optimal 529 allocation given these fund choices, please

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letsgobobby
Posts: 11668
Joined: Fri Sep 18, 2009 1:10 am

optimal 529 allocation given these fund choices, please

Post by letsgobobby » Sun Feb 24, 2013 8:19 pm

I am looking for a 100% equity, moderately-heavily tilted 529 portfolio. I do not think the allocation will change, ever, and the consequences of a shortfall are not severe - so I am willing to take a lot of risk. [I just realized how ironic this post is in light of my recent lament about 100% stock investors. Forgive me! :oops: These 529s have always been 100% stocks, so this is not new.]

The money is at Utah and Nevada, and these are the relevant available funds (I have deleted fixed income options as well as any balanced funds - these are all 100% stock funds).

Utah:
Vanguard Total Stock Market Index Fund
Vanguard Institutional Index Fund
Vanguard Mid-Cap Index Fund
Vanguard Small-Cap Index Fund
Vanguard Total International Stock Index Fund
Vanguard Developed Markets Index Fund

Nevada:
Vanguard 500 Index
Vanguard Aggress Growth (70% TSM, 30% TISM - both institutional shares)
Vanguard Growth Index
Vanguard Mid-Cap Index
Vanguard Small-Cap Index
Vanguard Totl Int Stk Idx
Vanguard Totl Stk Mkt Idx
Vanguard Value Index

Overall, the problem is no small value tilt available; no international tilt available at all (no international small, no international value, no emerging markets).

So given these constraints I have been thinking something like:

20% TSM
40% TISM
20% small caps index
20% value index

What do you think?

Grt2bOutdoors
Posts: 19477
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: optimal 529 allocation given these fund choices, please

Post by Grt2bOutdoors » Sun Feb 24, 2013 8:32 pm

I think 529 plans were developed to provide broad widely diversified exposure to securities markets so participants could obtain market returns without it turning into a speculative arena. There is the West Virginia 529plan which offers DFA funds, but that is not the options you are dealing with.

Not sure there is a true optimal investment, the optimal one is the one that gets you to your goal. Is your plan going to remain static other than rebalancing, or will you try to fine-tune it over time. I guess my question is, will you second guess yourself if you experience significant tracking error vs. the broad market?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

northstar22
Posts: 69
Joined: Mon Jul 16, 2012 8:30 pm

Re: optimal 529 allocation given these fund choices, please

Post by northstar22 » Mon Feb 25, 2013 1:38 pm

I don't know that I'm qualified to be giving you advice, bobby, but since I've benefited from your advice (both directly and indirectly) and I like the thread I'll chime in.

40% international is obviously reasonable, and TISM is the best choice you have there. You end up with a 20% small and value tilt, which is a nice tilt but nothing extreme. I suppose you'd rather have a SCV fund, but you have to play the hand you're dealt. Given the choices you have and your desired allocation I think this is the simplest way to do it. The absolute simplest thing would be to put it all the Vanguard aggressive growth which would require no further thinking, but then obviously you lose the tilt.

100% stocks is a personal choice, and since you're contributing a lot to 529s and presumably aren't going to cost your kids a college education if it loses half its value, I don't see a problem.

letsgobobby
Posts: 11668
Joined: Fri Sep 18, 2009 1:10 am

Re: optimal 529 allocation given these fund choices, please

Post by letsgobobby » Tue Feb 26, 2013 1:09 am

I don't think tracking error would occur to me in a 529. I appreciate the thoughts, I agree this is pretty moderate as far as tilts go. Thank you both.

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