Death is a part of life. It is truly unfortunate that a factor of getting older is losing some of those you love, or are close to. I lost a dear friend last month, one who had a profound impact on my life, and life's outlook. From the first symptoms to his last breath was less than three months, and he will be missed every day by me and scores of others whose lives were affected by having the good fortune of knowing him and sharing a piece of their lives with him.
I am involved in generational planning every day of my professional life: helping parents prepare for their children's college fund, determining what and how assets will pass to the younger generation, caring for aging parents, as well as the idiosyncrasies of each family or business and understanding that each is unique and different, all with its distinct aims and goals set forth by those that are involved.
Most planning involves the passing of wealth to the next generation. As my clientele (and I, admittedly) get older, the issue of parents passing on and leaving their assets to their children is coming up more and more. Perhaps that many of my clients have been with me for decades, I have the pleasure of having met and have become familiar with the children, grandchildren, and in a few cases, four generations in the same family over time.
After an appropriate amount of time has passed, the issue of following the parents' wishes comes forth to accomplish, and the process of moving assets begins: homes, cars, collections, and of course, your parent's portfolio- hence, the title of my article.
Having become a Certified Financial Planner over 20 years ago, I clearly remember in my first semester of learning that suitability is key in designing a portfolio, and helping the clients to achieve their short and long term goals and objectives.
Whether it is income or growth, saving for a summer cottage or boat, sending children to college or getting prepared for retirement, everybody has different goals and objectives. As I will assume that your parents were at least 20 years or so older then you and in a much different place than you in their financial journey, I will assume for the sake of this writing that you too have different aims than they did. Here is where you and your parent's philosophies may differ, and what to consider.
In "CFP school" we were taught the acronym TTLMRD, sounding like TeeTeeLiMRid. Yes, I know it's not a real word and I don't advise you to use it at your next scrabble game, but it is the basis of all financial planning.
Time is a commodity that we seem not to have enough of. In this case, it stands for Time Horizon, or the time- period you are investing for. Short, mid or long term, the investing philosophy and henceforth the investments you choose should reflect how long you are investing for.
Tax ramifications are a factor. Actor John Housman used to say in an old Smith Barney commercial, "It's not what you earn, but what you keep." Invest tax appropriately- consult your CFP and tax advisor.
Liquidity is key if you plan to be taking money out of your account. You don't want to have to liquidate a position when not appropriate to do so because of adverse market conditions.
Marketability is often mixed up with liquidity. Liquidity is the ability to convert an investment back to a dollar with no market risk, like a savings account. Marketability however, is converting your investment back to cash at the then market value, which may be more or less than your original investment. (Work this into conversation at the next dinner you are at and you will be looked upon as a financial wiz: I do it all the time!)
Risk can be defined in many ways: risk of losing principal, market risk, portfolio risk, inflation risk: I could write a whole article on this alone. Crucial to the possibility of success in most endeavors, determine your risk tolerance before setting off on your financial journey.
Diversification is defined simply as making sure you don't have all your eggs in one basket (don't tell the Easter Bunny). If you have four investments that are all invested in the same sector, rethink your philosophy. You are not diversified if they are all tied to the same type of investment, and will all be affected by market moves in the same general direction.
Don't be afraid to rethink the repositioning of the portfolio portion your inheritance, with the help and advice of your Certified Financial Planner (tm). The appropriate portfolio to help you to achieve your goals may be very different than your parents. Never sell anything before doing a thorough analysis of the tax consequences of selling, and always be sure you understand why you are repositioning it into the next portfolio phase of your life. Selling your parents portfolio will never negate the fact that they passed their hard earned assets to you with love, and will never take them out of your heart. Just remember to say thanks every time they make things just a little easier for you.
Thanks for allowing me the time to vacation last month. The re-run article in the April issue stated a fact that you could pay back your Social Security and have your monthly amount recalculated. That rule was phased out and is no longer in effect. I am sorry if it caused any confusion: I am not sorry that I went on vacation!