Should My Parents Consolidate Their Investments?

Denise has parents who have done well saving money. Her dad isn’t able to do that anymore, and they are overwhelmed by the thought of consolidating all their savings.

QUESTION: Denise in Texas has parents who have done well saving money. Her dad isn’t able to do that anymore, and they are overwhelmed by the thought of consolidating all their savings. What is the best approach to doing that? Dave breaks it down for her, piece by piece.

ANSWER: Your parents will be selling their mutual funds or individual stocks to buy into other funds that they already have. In other words, if you have 20 funds and you want 10, you have to sell out of 10 of them and buy into your remaining 10. With single stocks, there may be capital gains taxes involved, which is fine because it’s only 15%. A single stock can move by 15% in seconds. I’m going to get rid of the risk of single stocks by selling them and picking out my favorite mutual funds and investing money into those. That’s assuming some of that is not in a retirement account.

There’s nothing to panic about, but his highest risk is those single stocks. I would start talking through it with him. Your mom probably won’t be as tied to those old company deals as your father is. She’ll hear there’s risk and tell him he has to sell them.

Sit them down with an Endorsed Local Provider when you’re there and begin to unpack this. Begin to consolidate it so that it’s not overwhelming. That’s the main reason to do it. Depending on what kind of mutual fund it is and how long he’s held it, there may or may not be tax as a result of that. You could run into some tax on single stocks. But it’s still worth it to get rid of the risk of the single stocks.

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