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  • 529 Allocation

    Any thoughts on asset allocation and asset type for a 529 account?  We intend to use the 529 $$ in 6-8 years.  Thanks!

  • #2
    We use vanguard's age based accounts so we don't track our 529s asset allocation. At vanguard, the AA for 11-12 year olds is 60/40, 40/60, and 10/90 for aggressive, moderately aggressive, and conservative portfolios, respectively. We use the aggressive portfolio

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    • #3
      Depends.

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      • #4
        Depends

        Can your kids afford college without it? How are your finances otherwise?

        I'd put in in 100% US equities expecting that to have the highest return over that timeframe. But I could cashflow college if needed, so the risk of it decreasing is worth the potential gains to me. Your plans and risl tolerance may be different.

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        • #5
          I have 3 kids, all 12 and younger. For now, they are all in 100% US stock portfolios (S&P 500 or equivalent). I started late in funding these since I was in medical school when our first child was born and residency for the next 2, so didn’t have a lot of money floating around. Since then we’ve contributed up to the state tax deduction maximum for each and plan to do so for the foreseeable future.

          My thought with the allocation, at least for now, is to be as aggressive as possible with the hope of increasing the account value before changing it within a year or 2 of their college start dates, and then cash flow the difference. Your ability to do the same may differ.

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          • #6




            I have 3 kids, all 12 and younger. For now, they are all in 100% US stock portfolios (S&P 500 or equivalent). I started late in funding these since I was in medical school when our first child was born and residency for the next 2, so didn’t have a lot of money floating around. Since then we’ve contributed up to the state tax deduction maximum for each and plan to do so for the foreseeable future.

            My thought with the allocation, at least for now, is to be as aggressive as possible with the hope of increasing the account value before changing it within a year or 2 of their college start dates, and then cash flow the difference. Your ability to do the same may differ.
            Click to expand...


            This is not a great strategy. You wouldn't do the same with retirement, would you? You want the money to be there when you need it. If the market drops 20% when your kid starts college, then you've lost quite a bit of money.

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            • #7







              I have 3 kids, all 12 and younger. For now, they are all in 100% US stock portfolios (S&P 500 or equivalent). I started late in funding these since I was in medical school when our first child was born and residency for the next 2, so didn’t have a lot of money floating around. Since then we’ve contributed up to the state tax deduction maximum for each and plan to do so for the foreseeable future.

              My thought with the allocation, at least for now, is to be as aggressive as possible with the hope of increasing the account value before changing it within a year or 2 of their college start dates, and then cash flow the difference. Your ability to do the same may differ.
              Click to expand…


              This is not a great strategy. You wouldn’t do the same with retirement, would you? You want the money to be there when you need it. If the market drops 20% when your kid starts college, then you’ve lost quite a bit of money.
              Click to expand...


              I am doing very similar to MaxPower.  I have 4 kids and my oldest is 5.  I am in the NY aggressive portfolio which is 70% total US stock market and 30% international.  I will keep it this way until a year or 2 prior to my oldest going to college.  If the market takes a dump I can cash flow college and save the 529 for grad school or other kids.

              If I only had 1-2 kids I would be less aggressive since I would have fewer options.

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              • #8
                We used to use the target date funds, aggressive allocation, for our kids, but recently switched everything over to 100% us index funds. We need the funds in 12-18 years so we have a long time line. We will probably put some in bonds as we get closer but for now we are very aggressive. If we had to we could cashflow in-state college for both kids so that plays a role in our decision to be aggressive now.

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                • #9
                  I too recently decided to switch my 529 allocations from the vanguard aggressive age-based portfolio to putting it all in the total stock market fund. My kids are 5, 3, and 1. Why did I do that? Well the mantra here is that you shouldn't invest anything you need within 5 years. So be really aggressive until your kid turns 13. At that point, gradually shift to bonds (perhaps 15%/yr) each year so you preserve the growth. If the market crashes when the kid is 13, so far at least we return to the levels we were at within less than 5 years of a significant drop. So you keep it all total stock fund until the growth comes back. If it doesn't all come back you cash flow the remainder

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                  • #10
                    I'm curious how these replies would look if we weren't in a bull market for the last 10 years.

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                    • #11
                      we only have one kid so i did a target fund allocation so when he hit the college door the account is stable. my plan is to keep it stable until he is finished with college and then put it back to aggressive and let it ride with some theoretical possibility there may be grandkid, or let it ride and my kid could inherit it when i'm dead.... it has been pretty unrewarding to see the account flat during the last couple bull run years, but it would also be pretty sad to have the up to 25% of the pot lost to a market crash like in 2008 and then "needing it" if something were to happen with his scholarship. "needing it" is not real as we could cash flow all of college, but there is risk then a big pot would be left to a grandkid which never happens (and it's irrelevant to me because i have post 9-11 GI bill as well to use myself)...this is why i'm just glad at this point i'm not talking a lot of money (ie not super crazy funded).....  your allocation needs to fit into your risk tolerance and your overall goals for this money in reference to your other means...

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                      • #12
                        "I’m curious how these replies would look if we weren’t in a bull market for the last 10 years."

                        Mine would be exactly the same. If the market dives during the time I'd be taking 529 money out to pay for college, I wouldn't tap the funds and would simply cash flow it. Leave it in there for grad-school or, if not needed or the market were still in the tank, let it ride and pay for education for the next generation.

                        For me, the 529 is a heavily tax advantaged growth opportunity. That's a big benefit at the top marginal rates. Most of the people commenting here about superfunding or using it as a generation educational trust can max out their 529s, max out their other tax advantaged accounts, and save a ton in taxable. It's not trying to save pennies to pay for college, it's taking advantage of a generous tax break.

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                        • #13
                          @jhwkr

                          "This is not a great strategy. You wouldn’t do the same with retirement, would you?"

                          Good thing paying for college isn't retirement. If my retirement were only going to last 4 years and I had enough money to pay for it even if the money I was investing aggressively for it went to 0, then yes, I'd pursue that strategy.

                          How much in gains has your 529 missed out on by being allocated conservatively the last several years?

                          As bean said, it all depends on your goals and risk tolerance.

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                          • #14




                            I’m curious how these replies would look if we weren’t in a bull market for the last 10 years.
                            Click to expand...


                            Honestly the fact that we have had such a good recent run gives me more pause then if we were 5 years into a decline.  I am not saying I can take the emotion out of investing but I would feel a lot better if the market continued to go down last year.  Stayed down for the next few then came back up.  But the market does not listen to me so I will take what I get.

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                            • #15




                              Good thing paying for college isn’t retirement. If my retirement were only going to last 4 years and I had enough money to pay for it even if the money I was investing aggressively for it went to 0, then yes, I’d pursue that strategy.
                              Click to expand...


                              So you're OK with sequence of returns risk and losing tens to hundreds of thousands of dollars just because you can afford to lose? This does not make sense to me. Investing in the stock market for a short time frame (in this commenter's situation, 1-2 years) is akin to gambling to me and isn't a great idea. If someone is saving for a down payment in a year or two, we wouldn't say put all the money in stocks. How would this be any different? The asset allocation for investing depends as much on the time frame as it does on the person's risk tolerance.

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