Tuesday, April 9, 2013

Investing Lump-Sum Pension Proceeds


Dear Investor Juan,

I would like to take a chance this to ask you, if you have a post /recommendation regarding on what to do with SSS pension once claimed. 

My mother will receive her SSS pension this, I am not sure of how much would it be.(but I think it will be 100K++) 
I would like to help her , by putting 
-at least 60% in a Mutual Fund (index fund, since it is not that risky compared to equities), so it will earn interest much higher than banks. 
-20% - Putting up a business, see is unemployed for 5 years. 
-10%- on bank for emergency purposes 
-10% - for herself. 

I would to ask for any options that I/ we can take. 
I believe my parents do not have retirement fund, since all their life they have been working for us and helping other relatives as well.. 
I want to help to utilize this money very well. 

Thank you very much. 

PS: Thank you for guiding/helping to be an Investor Juan. Godbless! 

Best Regards,


Dear Maria,

I don't think you should invest a bulk of your mom's pension in an equity fund. Even if it's an index fund, it's still exposed to risks that affect the entire market, and the chances of losing principal would still be considerable. At this stage, since your mom is not earning anymore, capital preservation should be the primary objective of her portfolio. Also, since she'll (presumably) need to withdraw portions of her portfolio from time to time, her investment horizon might be too short to weather the short-term up and downs of the market.

Generally, at retirement a person's portfolio should mostly be invested in safe instruments like time deposits or money market funds, so I normally would advice against starting a business, which is even riskier than equity funds--unless you can think of one that you're 99% sure will work. Or maybe something simple, something that requires minimal capital outlay, something that won't break the bank if things don't go as planned.

I don't know what your specific circumstances are, but I hope you're not just going to rely on the SSS pension proceeds to support your mom's retirement--it's obviously far from being enough. Even if you can reliably earn 10% per year on a 100,000 peso investment, that's just 10,000 per year in earnings, and that's assuming you won't spend a cent of that principal. 

Anyway, I wish you and your family well and I hope you find my reply helpful.

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