529, Am I being stupid by not being greedy?

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jvini
Posts: 183
Joined: Tue Apr 06, 2010 11:55 am

529, Am I being stupid by not being greedy?

Post by jvini »

Hi all. I'd love your opinion here. My daughter is a junior in high school. We have saved and have invested and have been fortunate enough to save up 240K in her 529 for a private 4 year school where she is likely to end up. We will not get aid. Now that the money is there to pay for the 60k each year, I'm switching it to a Vanguard money market in her 529. What do people think?

I'm thinking why take the risk with bonds or stocks at this point? Important to know that we fortunately have a lot put away for retirement and can make up for a shortfall if it occurred. With this amount, I don't think it would be much if any. We can help out with grad school, if that were ever in her future. And she can take loans for that too, like we did.

I know there is always the value of her paying some herself, but she's always worked, is charitable, studies very hard, and is amazingly dedicated to a sport. She saves and invests and is using her money for her future, not college necessarily. So that part of the discussion is off the table.

Her sister is in 8th grade and she is nearing that amount as well, so I would do the same thing for her.

I guess the flip side is that we could afford to take risks and build up the 529 more through equity and bond allocation, but I just think that is being a bit greedy. Especially since we continue to save and invest ourselves. Thanks all.
dak
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Re: 529, Am I being stupid by not being greedy?

Post by dak »

I opened 529 account for both of my daughters and chose and the age based investment fund. While this does, I suppose, result in some loss of potential investment returns, we valued the certainty of the availability of the funds over the possibility of having additional investment returns. I view this as a "stop playing after you have won the game" sort of situation. We have the certainty of completely funding a BS/BA degree without any stress whatsoever.

I am glad to see that you are both capable of, and willing to fund her education. A tremendous gift, and based on your description of her, one that will be appreciated and respected. We are in the same position - funded 529 and daughters that are diligent students. Nice place to be!
masha12
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Re: 529, Am I being stupid by not being greedy?

Post by masha12 »

I think you are wise. Yeah, stocks could go up 25% this year. They could also drop 50%.

You need the money in 2 years, that is not a long enough time horizon to risk losing what you have saved and gained.
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Sandi_k
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Re: 529, Am I being stupid by not being greedy?

Post by Sandi_k »

Not stupid at all. You no longer need to take risk, so I'd take it off the table.
orthodoc
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Re: 529, Am I being stupid by not being greedy?

Post by orthodoc »

You might look at the Colorado Stable Value 529. It has a 2.29% rate. If your state law doesn't tax rollovers to another states 529. Likely much better than MM, worth a look.
marklar13
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Re: 529, Am I being stupid by not being greedy?

Post by marklar13 »

+1 to stable value fund. I don't see much downside. I don't know the highest paying one, but you could look into that or just go with your current plan's option if it has one.

Here is the most recent discussion I could find on which state has the highest SVF: viewtopic.php?t=233720. Maybe a starting point.
retiringwhen
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Re: 529, Am I being stupid by not being greedy?

Post by retiringwhen »

I did almost the same, but put about 25% in ST bonds (Interest Portfolio). Well it is underperforming and my window to keep for 4 years of college is closing in. I am going to lose a bit on that small bet as I convert it to the Interest Accumulation Portfolio or sell directly for paying tuition.

This points out that even if they say, “if you need it in 2 years,put in a ST Bond fund” Is that a good idea? My answer is remember, somewhere in the next two to three years you will have to take the loss and sell and the ability to make back any lower price due to increased dividends is limited. So take as little principal risk as possible since the money has a KNOWN FIRM sell by date. The limited upside on the ST Bond return is not worth that risk. Seems like having a known balance is the lowest risk item here.

Life lesson for me, but not a terribly expensive one, but i did/am losing money,,
soccerrules
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Re: 529, Am I being stupid by not being greedy?

Post by soccerrules »

Will your daughter get any merit aid (scholarships) based on grades/ SAT or ACT scores ? The reason I ask is most kids attending private universities/colleges receive some type of scholarship even if it is $5000 a year (up to $20K) based on good grades and decent test scores. (both of mine did without high scores and top level GPA's-grades.)

One thing to keep in mind is private school tuition may go up 3-5% a year, and typical student fees rise as well. I have noticed over the course of the last 6 years yearly tuition/fees has risen $1500-$2000 a year. Impact would be larger for your younger child where $60K is $70K by the time she starts. Worth watching.
Don't let your outflow exceed your income or your upkeep will be your downfall.
rkhusky
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Re: 529, Am I being stupid by not being greedy?

Post by rkhusky »

You could also look at what large providers of 529 plans put into their age-based offerings. I imagine that most have large cash and bond holdings, with 0-20% in stocks. For example, Vanguard's has 3 levels of risk. For 17-18 year-olds, the conservative portfolio has 25% in bonds and 75% in short term reserves, the moderate portfolio has 75% bond and 25% short term reserves, and the aggressive portfolio has 20% stock and 80% bond for 17 y.o. and 10% stock and 90% bond for 18 y.o. Remember that your last payment may be in 5 years or so, so some amount in bonds might be prudent.
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Smorgasbord
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Re: 529, Am I being stupid by not being greedy?

Post by Smorgasbord »

jvini wrote: Wed Feb 07, 2018 2:28 pm Her sister is in 8th grade and she is nearing that amount as well, so I would do the same thing for her.
Your 8th grader has about 8 years until their senior year in college. I would keep at least a potion of their money in stocks.
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bligh
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Re: 529, Am I being stupid by not being greedy?

Post by bligh »

jvini wrote: Wed Feb 07, 2018 2:28 pm Hi all. I'd love your opinion here. My daughter is a junior in high school. We have saved and have invested and have been fortunate enough to save up 240K in her 529 for a private 4 year school where she is likely to end up. We will not get aid. Now that the money is there to pay for the 60k each year, I'm switching it to a Vanguard money market in her 529. What do people think?

I'm thinking why take the risk with bonds or stocks at this point? Important to know that we fortunately have a lot put away for retirement and can make up for a shortfall if it occurred. With this amount, I don't think it would be much if any. We can help out with grad school, if that were ever in her future. And she can take loans for that too, like we did.

I know there is always the value of her paying some herself, but she's always worked, is charitable, studies very hard, and is amazingly dedicated to a sport. She saves and invests and is using her money for her future, not college necessarily. So that part of the discussion is off the table.

Her sister is in 8th grade and she is nearing that amount as well, so I would do the same thing for her.

I guess the flip side is that we could afford to take risks and build up the 529 more through equity and bond allocation, but I just think that is being a bit greedy. Especially since we continue to save and invest ourselves. Thanks all.
OP, I don't think it is stupid to be conservative in investing the cash, however realize that all the money will not be needed on the first day of university 2 years from now. This money is going to be withdrawn over 4 overs starting 2 years from now. This is an investment time horizon of 6 years for your older daughter, while short, this is nothing to ignore. (The time horizon for your younger daughter is much longer).

Having your money sitting around losing to inflation and rising college costs for 6 years is totally your call. Whatever lets you sleep well at night. Personally, I would go 40% stocks / 60% intermediate term bonds or 20% stock / 80% intermediate term bonds. But what you are doing is a totally respectable and justifiable approach.

Good luck to you, and congratulations to you for having set aside such a significant amount for your kids. Great Job!
sciliz
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Re: 529, Am I being stupid by not being greedy?

Post by sciliz »

Smorgasbord wrote: Wed Feb 07, 2018 3:30 pm
jvini wrote: Wed Feb 07, 2018 2:28 pm Her sister is in 8th grade and she is nearing that amount as well, so I would do the same thing for her.
Your 8th grader has about 8 years until their senior year in college. I would keep at least a potion of their money in stocks.


For emotional purposes, it's best to keep 529s for each kid separate. But financially, you have to be sure you can bet on having "enough" for the second before cashing in the chips prematurely. Because anything left over in the first 529 can be applied to the second. If you have more for the second than you did for the first at 8th grade, remember that we've had a pretty good decade so you may not be able to repeat that.

In the world of college cost inflation (much higher than ordinary inflation), the worst-case scenario is that costs essentially double by the end of the 8 years.

What I would do is keep 2 years of expenses into the stable value plan (in Colorado if that's the highest)- assuming no issues with state plans and clawbacks. But I would keep investing in stocks until I was pretty sure I could get the second kid through even if college costs increase at their normal dramatic pace.
Of course, I have relatives other than my children (including myself) who could always use "extra" 529 money.
Topic Author
jvini
Posts: 183
Joined: Tue Apr 06, 2010 11:55 am

Re: 529, Am I being stupid by not being greedy?

Post by jvini »

orthodoc wrote: Wed Feb 07, 2018 2:58 pm You might look at the Colorado Stable Value 529. It has a 2.29% rate. If your state law doesn't tax rollovers to another states 529. Likely much better than MM, worth a look.
Wow, will take a look! Thank you.
kjvmartin
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Re: 529, Am I being stupid by not being greedy?

Post by kjvmartin »

I'd probably keep 20% in equities, 10% bonds, and 70% cash. Is there a more scientific approach? Probably.
Topic Author
jvini
Posts: 183
Joined: Tue Apr 06, 2010 11:55 am

Re: 529, Am I being stupid by not being greedy?

Post by jvini »

Thanks all. Very helpful. My daughter does have an AP test that she topped out on and did well on her ACT, so she might very well get some money. And some coaches have interest in her (but division 3 so no actual scholarships, but it helps with merit ones, I believe). Any left over will go to her sister in 8th grade.

The 8th grader is in about 40% stocks. I agree, the time horizon allows that, and we will rebalance her out of equities each year as she gets closer to that 240K or so amount, while we continue to add to her account each month.

Thanks again!
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