to run with an expense ratio of 2.5% too.

Well, no point to this post. . .I'm going off for 3 days for a vacation.

I'm going to email her a plan for her.

[kv968]

Scanner, it may come as a shock to you, but the Pundits agree that she can and probably should shave those 11 funds down to a more manageable number. I'm sure there's also quite a lot of overlap within them when you really look at it.

Could you list the Putnam funds she has when you get a chance? You should also tell her to quit contributing to them since the money she's putting in now will only take that much longer to get out without paying the back-end load. At least until you can get everything together and show her some other options besides using her fee-induced advisor.

Have a good time on your vacation. Going down the shore?

[Scanner]

KV,

Thanks - came home early - it's been pouring rain in S. Jersey here. Luckily we didn't pay for hotel so it was fine to just bag our shore vacation (Long Beach Island).

I'll list all of her funds later and amounts.

SHe's going through the typical emotions. She thinks, "Well, maybe I should hold onto the Putnam funds until I make some money."

and. . .

"I heard good things about Vanguards S&P 500. . .I should put money in there."

Which is fine. . .but I tried to explain to her that her Fidelty ContraFund may overlap that.

She does need at least 1 "no-load" in her SEP-IRA that she can add to.

Truthfully, the more I thought about it, because she has so much just in vanilla savings and wants to keep it there. . .3 funds may be enough. Maybe an international, a domestic, and I don't know. . .a small cap or an income fund or a utility fund.

Not that 5 is overdoing it but I know she's going to want to pull out of the Putnam funds that are not back-end loaded now.

[Scanner]

KV,

Here is her porfolio - sorry I don't have the ticker symbols:

401(k) from Previous Employer

Fidelty ContraFund: $10,681 (closed to new investors)
Fidelty Growth & Income: $5,271
Vanguard Index Plus: $3797
Vanguard Prime MM Inst.: $1717

I was wrong - thought it was 5 funds - it's only 4. Statements are confusing.

Now here's:

SEP-IRA

Putnam International Capital Opportunities (Class B): $5733
Putnam Mid Cap Value Fund (Class B): $1332
Putnam Vista Fund (Class B): $672
Putnam International Equity (Class B): $1344
Putnam Small Cap Value Fund (Class A - converted from Class B): $2539
Putnam Utilities and Growth & Income (Class B): $3772

Okay, yes, we are about 10 funds with about $33,000 - what a mess - Class A, Class B crap.

I think she called Putnam and she said 2 of the funds would have an exit penalty at this point - the Utilities fund and I think Capital Opportunities.

Frankly, I want her to just liquidate all of her Putnam funds and go no-load and index (at least partially). But maybe we'll just pull what we can from Putnam, no penalty and then deploy her in a no-load SEP-IRA fund.

[Scanner]

KV,

My plan so far for her:

1. Move all of her 401(k) into Fidelty ContraFund. This is part emotional as she sees this has done the best for her. But it's part intellectual too - it does have a 5 star Morningstar rating.

2. Move out of Putnam except the Capital Opportunities and the Utility Fund. We'll wait for that penalty to expire.

3. Deploy that amount into a no-load small cap fund.

4. Have her contribute to the small cap this year.

4a. May visit in a year or two and see what needs rebalanced.

5. Have her consider a "Target" or "Lifestyle" fund as she hated all this complexity for the future.

6. Get half of her savings out of ING and into a no-load muni bond fund to reduce her tax burden. The T. Rowe Price NY Muni Bond fund had swings of -4.5% to as high as 12% return with an average around 5%. That is, if she could tolerate a small loss.

Would consider laddering CD's as an alternative if she can't tolerate loss but CD's don't seem to be yielding much.

That's the best big brother can come up with.

[Fern]

How old is your sister? Being conservative me, i wouldn't think of living on a chunk of savings now to my peril later.

[Scanner]

She's 36.

She'll just say, "I'm not about accumulating wealth."

[scfr]

It's very nice of you to be willing to help her out like this.

[dreamweaver]

Fidelity leveraged is a good one. Down now (of course) but steady growth. Fidelity canada is another GREAT fund. Roll them all, even with penaltys. There is no excuse to hold a poor fund in this economy. Even with no growth this year....last several have been great.

[kv968]

Okay, yes, we are about 10 funds with about $33,000 - what a mess - Class A, Class B crap.

I think she called Putnam and she said 2 of the funds would have an exit penalty at this point - the Utilities fund and I think Capital Opportunities.

Frankly, I want her to just liquidate all of her Putnam funds and go no-load and index (at least partially). But maybe we'll just pull what we can from Putnam, no penalty and then deploy her in a no-load SEP-IRA fund.

Yup, here we are with the Class A/Class B alphabet soup of investing. She should check and make sure if those are the only two funds that are still going to incur a back-end load. The only way she can avoid that load is if she holds the fund until it converts to Class A, which is 8 years. You said everything but one is Class B so I'd have her check that again.

As far as pulling everything out and going with a no-load SEP, I agree. However if she does, the back-end load is going to be 5%. I'm almost thinking, take the hit, get everything out of there and just chalk one up to experience. The Capital Opportunities fund isn't that bad but the Utilities fund isn't the greatest and regardless, she has a 2% and 2.3% respectively on those funds.

[kv968]

KV,

My plan so far for her:

1. Move all of her 401(k) into Fidelty ContraFund. This is part emotional as she sees this has done the best for her. But it's part intellectual too - it does have a 5 star Morningstar rating.

That may not be a bad idea. The only thing about the ContraFund is that it's quite large. No matter what, since it's closed, I'd have her keep some money in there just so she can invest in it at a later date if she wanted to. What is the Vanguard Index Plus fund?

3. Deploy that amount into a no-load small cap fund.

4. Have her contribute to the small cap this year.

Just make sure that whatever fund family she moves her account to that they have a decent small-cap fund available. Some fund families may not have any open to new investors.

5. Have her consider a "Target" or "Lifestyle" fund as she hated all this complexity for the future.

That may be a great option for her. Then she wouldn't have to worry about all of this stuff.

6. Get half of her savings out of ING and into a no-load muni bond fund to reduce her tax burden. The T. Rowe Price NY Muni Bond fund had swings of -4.5% to as high as 12% return with an average around 5%. That is, if she could tolerate a small loss.

Pushing the muni-bonds again huh? If the tax advantage will work for her and she doesn't mind the possiblity of a small loss, why not I guess?

That's the best big brother can come up with.

Big brother's doing great Sorry to hear you got rained out at LBI.

[Scanner]

KV,

She leans conservative so muni bonds make sense, I think but the question is can she tolerate a small loss for 1 or 2 years? Maybe not. . .if so, I'll just keep that ING or another internet savings account.

[kv968]

KV,

She leans conservative so muni bonds make sense, I think but the question is can she tolerate a small loss for 1 or 2 years? Maybe not. . .if so, I'll just keep that ING or another internet savings account.

If she's that conservative and not it a high tax bracket, it might be best for her to just stick with the internet savings account. She may lose out a bit on taxes here and there but it's a more guaranteed return.

Although rates are constantly changing, GMAC offers a current APY of 5.3%. Not that much more than ING but with $60K, that's another $480/yr.