MaxPowerParticipantStatus: PhysicianPosts: 352Joined: 02/22/2016
As others have said, this isn’t a retirement account, nor is it even like a down payment on a house. I don’t need all of the money the moment my oldest starts college. It’s also tough to know if your kids go to a cheaper state school or a private Ivy League school where the total cost may differ by 6-8x, so there isn’t a particular number I am saving for.
Since you think it’s a terrible idea then you shouldn’t do it, but if I convert 25% of the account within 2 years of the college start date, and then 25% of the original account value at the start of college a year after that, etc, I potentially have 4-6 years for any downturn to reverse itself. And if it doesn’t then I can cash flow college expenses—all of them.
And even if not, loans are available, which can’t be said for retirement. Comparing 529s to retirement is “a terrible idea.”
WCI said this about 529 allocation:childayParticipantStatus: PhysicianPosts: 1009Joined: 01/09/2016Investing 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?Click to expand…
Perhaps if stocks crash just prior to college expenses, cash-flow instead. Then account can be used for future generations, other relatives, self-education etc.ZZZParticipantStatus: SpousePosts: 697Joined: 06/18/2018
@jhwkr “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.” —
Two sides to that coin. ‘So you’re OK with being overly conservative and missing out on tens to hundreds of thousands of dollars just because you’re conservative? This does not make sense to me.’
Because there isn’t sequence of return risk in this case. Sequence risk only matters if you must take withdrawls. I don’t anticipate needing to take money from the 529 to pay for college, I may use it, but I won’t have to. Therefore, no sequence risk. So, if the market happens to tank during the years my kid is in school, so be it, guess I get to cash flow college. Not a big deal, savings rate dips a little for a few months. Money waits for grad school or the next generation.
I’m more worried about missing out on returns in this tax advantaged account. The aggressive fund in my state 529 is up almost 21% YTD. The conservative age based option, which you’d be in based on your 1-2 year time horizon and risk aversion, is up 2.4%. A difference of 18.6% YTD equates to high five figures in excess returns for me. Sure, this year is atypical, but it’s reality, not hypothetical.
Jhwkr, do you think equities, bonds, or cash will have the highest return over what is essentially a generational time horizon? The choice is pretty easy from there.
I get it, based on your financial circumstances and plan, that’s not a risk you’re willing to take. You intend to spend it in a year or two or don’t want to lose any of it. That may well be the right decision for you. But that conservative approach comes with the risk of missed returns. Different financial circumstances, different risk tolerance, different time horizon. No right answer, just different choices.jhwkr542ParticipantStatus: PhysicianPosts: 1312Joined: 02/15/2016
You are completely misinterpreting my argument, and we’re discussing 2 different scenarios. My original comment was in reply to max power going 100% equities up until a year of college, which he clarified could be stretched out over 8 years with grad school and other kids. Mine are all close in age, and I’m not planning on them attending grad school but we’ll see. If you have 100% equities and a crash happens right before college, then you’re either selling low or forced to keep the money in a 529 for a longer time. If it doesn’t recover while the kids are in school, then you have a pretty illiquid asset you’re stuck with for decades. Having a more conservative allocation right before college isn’t exactly losing out on a lot of money. I won’t continue in vanguard’s age based funds because I think they get way too conservative, but something like 25/75 or 40/60 at age 17-18 sounds about right.July 24, 2019 at 3:58 pm MST #233275MaxPowerParticipantStatus: PhysicianPosts: 352Joined: 02/22/2016
So how is “something like 25/75 or 40/60 at age 17-18” substantially different than what you berated me for earlier?July 24, 2019 at 4:40 pm MST #233284ZZZParticipantStatus: SpousePosts: 697Joined: 06/18/2018
“You are completely misinterpreting my argument”
— Huh? You argue for getting conservative with 529 allocation within a couple years of your kids hitting college. I get it. That’s certainly a reasonable plan.
My intent and goals for my 529 is different than yours. Did you read what either Maxpower or I laid out? I plan on leaving my 529 in 100% equities even when my kids are actually in college and I’m paying tuition. If you’re risk averse and can’t afford to cash flow college, getting conservative within a year of two of tuition bills coming due is certainly reasonable. If you intend to fully exhaust your 529 when your kids are in college, that’s also reasonable approach.
Some people have different plans and financial circumstances.
“If you have 100% equities and a crash happens right before college, then you’re either selling low or forced to keep the money in a 529 for a longer time.”
— If that happens, I’m not selling low, I’m writing a check for tuition from a checking account. I’m not ‘forced’ to keep the money in…I would choose to do so as I fully intend my current 529 savings to be used for my grandchildren’s educational expenses as it is, so if it gets to ride for another 40 or 50 years, that’s great. Odds are the S&P will be a bit higher 50 years from now than it is today, that’s the bet I’m making.
“Having a more conservative allocation right before college isn’t exactly losing out on a lot of money.”
— It is if equities outperform, which, historically, they do. Take for the example, the reality of this year. Explain to me how a 21% YTD return vs a 7% YTD (your 25/75 suggestion) return on several hundred thousand dollars isn’t missing out on returns? I guess is you’ve only got 50 or 60k in a 529 it’s not a big difference. Now add a zero to that 529 balance and you’ll have a better idea of why I value the potential tax advantaged returns of a more aggressive allocation.
I think your plan is reasonable. It’s certainly less risky than mine. Not sure why you can’t understand the merits of a more aggressive approach if someone has the means and stomach to execute it.bean1970ParticipantStatus: PhysicianPosts: 550Joined: 07/12/2017
…..my intention is to use it EXACTLY as intended, for my only kid’s college education when he is in college and at no other time….my intention was to have a 529 with zero balance in 2022….will that happen??? heck no because he’s on scholarship so i’m trying to squeak out anything i can out of it (this summer he took a 3 credit class…that helped as i can pull out 4K). So i had absolutely zero desire to have the account set aggressively at the end of high school. i want the money to be gone because of its restrictions. when he is finished in 2022 i will reallocate the leftovers and i’ll figure out a vacation or two to use this money for someday…….. if there is a grandkid someday…sure maybe that will work out…..my mother has TONS of friends without grandkids…..that plan is not 100% so i’m not planning on it…… for myself for education??? sure, but my post-911 GI bill is more valuable…… i’d rather not have the 529 than have it once college is done in 2022. so for me a stable pot during college to try to exhaust as best i can is what we planned for.
could i let it ride and keep it aggressive??? sure….my kid’s private high school was 55K/year…..and i cash flowed that…. it just depends how you want the 529 to fit in…..i don’t have a lot of flexibility with only one kid and we aren’t looking for grad school etc….people with more kids have more options to play around with the 529.July 25, 2019 at 5:04 am MST #233393LordosisParticipantStatus: PhysicianPosts: 1807Joined: 02/11/2019my kid’s private high school was 55K/yearClick to expand…
“Never let your sense of morals prevent you from doing what is right.”TrumpMDParticipantStatus: PhysicianPosts: 18Joined: 05/11/2019
Any thoughts on asset allocation and asset type for a 529 account? We intend to use the 529 $$ in 6-8 years. Thanks!Click to expand…
Go with a Moderate age-based plan.
"Tax loss harvesting": buy high and sell low to achieve true wealthJuly 26, 2019 at 12:13 am MST #233673Perry IctParticipantStatus: PhysicianPosts: 61Joined: 01/20/2019
I’m curious how these replies would look if we weren’t in a bull market for the last 10 years.Click to expand…
Ditto. Most investors (in general, not necessarily people here) are most optimistic at the tops and most pessimistic at the bottoms.