Hi everyone,

My retired grandmother is in her 70's, she has ~$200,000 in an Edward Jones account, both regular investment account plus IRA.
She has this plus SS and that's it for the rest of her life (besides house + assets).

To my horror, I recently found out her FA had her invested 90+% long stocks and mutual funds, less than 10% bonds, virtually no cash. Given her age, and the recent volatility in the markets, I found this to be a gross mismanagement of her finances.

Specifically, I impressed upon her the idea she should move to cash through the end of the year, until the Euro mess and elections are sorted out, in order to protect against another 2008 type event. She is 70something now, and losing 40% or more of her portfolio again would be traumatic. I told her she could get back into her investments at the end of the year, that gaining a few thousand between now and the end of the year is not worth the risk of losing $80k or whatever. She asked another relative of hers, who does online daytrading, and he said the same thing, that these guys will keep you nearly 100% long the market all the time, and with the risks on the table this year, he advised her to move to cash also. Finally, my uncle on the other side of the family who is a regional bank VP agreed with me, that for her age, her risk was being mismanaged.

So I reviewed all of her holdings with her, I printed out 2Y and 10Y+ charts of all of these stocks and showed her how some of them have been sideways or down for many years now. Some of them had been down the last couple years despite the market being way up. She agreed to sell those underperforming assets and decided to keep some others like AAPL that she has killed it on. She also agreed to get out of the mutual funds until the end of the year.

At that point she asked me to accompany her on a visit to see her FA a couple weeks ago and sell those assets. She doesn't feel comfortable managing that money on her own, doesn't feel like she has the accumen to ask the right questions, etc. So she wanted me to accompany her. As we spoke to her FA, he made it clear that he did not agree with her decisions and advised against it. Whenever I spoke on her behalf, I could see that he had to restrain himself from rolling his eyes at someone my age disagreeing with him. If it were up to him, she would still be 90+% long the market right now. Nevertheless, we persisted and he agreed to change her portfolio around.

*She sold the underperforming stocks, and kept the outperforming ones.

*The cash she raised from those stock sales, she moved to the bank.

*Originally she decided to sell the more substantial mutual fund money and also move it to the bank, however her FA advised her to move it to short term bond funds instead because it would be safe, not cost anything, and would earn her more interest than a bank account. He said he could do both U.S. government bond funds and corporate bond funds, at that point I was adamant with him that she does not want the money moved to corporate bond funds, if anything it would be UST funds or the bank. I know that corporate bond funds are just as bad as stocks when the market tanks, that isn't fixing her risk management at all.

As we left the meeting, I told her I had some misgivings about what her FA was planning to do, that she would be safer in the bank, but UST funds should be OK for now, but she should watch to make sure he didn't invest in anything else.

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So today she showed me what he invested the money in:

Oppenheimer Limited Term Government Fund
Intermediate Bond Fund of America
(both of these went down in 2008, though not as much as the mutual funds)

American U.S. Government Secruties Fund
(this seems to be a very safe investment)

Oppenheimer Core Bond Fund
(this*****es me off, as I specifically told him not to invest in junk like this)

Bond Fund of America
(also down substantially in 2008)

So I guess my question is... are my instincts right or wrong, are these investments safe? A lot of them seem to be crap in a down market, albeit not as bad as stocks / mutual funds.
The Core Bond Fund is an absolute joke and makes me angry that he put any money in it at all.

If some of you are more knowlegdeable about these funds, are they still too risky? Would just straight cash in the bank be better?

Do any of the "safer" funds have hidden risk like what happened with MM funds in 2008?

Her FA adviser seems to preoccupied with her ROI, I'm telling her that for 6 months she just needs to worry about return of investment, she can go long the market next year.

TIA

Wow. You are definitely a good grandson. That's a tough spot to be in and, although correct, a tough stance to take. I'm glad youve got some intelligent family backup. Seriously, a 70 year old should not be in stocks at all. Among bonds, corporates did not do well in 2008 or in the 30s. I'm not invested in bonds at all, so I don't know much about those options, but I agree that if you can keep her out of stocks another 6 months, she will be a lot better off than most. Does she read and trust consumer reports? They had a large and scathing article a few months back about financial planners of different types and their compensation and an outline of what was broadly acceptable for a given age bracket. Needless to say, her advisor is way off the reservation.

Edward jones is nothing more than a "we sell load mutual funds" bunch.

Wow, yeah I just caught an article about how "Income Fund of America" and these other type of mutual funds pay EJ tens of millions of dollars per year to push their product. That's a major conflict of interest, and I will show it to her.
I assume the bond funds also pay EJ to push their products too?

I guess what worries me most is that I advised her to move to cash in the bank until November or December, that it's not worth the risk right now, and then he moved her into bond funds instead, which I don't really know anything about.

I read a prospectus from one of those funds and deep down in the document they admit to trading in derivitaves and inverse floaters and all kinds of estoric financial instruments.
To say the least, it doesn't give me great confidence that they are safe havens in case of a tail risk event.

I'm trying to impress upon her that banks are FDIC insured, she won't lose money, but I think she is worried about taxes and fees if she sells out and moves to the bank (legitimate concerns that I know nothing about).
I think that's why she agreed to move the money from mutual funds to bond funds, because there are no fees and taxes to do so.
(although I'm not sure if there are any fees or taxes for temporarily moving to cash?)

However, if these bond funds aren't safe, then it defeats the purpose of rebalancing her risk.

That Oppenheimer Core Bond Fund went down over 50% in 2008-2009.

OK so she informed her Edward Jones guy to sell the Oppenheimer Core Bond Fund.

He replaced it all with 4.25% Freddie Mac notes ... why would he do this if she told him she wanted the money in a safer investment?

I think your best move at this point is to convince her that since her FA is such an obvious dick and not doing as she requests, that it's time to find one that will.

I wrote an email to her:

"You bought ~$10,000 of Freddie Mac debt, i.e. debt of a bankrupt company"

Is that an accurate assessment?

Nothing to be horrified about with a 90% allocation to equities, *but* a few comments:

a) the MERs and/or commissions are likely to be very high which eat away at the value of the account.

b) If you take on the role as an 'investment advisor', you're just setting yourself up for a catastrophe if the market doesn't go your way.

c) Government Bonds are trash, they don't belong in anyone's portfolio, never mind those of some of the most vulnerable old people who can't replace capital easily (principal != capital).

d) Where's the international exposure? The USA isn't the only country on Earth.

Even though Freddie Mac may be insolvent/bankrupt/whatever, hasn't the fed gov't, for all practical purposes, insured those bonds (not in a legal, but in a de facto, sense)? Do you believe that's likely to change any time soon, no matter which party is in power?

4.25% returns on gov't insured debt may just be the safest investments in the portfolio. (Unless, of course, one believes that the inevitable crash will be very abrupt rather than gradual.)

If you grandmother is in anything but 30 day bills, then I think it is too much risk, unless she absolutely has to have yield. I am in cold hard cash and advised my grandmother the same, despite her obvious misgivings. If she can keep her capital base intact in the next 2-3 years while everybody else goes down the toilet, I am sure she will be very appreciative.

If you grandmother is in anything but 30 day bills, then I think it is too much risk.

That's an enormously risky portfolio, all cash or "30 day bills", probably from the same issuer nonetheless. Once again, cash != capital.

History is littered with huge numbers of examples of the elderly, on so-called 'fixed incomes' being wiped out with such portfolios. 90% equities might be extreme, but there definitely should be some middle ground, and management fees of active funds usually don't add value to a portfolio.

Suggest you look at this from a different direction.

What are her income needs? How much does she get from "reliable" sources, such as social security, pension, etc?

Is that more or less than what she's taking in, in current cash flow?

How likely is she going to need a chunk of money for healthcare needs or other emergency?

These are the practical questions which should underpin any portfolio strategy, IMO.

so now that your grandma knows that ej is nothing more than a wire house recieving commissions for pushing risky investments why don't you offer to hold her hand down to his office when she tells him he is fired.

ask her to do her best trump impersonation.

i learnt about ej the hard way.

EJ brokers have the LEAST amount of freedom to make recommendations of anywhere on the Street AFAIK. They are very limited in what they are allowed to do. Their ads are the most hypocrital BS, evah.