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Law Man
Posted: 07 September 2023 08:01:06(UTC)
#41

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Well done, Mr GL, for having persuaded you pater to give a LPoA, and you for helping him under it.

All of us should give LPoAs to a spouse and children. It is easy to draft them at Office of Public Guardian.

Do not use online DIY wills. Ask a solicitor for a fixed price for doing wills.

My bonus advice - keep wills and LPoAs simple. It is easy to say something which causes problems; consult a competent experienced solicitor if in doubt.
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Martin White
Posted: 07 September 2023 12:21:19(UTC)
#42

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My goal would be to completely hedge the care home costs then invest all the surplus in a global equity tracker. Can this be done? Two potential routes:
1. I think there are annuities that guarantee care home fees until death. Can’t remember their name. If I am correct then just buy one and stick the rest in VWRL.
2. Care home fee inflation is not the same thing as RPI/CPI but you could fully hedge the general inflation component with a linker ladder.

If you are worried about beneficiary displeasure at inheriting an equity tracker when it is down then invest most of this portion instead into a further linker ladder. Still some duration/mark-to-market risk but that’s unavoidable and can minimise using a broad spread of linkers covering his possible remaining life span.
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Mr GL on 18/11/2023(UTC)
Mikesmusing
Posted: 07 September 2023 17:26:40(UTC)
#43

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It’s an interesting discussion, thanks.

My question would be why would an 80 year old with a serious health condition and presumably impaired life expectancy invest 38% of his portfolio in an array of individually higher (or high) risk equities? Smaller companies, SMT, Asia and China, etc? Yes they may produce higher returns on a 20+ year time horizon but there is no guarantee of that. They do involve active manager risk and the risk that the attorney is perhaps not as skilled as he believes. The portfolio has changed and trading expenses have been incurred. I don’t know GL but a general observation is that it is very hard to find any evidence of persistent skill among active managers. And persistent skill in those picking such managers is likely to be even more elusive. You may get lucky for a time but what robust evidence can you find for skill?

The risks the OM faces seem to be care home cost inflation, medical treatment costs and cost inflation and ‘living too long’ (longevity or mortality risk). I would explore an index linked annuity to partly deal with the cost inflation and longevity risks, particularly as the OMs assets seem sufficient to remove those risks. The equity portfolio looks like something a 40 year old in a good job might run but feels the wrong level and type of risk for someone in their 80s.

My understanding is that an attorney is acting in a trustee (like) capacity and must act in the grantee’s best interest. This creates a conflict of interest when the attorney is also a beneficiary of the estate. Extreme care is advisable for reasons discussed earlier in this thread.

Just my random thoughts and no criticism intended as I don’t have full information on the relevant circumstances.
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Mr GL
Posted: 08 September 2023 07:05:52(UTC)
#44

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Mikesmusing;278490 wrote:
It’s an interesting discussion, thanks.

My question would be why would an 80 year old with a serious health condition and presumably impaired life expectancy invest 38% of his portfolio in an array of individually higher (or high) risk equities? Smaller companies, SMT, Asia and China, etc? Yes they may produce higher returns on a 20+ year time horizon but there is no guarantee of that. They do involve active manager risk and the risk that the attorney is perhaps not as skilled as he believes. The portfolio has changed and trading expenses have been incurred. I don’t know GL but a general observation is that it is very hard to find any evidence of persistent skill among active managers. And persistent skill in those picking such managers is likely to be even more elusive. You may get lucky for a time but what robust evidence can you find for skill?

The risks the OM faces seem to be care home cost inflation, medical treatment costs and cost inflation and ‘living too long’ (longevity or mortality risk). I would explore an index linked annuity to partly deal with the cost inflation and longevity risks, particularly as the OMs assets seem sufficient to remove those risks. The equity portfolio looks like something a 40 year old in a good job might run but feels the wrong level and type of risk for someone in their 80s.

My understanding is that an attorney is acting in a trustee (like) capacity and must act in the grantee’s best interest. This creates a conflict of interest when the attorney is also a beneficiary of the estate. Extreme care is advisable for reasons discussed earlier in this thread.

Just my random thoughts and no criticism intended as I don’t have full information on the relevant circumstances.


its never simple...

the pure equity investments (away from the equity held in the diversified / 'wealth preservers' will not be needed (in theory) for 16 years... at which point my father would be 96 years old. Statistically it is very unlikely he will still be alive then... but it is a possibility...

There is always a choice.... first in terms of asset breakdowns (the question of passive index vs active management is a detail versus overall asset mix) As mentioned upthread the 'guidance' from one judge a few years back was gilts... and these have fallen - since start of 2020 - 28-30%... CPI / RPI has prices rising 21-28%... and VWRL has risen 26%.... One could think that based of that 'evidence' 100% of his portfolio should be equities?

However now that gilts have fallen so much, and the positive real yield they now offer to investors, that they are now a much 'safer' / sensible investment. The 'wealth preservers' - being active managers - manage large gilt / bond portfolios and as has been seen the last few years that have generated positive returns despite the crushing of bond prices and passive indices - a very strong argument in favour of active management there...

So why smaller companies? because when one looks at historical performance that IF one were to have bought smaller companies when they were trading very cheap (in terms of valuations) versus the broader indices then this has shown to lead to a period of strong outperformance in subsequent years... and I believe we are at one of those points currently...

Why Asian investment trusts - because that is where the 'growth' is in terms of economies - India and china etc... the west is shrinking and the east is growing... implies to me that there should be greater / better investment returns in general, and these regions are currently underweight in global stock indices... India's GDP is now bigger that the UK but I am sure it has a much smaller weighting in VWRL than UK stocks...

Why investment trusts trading in general at multi year wide discounts? - because if \I can buy the same companies as found in the passive index trackers at 10+% discounts I think the maths shows that these investments have a greater chance of outperforming the investments trading at 100% of NAV...

I think my old mans best interests are to try to maximise his portfolio returns AND minimise the risk in that portfolio.... however achieving both of those is impossible and so any question about best interests involves debate and nuance and opinion as ultimately we are trying to intelligently predict the future...

I THINK the risk vs potential reward is kinda sensibly balanced... but I have no way of knowing... I dont expect the equity portfolio to be a static one... and IF investment trust discounts disappear, IF other changes happen to the costs structures / ability to leverage / liquidity for the investment trust sector then I can see a potential need to shift away from ITs... yes this is an active management approach... but then I think best interest is not met by outsourcing his potential investment returns to the committee that from time to time meets to make decisions on index breakdowns etc...

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Aminatidi
Posted: 08 September 2023 07:56:49(UTC)
#45

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Respectfully I think what Mike was driving at and something I mentioned on page 1 was god forbid you ever find yourself in some awful legal battle having to defend the choices you made for your father could you do so?

Bluntly why have you done all that v (say) a pile of gilts and cash or a pile of gilts and cash for short and medium term and a cheap commonly used multi asset fund for the rest?

I do think in that sort of situation you risk it being seen as an extension of your own portfolio.

You may be comfortable you can "defend" (I hate using that word but I think you know how it's meant) your choices but I know with my mum (different situation entirely) I was very conscious of keeping it simple and "defensible".

Apologies if that seems like criticism it isn't meant to be but it is how I genuinely think it could be seen.
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Fife Clive on 08/09/2023(UTC), Mr GL on 08/09/2023(UTC)
Mr GL
Posted: 08 September 2023 08:17:52(UTC)
#46

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Aminatidi;278533 wrote:
Respectfully I think what Mike was driving at and something I mentioned on page 1 was god forbid you ever find yourself in some awful legal battle having to defend the choices you made for your father could you do so?

Bluntly why have you done all that v (say) a pile of gilts and cash or a pile of gilts and cash for short and medium term and a cheap commonly used multi asset fund for the rest?

I do think in that sort of situation you risk it being seen as an extension of your own portfolio.

You may be comfortable you can "defend" (I hate using that word but I think you know how it's meant) your choices but I know with my mum (different situation entirely) I was very conscious of keeping it simple and "defensible".

Apologies if that seems like criticism it isn't meant to be but it is how I genuinely think it could be seen.


yup... and who would these people be that are asking me to 'defend' my choices?... VLS 40% equity is unchanged since the start of 2020, UK gilts are down 25-30% VWRL is up 26%, UK prices are up 25% and my old man's investment portfolio is up 30%.... there is no loss.... there is nothing to 'defend'....

in order to pursue someone through a civil action (I am not a lawyer but I have some understanding) the person / people taking action against me who need to 'show me the loss'.... currently there isn't one...

whether it looks like an extension of my own portfolio is irrelevant... IF I had 100% index trackers and I did the same for my old man then it would look like an extension of my own portfolio... would it be a criticism in that scenario?

IF over the next 10 years VWRL rallies 30% and my old man's equity portfolio rises less than VWRL but more than gilts - would that be OK?

What if over the next 10 years VWRL goes sideways, prices via inflation goes up by 15% and gilts rally 15% - would that be OK?
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Aminatidi on 08/09/2023(UTC)
Fife Clive
Posted: 08 September 2023 08:29:44(UTC)
#47

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Step back and ask yourself what you’d think if an IFA had constructed this portfolio for him. Would you think it was perfect? Would you have questions for the IFA? If the IFA gave your rationale, would you accept it?

If I were looking through my father’s documents and found that at the age of 80, he had an IFA directing 40% of his assets to private equity, speculative growth trusts, commodities and emerging markets strategies, I would declare war.

If he’s got sufficient assets to sail to meet his maker without worrying about money - great. Buy an annuity to guarantee a sufficient income for as long as he needs it, and go wild with the rest.

If he doesn’t - taking investment risk with an insufficient pot to juice up returns is unlikely to be appropriate

With respect Mr GL outside of the gilts this looks like a portfolio for you. The man on the street isn’t out there buying Pershing Square at 80 years old. As you obviously know, the fact you will/may inherit this stuff anyway should not be informing your decision making, and you need to guard against any charge that it is
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Aminatidi
Posted: 08 September 2023 08:32:37(UTC)
#50

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You did mention a "dysfunctional sibling relationship" in your opening post.

Sadly you read all sorts of stories about families falling out over money and estates.

I'm not criticising your investment choices I'm asking whether you think they're defensible if someone else (i.e. one of those siblings or a solicitor or judge acting on their or your fathers behalf) ever does.

If you do that's fine but if that relationship ever ends up with you being asked to defend a particular course of action or if things ever "go legal" it seems sensible to ask "what's the expected course of action for someone in your fathers position?" or something along those lines.

That isn't me making any judgement on whether your dads portfolio is a good one or a bad one I just think it's something you might want to consider.
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Raj K
Posted: 08 September 2023 09:13:11(UTC)
#48

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Fife Clive;278540 wrote:
Step back and ask yourself what you’d think if an IFA had constructed this portfolio for him. Would you think it was perfect? Would you have questions for the IFA? If the IFA gave your rationale, would you accept it?

If I were looking through my father’s documents and found that at the age of 80, he had an IFA directing 40% of his assets to private equity, speculative growth trusts, commodities and emerging markets strategies, I would declare war.

If he’s got sufficient assets to sail to meet his maker without worrying about money - great. Buy an annuity to guarantee a sufficient income for as long as he needs it, and go wild with the rest.

If he doesn’t - taking investment risk with an insufficient pot to juice up returns is unlikely to be appropriate

With respect Mr GL outside of the gilts this looks like a portfolio for you. The man on the street isn’t out there buying Pershing Square at 80 years old. As you obviously know, the fact you will/may inherit this stuff anyway should not be informing your decision making, and you need to guard against any charge that it is


Shouldn't the context of the total AUM be taken into account. One 80 year may very well be able to take more risk than another 80 years old if their AUM is large and the less riskier/risk off element will cover projected living needs.



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Mr GL
Posted: 08 September 2023 11:38:00(UTC)
#49

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Raj K;278542 wrote:


Shouldn't the context of the total AUM be taken into account. One 80 year may very well be able to take more risk than another 80 years old if their AUM is large and the less riskier/risk off element will cover projected living needs.



exactly... aside from the wealth preservers no line item represents more than 1.5% of his total AUM...

I hear the arguments about investment choices... however going into an index tracker full of highly valued US tech stocks after a rally which many of 'the experts' have been fighting is also an active investment choice....

thanks for the comments and feedback.... it does generate questions in my mind... I know there is no 'black and white'. and it's all shades of grey....

and Re the 'it just looks like Mr GL's own portfolio'.... in some ways yes... however my own portfolio holds way more overall equity risk, way less I/L and wealth preservers, and I use 3x levered short risk... my father's is a long only portfolio.... overall this year his AUM is up 1/2% (and that is after his approx 2.8% spent year to date on his living costs) which work out to 3.8% YTD total investment return so 'performance' of his total portfolio is up 3.3% (before living expenses) - VLS 40% equity accumulation is up only 2.9% (whoop whoop!)... Mr GL is down 5.3% year to date... so quite a big difference in performance outcomes... since start of 2020 Old Man's investment portfolios are up 30% (not Toal AUM as he has carried lots of cash for a long while - which has substantially been moved into gilts this year)... MR GL is up 42%... so not really the same... but yes some similarity...
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