VA529 - VEST [Virginia 529 - inVEST]

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Topic Author
faltuk1
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VA529 - VEST [Virginia 529 - inVEST]

Post by faltuk1 »

VEST age based portfolio (Eastern Shore, Chesapeake) have single digit gains this year. The expenses seem high too (.71% and .6%). Are they still good investment? Any suggestions?
Grt2bOutdoors
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Re: VA529 - VEST

Post by Grt2bOutdoors »

faltuk1 wrote:VEST age based portfolio (Eastern Shore, Chesapeake) have single digit gains this year. The expenses seem high too (.71% and .6%). Are they still good investment? Any suggestions?
What is the investment composition of the age-based portfolio in question?
If the age of the child required a heavy allocation to fixed income, it is entirely possible that single digit gains would be expected. What are you trying to attain, maximum gains or retaining principal value as the time of paying for school is rapidly approaching? Risk and reward go hand in hand.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Topic Author
faltuk1
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Re: VA529 - VEST

Post by faltuk1 »

Please check out the below link for composition and performance.

http://www.virginia529.com/invest/performance/index.php

I am just trying to figure out wheather they are underperforming for the stock/fixed income composition they have. The non-evolving portfolios are performing better for the same stock/fixed income composition.
Malkielino
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Re: VA529 - VEST

Post by Malkielino »

faltuk1 wrote:VEST age based portfolio (Eastern Shore, Chesapeake) have single digit gains this year. The expenses seem high too (.71% and .6%). Are they still good investment? Any suggestions?
Eastern Shore is 70% Equity/30% Fixed Income… had double digit (11.7%) YTD gain, 0.71% expenses from..

http://www.virginia529.com/invest/performance/index.php

Chesapeake is 50-50, had 8.37% YTD gain, 0.6% expenses.

I like VEST in general, but I use the non-evolving funds and rebalance myself… expenses are
down in the 0.24-0.32% range. VEST uses Vanguard funds, so the non-evolving funds are just
direct access to total stock market, total international, REIT, total bond, etc.
Topic Author
faltuk1
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Re: VA529 - VEST

Post by faltuk1 »

I have a 5 and a 11 year old. What non evolving portfolios would you recommend? Do you also use any rebalancing strategy?
Bracket
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Re: VA529 - VEST

Post by Bracket »

Have you considered "doing it yourself" Vanguard style?
In my son's VEST I hold five separate accounts, each with a vanguard index fund, and I manually rebalance according to my plan. I hold total stock market index, total bond market index, REIT index, total int'l index, and TIPS fund. The ER's are I believe based on the institutional class of the underlying fund, plus .2% extra added by VEST itself. Even with the extra .2% the ER's are still within acceptable Boglehead range, .3 or less if I recall.

The other good thing about holding 5 separate "accounts" is that the VA state income tax deduction is $4000 per year per ACCOUNT, so you can increase your deductions by splitting it up, assuming you live in VA.
flybynite
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Re: VA529 - VEST

Post by flybynite »

faltuk1 wrote:VEST age based portfolio (Eastern Shore, Chesapeake) have single digit gains this year. The expenses seem high too (.71% and .6%). Are they still good investment? Any suggestions?
I've noticed the same and I'm doubtful the underlying investments are getting market returns. After using the age evolving funds for multiple years before Bogleheading my VA529 plan, I finally got sick of the ever increasing expense ratios - the newest one, James River has a .79% ER and look at this very esoteric/complicated underlying investment choices for an 80/20% stock to bond mix:

17.5% S&P 500 / 11.25% Russell 2500/ 3.75% CRSP US Small Cap Index / 17.5% MSCI AC EAFE / 15% MSCI Emerging Markets / 15% FTSE EPRA–NAREIT Developed Real Estate / 5% Barclays Corporate High Yield / 5% JP Morgan Emerging Bond Market Index Global Diversified / 7.5% Barclays U.S. Aggregate Float Adjusted / 2.5% T–Bills + 100 basis points

I'm not that sophisticated of an investor that I want to try to compute even the expected performance of such a set of funds.

Last year I used the many accounts we have with VEST (we have 4 kids and between my wife and I therefore eight accounts) to diversify (this is tough as you can only have one fund per account) to keep a mix of stocks/bonds appropriate for the low time horizon of the investments using a mix of the Agg/Moderate and Total Stock/Total Bond, which are all invested in underlying Vanguard funds, with expense ratios in the range of .24% - .37%. I'm very happy with these changes, although every couple of years I will need to do some re-balancing to age evolve the entire set towards more bonds. The Aggr/Moderate are a bit more complicated, they are basically a Vanguard LifeStrategy fund of funds that holds things like Total Stock/Total Bond/Total International, as shown here for aggressive: https://institutional.vanguard.com/VGAp ... undId=0122.

Good luck!
Agwapijaw
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Re: VA529 - VEST

Post by Agwapijaw »

I'm in the same boat with you.

Short of opening up several accounts with Vest or going with an Aged based option... I think the 3 vanguard Life Strategy funds make sense.

Age 0 - 8 Aggressive (80/20)
Age 9-14 Moderate (60/40)
Age 15-18+ Growth (20/80)

Although I can see the benefit of managing a 70/30 and 50/50 in-between these cycles. That said... I'm new at this... so I could be wrong.
yolli71
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Re: VA529 - VEST

Post by yolli71 »

Bracket wrote:Have you considered "doing it yourself" Vanguard style?
In my son's VEST I hold five separate accounts, each with a vanguard index fund, and I manually rebalance according to my plan. I hold total stock market index, total bond market index, REIT index, total int'l index, and TIPS fund. The ER's are I believe based on the institutional class of the underlying fund, plus .2% extra added by VEST itself. Even with the extra .2% the ER's are still within acceptable Boglehead range, .3 or less if I recall.

The other good thing about holding 5 separate "accounts" is that the VA state income tax deduction is $4000 per year per ACCOUNT, so you can increase your deductions by splitting it up, assuming you live in VA.
I just want to make sure I've got this right. I'm a VA resident and both of my kids are enrolled in the VEST program. I thought the 4k/yr deduction was per child (1 child = 1 account, 2 children = 2 accounts, etc.)??? Are you saying you get more deductions by having more portfolio diversity?
sscritic
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Re: VA529 - VEST [Virginia 529 - inVEST]

Post by sscritic »

I suggest reading the instructions to your tax return and the law. I don't live in VA, so it is no concern of mine, but it should be a concern of yours. Don't trust a random poster on the internet to give you tax advice, unless you see some solid evidence (I like tax regs myself). I have no idea if what was posted is correct, it may well be, but I would want to see some proof before I acted on it.
Bracket
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Re: VA529 - VEST [Virginia 529 - inVEST]

Post by Bracket »

According to both the VEST website and the VA tax code, a separate account is created within VEST when either the owner, beneficiary, or PORTFOLIO is different. So in other words, if you have one child and go with a single all-in-one portfolio (like Chesapeake or whatever) then that is one account with a $4000 deduction limit. If, on the other hand, you do it youself and invest in 5 different funds, or "static portfolios," then each one is treated as a separate "account" for tax purposes. When I log on to VEST I see 5 separate account numbers, each account holding a single fund.

This is true to the best of my knowledge, having researched it 2 or 3 years ago when I opened the accounts. I remember thinking it strange at the time, but after double checking found it to be true nonetheless. But sure, I wouldn't take my word for it either without double checking yourself.
Bracket
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Re: VA529 - VEST [Virginia 529 - inVEST]

Post by Bracket »

This thread from 2011 has the relevant tax code sections and the VA tax commissioner ruling.


http://www.bogleheads.org/forum/viewtop ... 0#p1251372
Topic Author
faltuk1
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Re: VA529 - VEST [Virginia 529 - inVEST]

Post by faltuk1 »

I called VEST and here is what I found out.

1. You need a separate account for each portfolio.
2. A same beneficiary can not have multiple accounts for same portfolio even if accounts are opened by separate individuals.
3. You can tax deduct up to $4000 for each account.

I was thinking of opening aggressive portfolio for my 5 year old son in 2 separate accounts (owned by me and my wife), so I can tax deduct 2x4000=$8000. But it looks I can't do this. I will have to use separate portfolios. One way is to have stock fund and bond fund and control the mix that way.
flybynite
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Re: VA529 - VEST [Virginia 529 - inVEST]

Post by flybynite »

faltuk1 wrote:I called VEST and here is what I found out.

1. You need a separate account for each portfolio.
2. A same beneficiary can not have multiple accounts for same portfolio even if accounts are opened by separate individuals.
3. You can tax deduct up to $4000 for each account.

I was thinking of opening aggressive portfolio for my 5 year old son in 2 separate accounts (owned by me and my wife), so I can tax deduct 2x4000=$8000. But it looks I can't do this. I will have to use separate portfolios. One way is to have stock fund and bond fund and control the mix that way.
Faltuk -

You may want to double check their program guide, #2 is just blatantly incorrect and inaccurate. VEST won't tell one account owner they can't choose an investment because some other account owner (with same beneficiary) is in it. I think what they meant to tell you is you can't have more than one account (per owner) for the same beneficiary. In fact, I have been and am currently in this exact situation today with all of my kids (almost all of them have same investment in my and my wife's account). We have got the $8000 VA state tax deduction per child (one per my wife account and one per my account for them) every year for 5 years now.
Topic Author
faltuk1
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Re: VA529 - VEST [Virginia 529 - inVEST]

Post by faltuk1 »

flybynite wrote:
faltuk1 wrote:I called VEST and here is what I found out.

1. You need a separate account for each portfolio.
2. A same beneficiary can not have multiple accounts for same portfolio even if accounts are opened by separate individuals.
3. You can tax deduct up to $4000 for each account.

I was thinking of opening aggressive portfolio for my 5 year old son in 2 separate accounts (owned by me and my wife), so I can tax deduct 2x4000=$8000. But it looks I can't do this. I will have to use separate portfolios. One way is to have stock fund and bond fund and control the mix that way.
Faltuk -

You may want to double check their program guide, #2 is just blatantly incorrect and inaccurate. VEST won't tell one account owner they can't choose an investment because some other account owner (with same beneficiary) is in it. I think what they meant to tell you is you can't have more than one account (per owner) for the same beneficiary. In fact, I have been and am currently in this exact situation today with all of my kids (almost all of them have same investment in my and my wife's account). We have got the $8000 VA state tax deduction per child (one per my wife account and one per my account for them) every year for 5 years now.
You are right, #2 does not make sense, and that's why I clarified two times with the lady I was talking. She said if the same beneficiary ssn tries to open the account in the same portfolio, it gets rejected. Since you have been doing this for few years, I trust that you are right. May be I will get a different answer if I call again and get a different answer.

Anyway, just to avoid separate accounts in my and my wife's name, here is what I am planning to do -

For 5 year old -

1. Open non-evolving aggressive portfolio account. Contribute $4000. Transfer entire Eastern Shore balance to this.
2. Open Stock fund portfolio. Contribute $4000. Following year transfer the money from it to portfolio in step 1. This account will be just to contribute additional $4000 every year.

For 11 year old the strategy will be same except using moderate portfolio in step 1.

Do you see any issues with the above strategy?
flybynite
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Re: VA529 - VEST [Virginia 529 - inVEST]

Post by flybynite »

faltuk1 wrote:
Anyway, just to avoid separate accounts in my and my wife's name, here is what I am planning to do -

For 5 year old -

1. Open non-evolving aggressive portfolio account. Contribute $4000. Transfer entire Eastern Shore balance to this.
2. Open Stock fund portfolio. Contribute $4000. Following year transfer the money from it to portfolio in step 1. This account will be just to contribute additional $4000 every year.

For 11 year old the strategy will be same except using moderate portfolio in step 1.

Do you see any issues with the above strategy?
Sorry for the late response... I'm not sure if there is an issue doing this as I've never tried to transfer the funds from one account to another, however the process to change the portfolio within an account (to only one other portfolio as discussed before) is very simple, so you may consider that for step 1? You fax in a form that is on their website and then a few days later it is changed (you can't do it online).
THY4373
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Re: VA529 - VEST [Virginia 529 - inVEST]

Post by THY4373 »

faltuk1 wrote:I called VEST and here is what I found out.

2. A same beneficiary can not have multiple accounts for same portfolio even if accounts are opened by separate individuals.
I believe this is incorrect. Wife and i both have account in the exact same portfolios for our son and have for years (to maximize our tax deductions). It has never been a problem and I have never heard anything from the VEST folks about it. The account in my name was open for two years before my wife's account so it is not because they were open simultaneously either.
At0m10
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Re: VA529 - VEST [Virginia 529 - inVEST]

Post by At0m10 »

Hey Bracket or anyone else who can help
in reference to your "doing it yourself" strategy:

I'm new to this and this post has been very helpful. I'm looking to do a non-evolving (5 accounts for my newborn son) each with the separate funds you outlined. I'm going to following the below strategy.

Age 0 - 4 80%/20%
Age 5 - 8 70%/30%
Age 9 - 11 60%/40%
Age 11 - 14 50%/50%
Age 15 - 18 20%/80%

My questions are:
1. From 0 - 4, I manage the monthly amount going into each 5 accounts to mirror a 80% equity, 20% fixed income, correct?
2. At age 5, do I transfer the current holdings to reflect 70%/30% and then adjust the monthly amount as well? Or do I just keep all of the holdings as they are and just adjust the monthly amount?
3. Then for Age 9 -11 and the rest, same question as #2.

Any help on this would be greatly appreciated. Let me know if you have any questions.

Adam
Bracket
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Re: VA529 - VEST [Virginia 529 - inVEST]

Post by Bracket »

If I understand correctly, you are asking how to get from 80/20 to 70/30? In other words do you rebalance all at once to 70/30 or gradually move towards 70/30 using new contributions. I don't think there is a right answer,
It just depends. Right now I sit at 80/20 and I maintain that via directing new contributions towards underweight asset classes. If I become off target by 5% or more, say 90/10, then I would move money around to rebalance, but that has not happened so far. If I find myself at 82/18 for example I don't worry about that, just direct new contributions accordingly.

Over time though as the total balance grows, new contributions will be small relative to the total amount, and rebalancing from one fund to another will most likely be required.

I plan to stay at 80/20 until my son is 8, so 5 more years, then I will probably rebalance all at once to get to 70/30, and then gradually shift 10% out of equities per year so that by age 15 we are at 100% fixed income. I imagine I'll use both an annual and large rebalance move, as well as using new contributions to maintain this. Unless the rules have changed the VA plan only allows one rebalance move per year, so I'll have to keep that in mind. But again, as long as I can rebalance annually and stay within 5% of the target allocation for that year, I think I will be fine.

Hopefully this helps answer your question.
At0m10
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Re: VA529 - VEST [Virginia 529 - inVEST]

Post by At0m10 »

Thanks Bracket, that is helpful.
Is your approach more like Tactical Asset Allocation?

My question is, would I need to manage it at all from 0 - 4 years if I just keep my contributions at 80%/20% using the five accounts?
For example, if I'm planning on putting $300 per month into the inVest 529 non-evolving for one beneficiary (my son)
I contribute the following per month for 4-years:

Account 1 - Vanguard Total Stock - 35% ($105)
Account 2 - Vanguard Total International Stock - 35% ($105)
Account 3 - Vanguard Total Bond Index - 10% ($30)
Account 4 - REIT - 10% ($30)
Account 5 - Inflated Securities - 10% ($30)

Above should be 80%/20%, correct?
Then when I move to 70%/30% in the 5th year, I re-balance based on current value of each account, correct?

What if I waited 6-8 years before re-balancing it to 70/30 is it smart to just contribute the above amounts for 6-8 years without managing the amounts or would i need to make adjustments based on the values of the accounts and not just based on my contributions.

This may seem stupid, but re-balancing is just moving money around from one account to another, correct? Sorry, I'm very novice on this.
Maybe I should just do one account that is LifeStrategy...
Bracket
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Re: VA529 - VEST [Virginia 529 - inVEST]

Post by Bracket »

Before going further you should probably check out the Bogleheads wiki on rebalancing:

http://www.bogleheads.org/wiki/Rebalance

And also on Asset Allocation:
http://www.bogleheads.org/wiki/Asset_allocation


and maybe check out the wiki section on "Getting Started" to read up on Boglehead investing in general. How do you manage your retirement portfolio right now? Because the way I'm managing my 529 is no different. It's a basic "buy, hold, and rebalance" strategy, but just in a separate account with its own asset allocation and a different time horizon from my retirement savings.

But to answer your question, no this is not tactical asset allocation. I have a fixed 80/20 asset allocation that I will change only as my son gets closer to college. Tactical asset allocation means altering that 80/20 based on current conditions. In other words I choose 80% stocks, but then say I decide that I think stocks are overpriced right now (based on P/E ratios or some other metric or an expert opinion or whatever). So I decide then to temporarily stop putting new money in stocks, and I let my stock allocation drift away from 80%. Then at some future time I decide stocks are no longer overpriced and so I start putting new money back in them again, and switch back to an 80% target allocation. Many people do this, many people do not and consider it to be a form of market timing. Personally I feel I lack the skill and time to know when something is overvalued, so i don't do this.

Anyway, your idea of contributing the same monthly amount to each fund to maintain 80/20 is almost right, but it doesn't account for the fact that the value of the fund shares will fluctuate. In your example you put $105 into total stock market index each month. Initially that's fine, but if the fund does well, the price goes up, and over time your percent allocation to total stock market will increase unless you adjust the dollar amount you are buying each month. And this holds true for each fund, which may of course go either up or down, and so you have to adjust your monthly contributions accordingly if you want to maintain the same target asset allocation that you started with.

To do this properly you need to track your current account values along with current share prices. You can do this by hand, but most people here use a spreadsheet. I use a program that tracks All this, and tells me what my current allocation is to each asset class, and also by how much percent and dollar wise I am off my target. It doesn't have to be perfect, but if I have $1000 to contribute, it is good to know which fund(s) is below its target, so I can put the $1000 there.

You could of course just use one fund that did all this for you, but again in the VA plan those funds have higher expense ratios, and don't have an asset allocation that I want to use. In VA you can also get more of a tax deduction by using separate accounts. None of this means you have to do that, but that's why I do so.

I also want to mention that I see you are talking about using the same 5 funds that I chose. Make sure you understand the funds and why you are choosing them. The funds I choose may not be best for you. Nothing wrong with just total stock, total bond, and total int'l. The classic "3 fund portfolio".'
At0m10
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Re: VA529 - VEST [Virginia 529 - inVEST]

Post by At0m10 »

Thanks Bracket!!
Your question was probably rhetorical but I will answer it anyways -
I'm really not managing my retirement portfolio

Roth 401k through employer at maximum match (2 funds, one conservative, one moderate)
I'm currently looking into a personal Roth IRA, index mutual fund (looking at the Vanguard 500)
My wife has a pension plan
Inherited some common stock, 8 companies all large-cap
Some money in Money Market I want to transfer to retirement savings

I've only been contributing to my employer 401k for a year and my hope is to retire in about 30-35 years, so I have some catching up to do. I know my target goal and based on a moderate return per year, the amount I need to save per year to make this happen.

So I guess for my retirement portfolio I should be making sure my mix of retirement funds are 80%/20% at first and adjust as I get closer to retirement.

All of the information you provided is very helpful. I think to start, I'm going to stick with the 3 accounts to make it simple for me as I don't know much about REIT and inflated Securities.
At0m10
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Re: VA529 - VEST [Virginia 529 - inVEST]

Post by At0m10 »

Hey Bracket,
What software program do you use?
Thanks so much for your help.
Bracket
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Re: VA529 - VEST [Virginia 529 - inVEST]

Post by Bracket »

I've been using Fund Manager for a year now. It has a bit of a learning curve but once you get the hang of it there's not much it can't do for you. I mainly use it to track my asset allocation, and so it downloads my accounts, transactions and prices, tells me where I am at present and how much each asset class is off by so I know where to direct new money and/or rebalance. There's a free trial so you can check it out.
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