In yesterday's e-mail, I explained how my parents achieved financial security, despite never earnings more than modest salaries throughout their careers as educators.
Today, I'd like to share the details of how I broke down and analyzed their full financial picture. Then I'll share the lessons to take away from this process and the two changes I recommended my parents make.
Please keep in mind, this is not a one-size-fits-all allocation recommendation. This portfolio balance is specific to my parents' individual situation. Your personal situation is your own and likely very different from theirs.
I'm sharing their story because it highlights some key questions and practices I think everyone should follow to manage their finances.
The first thing I did for my parents, Tom and Suzi, was create a simple Excel spreadsheet...
At the top was a summary of their sources of annual income – two annuities, plus Social Security:
My parents had forgotten about the second annuity they each had. I only noticed it when reviewing their checking accounts and saw the quarterly deposits they've been receiving. (More on this "mystery annuity" below.)
This is very common, especially among older folks. They may have assets or income they've literally forgotten about.
In the next section, I summarized their bank accounts (note that I include the login information for each):
My parents had forgotten about old accounts at Bank 3 and with Treasury Direct – another happy discovery!
They also have three brokerage accounts, with Fidelity, Charles Schwab (SCHW), and TIAA. I listed their exact holdings for each, as you can see below.
(Disclosure: Here at Stansberry Research, we do not recommend or endorse any brokers, dealers, or investment advisers. We aren't affiliated with any brokerage and don't receive any compensation for mentioning a particular broker.)
Some things to note...
I put cash/bonds and equities (stocks and stock funds) in different columns, so that it was easy to add them up separately and see the total asset allocation.
To value the equities, I included the number of shares and the share price for each stock/fund. Then I used a free, popular Excel "add-in" called Stock Connector to update the share prices – and therefore the total value of the position – every time the spreadsheet is opened. It looks like this:
Lastly, I added the value of their home (real estate), totaled all of their assets, and then calculated the percentage of their assets in each category:
I can't emphasize enough the importance of taking the time to put together a simple spreadsheet like this, for many reasons...
First, it gives you a comprehensive picture that enables you to make good financial decisions. When you have everything laid out in front of you, you can answer important questions like:
- Is your spending consistent with your income? (You might want to create another spreadsheet that tracks your expenses.)
- Does your asset allocation make sense given your age, income, expenses, risk tolerance, etc.?
- Are you earning a market interest rate on your cash? (See discussion below.)
- How risky is your portfolio?
- Are you sufficiently "liquid" so you can meet unexpected expenses?
- Should you consolidate accounts to simplify things?
Second, you may discover income and assets that you've forgotten about. In my parents' case, it was a meaningful amount of both.
Lastly, upon your death, your spouse/heirs/lawyers will thank you because they won't have to go on a wild goose chase to track everything down.
Having completed the spreadsheet, I reviewed it with my parents and shared the following thoughts...
Their financial situation is excellent. They live frugally, such that they continue to be net savers, even in retirement. This, combined with the rising stock market (and the particular stocks they own), means their net worth has gone up in recent years.
I also figured out what the "mystery annuity" is, which they've both been receiving unbeknownst to them. It's a payout from their TIAA Traditional accounts, which you can see on the spreadsheet above listed as cash/bonds. It's a hybrid product that has elements of a bond fund and a fixed annuity.
My parents contributed to these accounts over many years, and their value grew at a modest (fixed-income) rate over time. If they'd wanted, they could have withdrawn the money at any time, like a bond fund (albeit in 10 payments over 10 years). But instead, they did what the plan is designed for, and now it's paying each of them an annuity during retirement.
As for their asset allocation, I think it's reasonable given their age at 84 and 85 years old. Even if the real estate market in Kenya collapsed and they couldn't sell their home, and if the stock market fell by 50%, they would still be financially comfortable for the rest of their lives thanks to the combination of their cash and guaranteed income.
If they were younger (and the market were lower), I would recommend shifting some of their cash into equities. But it's earning 3.3% right now, which isn't bad – and there's no reason to expose them to additional risk. So what if my sister and I inherit a little less money?
I was delighted to see that my dad bought the four stocks I recommended in my old firm Empire Financial Research's first newsletter on April 17, 2019 (which I've been pounding the table on ever since): Berkshire Hathaway (BRK-B), Amazon (AMZN), Meta Platforms (META), and Alphabet (GOOGL).
Since then, through yesterday's close, they're up 132%, 163%, 227%, and 486%, respectively – an average of 252%, far above the 155% gain for the S&P 500 Index. (Note that all but Meta are open recommendations in our flagship Stansberry's Investment Advisory newsletter. You can become a subscriber by clicking here.)
Importantly, my father never sold these four stocks. He didn't panic when they fell sharply during the pandemic in 2020, the tech sell-off in 2022, or the tariff-driven mini-crash last April. He pretty much forgot about them and let his winners run, which, as I've written dozens of times, is the key to long-term investment success.
At the end of the day, I only recommended my parents make two adjustments...
First, I recommended they take out half the money they've invested in the market-cap-weighted S&P 500 and instead put that money into an equal-weight fund like the Invesco S&P 500 Equal Weight Fund (RSP).
This is because, as I discussed in my August 19 e-mail, I'm concerned that the S&P 500 has become too top-heavy, with approximately 40% of its value in only 10 stocks. An equal-weight fund retains the benefits of indexing while providing more diversification.
(Importantly, my parents should only make this change in their TIAA retirement accounts, as the advantages of this swap are outweighed by the capital-gains taxes they'd have to pay if they sold the highly appreciated State Street SPDR S&P 500 Fund (SPY), which they own in their taxable accounts.)
Second, I recommended that they close their Schwab account and move the cash/stocks into their Fidelity one. In part, this was to simplify things. But mainly it was to send a message to Schwab to stop screwing its customers...
I did the switch myself a few years ago, which I discussed in my April 22, 2024 e-mail, including links to each part of the full saga.
I explained my thinking to a Schwab representative, who called and e-mailed us to try to persuade us not to close my parents' account. Here's the reply I sent him:
Yes, it was an intentional decision to move my dad's account from Schwab. In part, this was simply to consolidate his assets. But why did I choose to do so at Fidelity rather than the reverse? Because Schwab was screwing him (along with millions of other clients).
My father's account has $29,402 in cash, upon which, so far this year through May, he earned a paltry $1.49 in interest ($3.58 annually) at the laughable 0.01% (one basis point) interest rate Schwab pays. Had this account been at Fidelity, it would be earning, by default, 3.28% annual interest – equal to $964.
I know that at any point he could have, with a few clicks of the mouse, moved that cash into a money-market account, which pays roughly the same interest rate as Fidelity. But my father – and, no doubt, millions of other clients just like him – didn't know any better.
And I'm not aware that you – or anyone else at Schwab – ever called or e-mailed him and said, "Hey Tom, I noticed that your cash is just sitting there, earning nothing. Would you like me to move it to a money market fund, where you'll earn $1,000 of interest every year?" Your silence speaks volumes...
I view this as a breach of Schwab's fiduciary duty to my father (and millions of its clients just like him). Simply put, I think Schwab was stealing nearly $1,000 per year from my 84-year-old father, taking advantage of his lack of financial sophistication and inertia (he didn't even know his login password).
I hope some class action lawyer takes this up on behalf of the billions of dollars Schwab is stealing from millions of clients. As for my father and me, we'll simply vote with our feet/wallets – and hope that there will someday be enough pissed-off clients like us to force Schwab to change its policy.
To his credit, the representative replied:
Thank you for your candid feedback, and I'm truly sorry to hear about your experience. I completely understand where your frustration is coming from, and I share your wish that all clients' cash would be automatically placed in a similar sweep fund to maximize their interest earnings, it would certainly prevent situations like this. I will be certain to pass along your sentiments.
Tomorrow, I'll share the life advice I gave my parents to maximize their happiness in their final years.
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.