Menu

529 Allocation

Home General Investing 529 Allocation

  • Avatar MaxPower 
    Participant
    Status: Physician
    Posts: 352
    Joined: 02/22/2016

    @jhwkr542

    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:

    3 Reasons Why You Can Take More Risk with a 529

    #233255 Reply
    Liked by Lordosis, ZZZ
    childay childay 
    Participant
    Status: Physician
    Posts: 1009
    Joined: 01/09/2016
    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?

    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.

    #233259 Reply
    Liked by jhwkr542, ZZZ
    Avatar ZZZ 
    Participant
    Status: Spouse
    Posts: 697
    Joined: 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.

     

    #233262 Reply
    Liked by MaxPower
    Avatar jhwkr542 
    Participant
    Status: Physician
    Posts: 1312
    Joined: 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.

    #233275 Reply
    Avatar MaxPower 
    Participant
    Status: Physician
    Posts: 352
    Joined: 02/22/2016

    @jhwk542

    So how is “something like 25/75 or 40/60 at age 17-18” substantially different than what you berated me for earlier?

    #233284 Reply
    Avatar ZZZ 
    Participant
    Status: Spouse
    Posts: 697
    Joined: 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.

    #233286 Reply
    Liked by MaxPower
    Avatar bean1970 
    Participant
    Status: Physician
    Posts: 550
    Joined: 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.

    #233393 Reply
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 1807
    Joined: 02/11/2019
    my kid’s private high school was 55K/year

    Click to expand…

    Yowza!

    “Never let your sense of morals prevent you from doing what is right.”

    #233409 Reply
    TrumpMD TrumpMD 
    Participant
    Status: Physician
    Posts: 18
    Joined: 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 wealth

    #233673 Reply
    Avatar Perry Ict 
    Participant
    Status: Physician
    Posts: 61
    Joined: 01/20/2019
    Earnest refinancing bonus

    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.

    #233852 Reply
    Liked by TrumpMD, Lordosis

Reply To: 529 Allocation

In case of a glitch or error, please save your text elsewhere, clear browser cache, close browser, open browser and refresh the page.

Notifications Mark all as read  |  Clear