I'm currently taking my 34f exam; that would be a great exam question.
I would definitely prioritize capital preservation, followed by liquidity, and only then returns. Specifically, I would allocate a portion to money market accounts and time deposits and invest the rest in short-term euro government bonds. I would only include stocks or balanced funds if interim losses are explicitly accepted.
I would view protection against inflation as a long-term goal, not a guarantee. After all, anyone who accepts neither capital losses nor price fluctuations and at the same time wants to maintain immediate access to their funds must compromise on returns and, if necessary, on purchasing power. With one million euros, a sound, low-risk strategy would be more important to me than chasing the highest possible return.
Specifically, I would allocate the €1 million as follows:
• €100,000 in a money market account as a reserve available at any time
• €500,000 in time deposits, spread across various terms and banks
• €300,000 in short-term euro government bonds, held until maturity if possible
• €100,000 in a broadly diversified equity ETF as long-term protection against inflation
I would definitely prioritize capital preservation, followed by liquidity, and only then returns. Specifically, I would allocate a portion to money market accounts and time deposits and invest the rest in short-term euro government bonds. I would only include stocks or balanced funds if interim losses are explicitly accepted.
I would view protection against inflation as a long-term goal, not a guarantee. After all, anyone who accepts neither capital losses nor price fluctuations and at the same time wants to maintain immediate access to their funds must compromise on returns and, if necessary, on purchasing power. With one million euros, a sound, low-risk strategy would be more important to me than chasing the highest possible return.
Specifically, I would allocate the €1 million as follows:
• €100,000 in a money market account as a reserve available at any time
• €500,000 in time deposits, spread across various terms and banks
• €300,000 in short-term euro government bonds, held until maturity if possible
• €100,000 in a broadly diversified equity ETF as long-term protection against inflation
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@TheCashConcierge Given the parents’ risk aversion, this is certainly not the worst approach.
However, a 10% allocation to stocks isn’t exactly going to boost returns significantly. Especially since the money is likely just going to sit there and isn’t supposed to be touched anyway. In that case, 25–30% wouldn’t be so bad (at least in the medium term). Even with a 50% drop (with HighDivlowVola, the Shiller CAPE ratios aren’t as sky-high as with Big Tech/AI; a drawdown of more than 50% would already be a severe scenario), the loss would be a maximum of 15% of the total portfolio (assuming prices haven’t already risen somewhat by that point).
But of course—completely risk-free investments yield only minimal returns. Over a 30-year period, this would likely result in a 30–40% loss in purchasing power, because inflation can be offset in very few years. If that’s what the parents want (no volatility, nominal preservation of value), there’s no getting around such a passive approach.
However, a 10% allocation to stocks isn’t exactly going to boost returns significantly. Especially since the money is likely just going to sit there and isn’t supposed to be touched anyway. In that case, 25–30% wouldn’t be so bad (at least in the medium term). Even with a 50% drop (with HighDivlowVola, the Shiller CAPE ratios aren’t as sky-high as with Big Tech/AI; a drawdown of more than 50% would already be a severe scenario), the loss would be a maximum of 15% of the total portfolio (assuming prices haven’t already risen somewhat by that point).
But of course—completely risk-free investments yield only minimal returns. Over a 30-year period, this would likely result in a 30–40% loss in purchasing power, because inflation can be offset in very few years. If that’s what the parents want (no volatility, nominal preservation of value), there’s no getting around such a passive approach.
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@Epi I'm keeping my fingers crossed for you. 🍀👍
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•@Epi My parents have actually been through a similar journey over the course of their lives. At first, they were also very skeptical when I approached them about four years ago.
First of all, I brought them some financial literature (I found some very affordable magazines on ETFs in the classifieds—they had the Stiftung Warentest and Finanztest seals :D—I thought that might catch their interest). I also brought a book by Kommer and one by Roehl.
That’s how I convinced them—and little by little, they closed their fixed-term deposit accounts and bought ETFs. At first, I just tried to educate them, but in the end, I basically chose the funds for them. Or rather, I thought they’d pick something from the list... but they just bought all the ones I selected:
VWRL, VHYL, TDIV, a Core MSCI Europe (which was still called Stoxx 600 when they bought it—that was confusing for them when they couldn’t find it anymore...), and a U.S. Dividend Aristocrats ETF. Plus three individual stocks (German companies in the insurance sector, a tobacco stock, and a REIT).
Maximum returns? You won’t get that with this portfolio. But with the exception of the REIT, all the stocks are well in the black, pay out reliable dividends, and the overall volatility should be lower than that of the broader market.
My parents cover their fixed expenses with their retirement income—the dividends are “for life.” And if long-term care should become necessary in 15 years, the portfolio should still be sufficient for that, even without reinvesting the dividends.
If the money is deposited “automatically” into their account, they might also be willing to spend it a bit more generously on themselves. Otherwise, they’d continue saving for a potential worst-case scenario at age 90. I consider it the worst-case scenario not to use the money now to improve your standard of living.
If all else fails, you still have a son (who’s glad to have learned from you how to manage money carefully)...
First of all, I brought them some financial literature (I found some very affordable magazines on ETFs in the classifieds—they had the Stiftung Warentest and Finanztest seals :D—I thought that might catch their interest). I also brought a book by Kommer and one by Roehl.
That’s how I convinced them—and little by little, they closed their fixed-term deposit accounts and bought ETFs. At first, I just tried to educate them, but in the end, I basically chose the funds for them. Or rather, I thought they’d pick something from the list... but they just bought all the ones I selected:
VWRL, VHYL, TDIV, a Core MSCI Europe (which was still called Stoxx 600 when they bought it—that was confusing for them when they couldn’t find it anymore...), and a U.S. Dividend Aristocrats ETF. Plus three individual stocks (German companies in the insurance sector, a tobacco stock, and a REIT).
Maximum returns? You won’t get that with this portfolio. But with the exception of the REIT, all the stocks are well in the black, pay out reliable dividends, and the overall volatility should be lower than that of the broader market.
My parents cover their fixed expenses with their retirement income—the dividends are “for life.” And if long-term care should become necessary in 15 years, the portfolio should still be sufficient for that, even without reinvesting the dividends.
If the money is deposited “automatically” into their account, they might also be willing to spend it a bit more generously on themselves. Otherwise, they’d continue saving for a potential worst-case scenario at age 90. I consider it the worst-case scenario not to use the money now to improve your standard of living.
If all else fails, you still have a son (who’s glad to have learned from you how to manage money carefully)...
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•@Epi I hope God hears you 🙃
They really haven’t had to endure any volatility at all since 2022 (mainly because they’ve been buying in gradually over more than three years, as their fixed-term deposit ladder matured). As the great Warren once said: “It’s only at low tide that you see who’s swimming without a swimsuit.”
If the portfolio were to actually drop by 20–30% (and that really wouldn’t be an unrealistic scenario), it would suddenly be close to or even below the purchase price again. The fact that this has already generated tens of thousands of euros in dividends isn’t visible in Genobroker, though (I track that for you and send you regular updates).
Whether you’ll “stay cool and collect dividends” or panic-sell is anyone’s guess. I hope the mantra-like advice I shared with you at the beginning has helped you develop “diamond hands.”
They really haven’t had to endure any volatility at all since 2022 (mainly because they’ve been buying in gradually over more than three years, as their fixed-term deposit ladder matured). As the great Warren once said: “It’s only at low tide that you see who’s swimming without a swimsuit.”
If the portfolio were to actually drop by 20–30% (and that really wouldn’t be an unrealistic scenario), it would suddenly be close to or even below the purchase price again. The fact that this has already generated tens of thousands of euros in dividends isn’t visible in Genobroker, though (I track that for you and send you regular updates).
Whether you’ll “stay cool and collect dividends” or panic-sell is anyone’s guess. I hope the mantra-like advice I shared with you at the beginning has helped you develop “diamond hands.”
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•@Epi I’m generally optimistic. But a lack of experience and the “stubbornness of old age” that’s slowly setting in aren’t a good combination. I can’t be sure they won’t react impulsively. So I have to trust them to trust me enough 😃
A bigger problem for me is that I’ll probably have to give my father-in-law financial advice soon. He’s about to retire; he’s always earned a decent living, but his pension will, of course, still be less than what he makes now. He has virtually no savings—he’ll receive an additional €60 or so per month from a private insurance policy or something similar.
Now he’ll inherit a third of his father’s estate—an estimated €160,000 before taxes—which is still sitting untaxed in Union Investment accounts. That’s supposed to close the retirement gap….
Ultimately, this man isn’t good with money. He’s never taken on significant debt, but he’s always financed major purchases like a car or motorcycle because he never had any money left over.
Here, too, I’m leaning toward dividend-paying ETFs so he’ll have a little extra each month. He wouldn’t understand an 80/20 portfolio. One where he sells as needed would likely be completely depleted after 1–2 years, without him even knowing what he’d used the money for.
He needs help, and I want to give it to him. However, getting involved in something like this can quickly get you into hot water. On the other hand, if he needs money urgently in the future, my wife (and potentially her sisters) will have to step in otherwise.
The first step will probably be—unlike with your parents and mine—to take a look at his fixed expenses…
A bigger problem for me is that I’ll probably have to give my father-in-law financial advice soon. He’s about to retire; he’s always earned a decent living, but his pension will, of course, still be less than what he makes now. He has virtually no savings—he’ll receive an additional €60 or so per month from a private insurance policy or something similar.
Now he’ll inherit a third of his father’s estate—an estimated €160,000 before taxes—which is still sitting untaxed in Union Investment accounts. That’s supposed to close the retirement gap….
Ultimately, this man isn’t good with money. He’s never taken on significant debt, but he’s always financed major purchases like a car or motorcycle because he never had any money left over.
Here, too, I’m leaning toward dividend-paying ETFs so he’ll have a little extra each month. He wouldn’t understand an 80/20 portfolio. One where he sells as needed would likely be completely depleted after 1–2 years, without him even knowing what he’d used the money for.
He needs help, and I want to give it to him. However, getting involved in something like this can quickly get you into hot water. On the other hand, if he needs money urgently in the future, my wife (and potentially her sisters) will have to step in otherwise.
The first step will probably be—unlike with your parents and mine—to take a look at his fixed expenses…
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