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529 % Return rate

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  • 529 % Return rate

    Hi all,

    For your financial planning/modeling purposes, what is your expected return for an aggressively allocated 529 (primarily TSM w/ ~20-30% TSM Intl)? Just curious what others are using. I've been using 5% expected returns but think that might be relatively conservative given the aggressive allocation, especially when I'm already adjusting expected college costs for 5% annual increase for ~20 years

  • #2
    my kids are young so i use 7% b/c i'm 100% stocks in the 529.

    it might be a little optimistic but it's not crazy and if i'm off i'll just end up having to cash flow some school i won't die.

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    • #3
      I use 4% but I am basing costs on today's college costs.

      In this case you not only have to predict what rate of return is likely but also what is the cost going to be in 10-15 years. It is stupid hard to do so I am just going to adjust as I go. I see having a healthy 529 account as a way to take the bite out of funding college. As a family doc with 4 kids ages 1-5 I would have a hard time cash flowing even state school. But if I can bank just half of it ahead of time tax free then great!

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      • #4
        I would say 7% is totally reasonable. Might not hold towards the end of the time frame....

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        • #5
          Thanks for the input all. I agree that it’s difficult to predict returns and doubly so when the amount needed is so uncertain and possibly subject to political changes as well given the long time frame. I may increase expected returns to 6% and adjust contributions as necessary/cash flow any shortfalls.

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          • #6
            Originally posted by IMinMS View Post
            Hi all,

            For your financial planning/modeling purposes, what is your expected return for an aggressively allocated 529 (primarily TSM w/ ~20-30% TSM Intl)? Just curious what others are using. I've been using 5% expected returns but think that might be relatively conservative given the aggressive allocation, especially when I'm already adjusting expected college costs for 5% annual increase for ~20 years
            You are estimating college costs will increase by 5% annually? That seems a tad high.

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            • #7
              At first I thought this thread was going to be about a fund or stock getting a 529% rate of return.

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              • #8
                Originally posted by Lordosis View Post
                At first I thought this thread was going to be about a fund or stock getting a 529% rate of return.
                Over how much time?

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                • #9
                  Originally posted by Lordosis View Post
                  At first I thought this thread was going to be about a fund or stock getting a 529% rate of return.
                  Ha, me too! Although the OP was not a usual suspect.

                  OP, just calculate the expected return of the individual pieces. Where it requires fancy work is if you are adjusting by age, such as more bonds or cash. I superfunded...I figure if the 529 doesn't have at least the value of that in 18 years, we got bigger problems than paying for college!

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                  • #10
                    Originally posted by ENT Doc View Post

                    Over how much time?
                    Year over year of course. Just make sure you pull out at the treasury inversion

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                    • #11
                      i got 6.6% over 17 years....it was moved to cash/bonds in 2017 so i didn't benefit from the last couple rally years...but it also hasn't moved this year. once kid graduates in 2022 i will reallocate the leftovers and let it ride again....

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                      • #12
                        In the minority I’m sure, but I probably averaged 4% over the course of both kids’ 529s because I invested almost exclusively in bonds. I know, most here are more aggressive, but my logic was that I wanted very little risk. Heck, we started out with EE bonds before 529s were a thing. (My wife and I were each first to graduate college in our respective families and we both had to make sacrifices. Our goal was to ensure our kids’ college was fully funded.) This worked out for me in one case since the stock market crashed in 2008-9 when I first needed to start withdrawals. In the second case I missed most of the subsequent bull market, but again I was able to meet my goals with virtually no risk. Totally worth foregoing potentially higher returns.

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                        • #13
                          Come to think of it a 529 would be a great place to stick the hedgefundie portfolio. Too bad they have such limited options.

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                          • #14
                            5% had seemed somewhat high to me as well but according to this resource, 5% has been the historical number over the past decade or so with a more recent reversion to 3-4% for public & private respectively. https://www.savingforcollege.com/tut...gher-education

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