Is my mom's portfolio too aggressively invested?

By Walter Updegrave, senior editor


(MONEY Magazine) -- When my mother and I recently met with her financial adviser, I was taken aback when I saw that her savings of about $300,000 was invested in more than 29 different mutual funds, plus a few other investments.

By my estimate, more than 80% of her money is in stocks. I think she has way too many funds and is invested too aggressively. But her adviser assured me that my mother's portfolio was fine and should be left alone. What do you think? Should I have another adviser take a look? -- Scott, Columbus, Mich.

walter_updegrave__2009b.03.jpg
Walter Updegrave is a senior editor with Money Magazine and is the author of "How to Retire Rich in a Totally Changed World: Why You're Not in Kansas Anymore" (Three Rivers Press 2005).

It sounds to me like you and your mother have a nice little project for the New Year: making sure mom's finances are in order.

I can't say for sure that her current adviser has made a hash of things. I don't have all the details. So depending on how the money is actually allocated among these various investments, I suppose it's within the realm of possibility that her portfolio works as a coherent whole and is appropriate for her situation.

But, frankly, I think that's a stretch. Unless your mom is very young like in her 40s -- or has a lot of other resources you haven't mentioned, a portfolio with more than 80% in stocks is pushing the envelope, if not well outside it.

And short of her adviser trying to give your mom the mutual fund equivalent of Baskin Robbins' 31 ice cream flavors, it's hard for me to envision any scenario where 29 different funds is a good idea.

As I explained in my previous column, monitoring and rebalancing a portfolio is already tough enough. Doing it when you've got more than two dozen funds to keep track of makes the task even more unwieldy.

All of which is to say yes, I definitely think you should have another financial adviser take a look. In fact, I think you ought to go to a few different advisers. That way, you'll get a variety of perspectives on her current portfolio as well as opinions from several advisers on what they might do differently if given the chance. You can find financial planners in your area by clicking here.

Before you meet with anyone, though, I suggest that you and mom do a little prep work first. It's important that you both understand the different types of advisers out there and that you're able to distinguish between those providing useful advice and those looking primarily to sell financial products.

You can get the lay of the land when it comes to advisers by checking out our MONEY 101 lesson on hiring financial help. I also recommend you read an earlier column of mine about assessing an adviser's qualifications, plus this one that warns specifically about some of the more dubious credentials advisers flaunt as supposed evidence of their retirement-planning expertise.

While you're at it, you should also peruse the section of the Securities and Exchange Commission's site that explains how to vet an adviser. You'll also find a list of questions there than you should ask the adviser about himself and the products he's recommending.

Remember too that when you do meet with an adviser, the goal isn't just to come up with a new (shorter) roster of investments. Rather, the idea is to come away with an overall strategy that meets your mom's financial needs.

So you, your mom and the adviser should be discussing issues like how much income your mom requires to live comfortably, how much of that income Social Security and any pensions will provide and, if those two sources don't deliver enough, how best to turn her retirement savings into regular income that can complement Social Security and pensions.

It's only by exploring such topics -- and getting a sense of how much risk your mom feels comfortable taking -- that an adviser can make meaningful recommendations.

Don't rush the process. Allow some time for you and your mom to consider different advisers' strategies in the privacy of her home without feeling pressured to make a decision. And don't forget to get a tally of all the costs involved -- annual adviser fees, underlying fund fees, sales commissions, if any, etc. -- and factor that into your eventual choice.

And whoever your mom ends up working with, be sure that adviser is willing to give your mom periodic updates (say, quarterly) about how her investments are doing versus a relevant benchmark and, if she's drawing income from her retirement accounts, an assessment (at least annually) of how long her portfolio is likely to last.

Finally, while I don't want to suggest there's a specific number of funds you ought to shoot for, I do think it's a good idea to let the advisers you talk to know that you think the bias should be toward keeping things simple and holding expenses down.

Because the more complicated your mom's portfolio is, the more costly it's likely to be, the harder it will be for you and her to understand it and the more dependent you will be on the adviser to explain it to you. Such dependence may be good for the adviser, but perhaps not so good for you and your mom. To top of page

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