What is your 529 AA?

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jb3
Posts: 197
Joined: Sun Jan 16, 2011 11:27 pm

What is your 529 AA?

Post by jb3 »

Curious where people are at. I moved to a conservative allocation when Covid started but have never quite felt comfortable with it.

I'll start:
I have a 12 and 14 year-old in the Utah 529 "conservative" age-based option.

Vanguard Total Stock Market Index (VITPX) =13.5%
Vanguard Developed Markets Index (VDIPX) = 5%
Vanguard Emerging Markets Stock Index (VEMRX) = 2.1%
Vanguard Total Bond Market Index (VBMPX) = 22.5%
Vanguard Total International Bond Index (VTIFX) = 5%
FDIC-Insured Accounts = 28.6%
Pimco Interest Income Fund = 23.3%
novemberrain
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Re: What is your 529 AA?

Post by novemberrain »

100% total stock index. Kids are 5 and below
sycamore
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Re: What is your 529 AA?

Post by sycamore »

At Nevada/Vanguard 529 plan, two kids 12 & 15.

12 year old is on moderate age-based plan. Glidepath here: https://investor.vanguard.com/529-plan/ ... ed-options
40/60 overall:
24% US Total Stock + 16% Intl Total Stock
42% US Total Bond + 18% Intl Total Bond

The age-based glidepath drops stock by 10% a year starting at 15. I customized it to drop instead by 5% a year but honestly I'd be happy with the original glidepath.

I've seen the Utah/my529's moderate age-based glidepath, and I'd be happy with that.

BTW, Vanguard is changing from conservative/moderate/aggressive risk tolerance to "target enrollment date" based approach. https://www.vanguard.com/pdf/529rogp.pdf. The new AAs are more stock-heavy than the "moderate" glidepath. I wonder if Utah/my529 will do something similar.
JVT
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Re: What is your 529 AA?

Post by JVT »

We have a 4 year old with ~96k at 75 stock/25 Bonds. We have been trying for no 2 for a little over a year. No change to AA for COVID.
johnegonpdx
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Re: What is your 529 AA?

Post by johnegonpdx »

100% Vanguard Short-Term Bond Index Fund Institutional Plus. My kiddo is halfway (I hope) through undergrad, so we are still feeding the fund for the state tax benefit, but keeping the value as stable as possible and regularly withdrawing to pay for his expenses.
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dogagility
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Re: What is your 529 AA?

Post by dogagility »

In the final year of withdrawals... 100% stable value/interest accumulation.
All children spill milk. Learn to smile and wipe it up. -- A Farmer's Wife
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JonnyDVM
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Re: What is your 529 AA?

Post by JonnyDVM »

novemberrain wrote: Sun Oct 04, 2020 11:16 am 100% total stock index. Kids are 5 and below
Yuuup. Aggressive as possible.
I’d trade it all for a little more | -C Montgomery Burns
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anon_investor
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Re: What is your 529 AA?

Post by anon_investor »

novemberrain wrote: Sun Oct 04, 2020 11:16 am 100% total stock index. Kids are 5 and below
+1, in the same situation.
RJC
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Re: What is your 529 AA?

Post by RJC »

We have a date fund. Is a 529 worth tinkering around?
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bligh
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Re: What is your 529 AA?

Post by bligh »

I am simply using the vanguard aggressive target date fund
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Brianmcg321
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Re: What is your 529 AA?

Post by Brianmcg321 »

100% equities. 75% Vanguard total market. 25% total int.
Rules to investing: | 1. Don't lose money. | 2. Don't forget rule number 1.
LeftCoastIV
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Re: What is your 529 AA?

Post by LeftCoastIV »

Utah 529 for two teens, invested in Age-based Aggressive Global. Effectively a target date fund.
absolute zero
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Re: What is your 529 AA?

Post by absolute zero »

OP, care to share your annual savings (total savings including both retirement and college) vs your expected college expenses (in real $’s)?

I think those two parameters should impact an AA decision. As an example, people who are saving $50k per year towards retirement/529 and expect to incur $200k total for a child’s college expenses probably can leave their 529 100% stock until enrollment day. If that same person were only saving $25k/yr, he would need to start shifting to bonds 4 or 5 years before his child turned 18.

To clarify, I do not have a 529.
shess
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Re: What is your 529 AA?

Post by shess »

jb3 wrote: Sun Oct 04, 2020 10:57 am Curious where people are at. I moved to a conservative allocation when Covid started but have never quite felt comfortable with it.

I'll start:
I have a 12 and 14 year-old in the Utah 529 "conservative" age-based option.
I just treated it as part of my portfolio, similar to a Roth IRA (because no taxes due if used for education). My argument for this is that we had decided that we were liable for their educations, so within that our goal was to optimize for paying from the 529, but the 529 would get backup from our taxable account if needed.

So when they were younger, we had our 529 funds in equities (total market), aiming for growth. But now that one's in college and the other nearly there, we have it in bonds to simplify planning. Just because we _could_ backfill a shortfall from taxable doesn't mean we want to be screwing around with it on the fly while pulling funds out.

At 12 and 14 I'd be thinking at least somewhat about whether your 529 plan value will factor heavily into college decisions or not. If it will, then I think being somewhat conservative is in order. Personally, the level of conservative shown by the percentages you give seems excessive to me, I'd probably aim more towards 50/50 equity/fixed-income. Maybe I'd like it more for a 16-yo.
inbox788
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Re: What is your 529 AA?

Post by inbox788 »

absolute zero wrote: Sun Oct 04, 2020 1:11 pmI think those two parameters should impact an AA decision. As an example, people who are saving $50k per year towards retirement/529 and expect to incur $200k total for a child’s college expenses probably can leave their 529 100% stock until enrollment day. If that same person were only saving $25k/yr, he would need to start shifting to bonds 4 or 5 years before his child turned 18.
Have more than 4 years at public university invested in 100% domestic equities for lowest expense fees and good amount of gains. Trying to figure out glidepath. Originally was going to try to start near enrollment, but with possibility of losses in the short term, I'm thinking about 2 years before enrollment, taking out 1 or 2 years and swapping out with taxable. This opens up the possibility of TLH if the market does go down in the short term (STCL) vs paying some extra capital gains (LTCG).
Grt2bOutdoors
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Re: What is your 529 AA?

Post by Grt2bOutdoors »

Utah plan - originally Global Moderate age based allocation, customized it 2 years ago to 70/30 with age appropriate step downs along the way, similar to the age based domestic aggressive allocations.

Covid came, I left it the same. I've had this plan now 10+ years, there have been many events along the way, did nothing except set it and forget it - just keep adding to you've accumulated enough.

FWIW - I opened a small 529 plan for my nieces and nephews 20 years ago, now in these last 20 years, we've had no shortage of market excitement - you name it, we've been through it, the accounts have performed just fine and they were all invested in age-based aggressive and moderate growth plans. The money was there when college showed up.

With age-based plans, they do the managing based on risk and age, not on headlines. Most times you ought to come out ahead at the end, but there is a risk you could have less ~ no different than other types of investing. My advice to you, stop investing with your "gut", leave the investing to the age based allocation plan - the longer you have to go until school the more aggressive, the closer, the least. The beauty of an age based allocation plan, is they will tamp down the risk as time passes, automatically. Good Luck!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
BernardShakey
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Re: What is your 529 AA?

Post by BernardShakey »

jb3 wrote: Sun Oct 04, 2020 10:57 am Curious where people are at. I moved to a conservative allocation when Covid started but have never quite felt comfortable with it.

I'll start:
I have a 12 and 14 year-old in the Utah 529 "conservative" age-based option.

Vanguard Total Stock Market Index (VITPX) =13.5%
Vanguard Developed Markets Index (VDIPX) = 5%
Vanguard Emerging Markets Stock Index (VEMRX) = 2.1%
Vanguard Total Bond Market Index (VBMPX) = 22.5%
Vanguard Total International Bond Index (VTIFX) = 5%
FDIC-Insured Accounts = 28.6%
Pimco Interest Income Fund = 23.3%
I have one kid that just graduated (pending grad school) and another in year 3 of undergrad. I have 529s for each student and I'm about 23% equity / 77% fixed income in each. When mine were the ages of yours, I think I was closer to 50/50. Kind of depends how much you have accumulated. If you have a long way to go, I'd be more aggressive. I you are fully funded already or close to it, then dialing back on the risk as you have might make sense. Also, you may want to consider whether you will be investing to cover schooling beyond undergraduate school. Good luck!
An important key to investing is having a well-calibrated sense of your future regret.
Mode32
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Re: What is your 529 AA?

Post by Mode32 »

absolute zero wrote: Sun Oct 04, 2020 1:11 pm OP, care to share your annual savings (total savings including both retirement and college) vs your expected college expenses (in real $’s)?

I think those two parameters should impact an AA decision. As an example, people who are saving $50k per year towards retirement/529 and expect to incur $200k total for a child’s college expenses probably can leave their 529 100% stock until enrollment day. If that same person were only saving $25k/yr, he would need to start shifting to bonds 4 or 5 years before his child turned 18.

To clarify, I do not have a 529.
Can you please clarify?
absolute zero
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Re: What is your 529 AA?

Post by absolute zero »

Mode32 wrote: Sun Oct 04, 2020 9:41 pm
absolute zero wrote: Sun Oct 04, 2020 1:11 pm OP, care to share your annual savings (total savings including both retirement and college) vs your expected college expenses (in real $’s)?

I think those two parameters should impact an AA decision. As an example, people who are saving $50k per year towards retirement/529 and expect to incur $200k total for a child’s college expenses probably can leave their 529 100% stock until enrollment day. If that same person were only saving $25k/yr, he would need to start shifting to bonds 4 or 5 years before his child turned 18.

To clarify, I do not have a 529.
Can you please clarify?
Let's take the example I gave - a person expects to send their child to a private university that will cost $200k over the course of 4 years, or $50k per year. That person currently has a 529 that's 100% stock, and their child is 14 years old. They are saving $50k per year using their (and their spouses) 401k/HSA/Roth. They maintain 100% stock in their retirement portfolio.

Should that person start shifting their 529 to bonds? I say no. When their child reaches age 18, they are capable of fully funding their child's education through their own annual savings. They can "cash flow" the $50k per year. So, effectively they will do the following:

1. Utilize their annual savings of $50k/yr to pay their child's education.
2. Liquidate $50k in stocks within their 529 each year, and withdraw that $50k from the 529.
3. Take the 529 money and use it to immediately re-purchase stocks in their 401k/HSA/Roth.

Their 529 money just moves from one investment account to another, so it doesn't matter if stocks are up/down/sideways when they withdraw the money. You may point out that you can't withdraw money and directly put it into a 401k. This is true, but money is fungible. By withdrawing from the 529 and spending THAT money on college, while simultaneously continuing to purchase stocks with each paycheck through a 401k, the example investor is effectively doing exactly what I outlined above.

Ultimately most people can't cash-flow college like this, but the same principle can be applied if one can cash-flow a significant portion of their child's expected college expenses. The higher an investor's annual savings relative to his child's expected annual college expenses, the more aggressive he should keep his 529 investments, even when his child is in teenage years.
inbox788
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Re: What is your 529 AA?

Post by inbox788 »

absolute zero wrote: Sun Oct 04, 2020 9:56 pm Let's take the example I gave - a person expects to send their child to a private university that will cost $200k over the course of 4 years, or $50k per year. That person currently has a 529 that's 100% stock, and their child is 14 years old. They are saving $50k per year using their (and their spouses) 401k/HSA/Roth. They maintain 100% stock in their retirement portfolio.

Should that person start shifting their 529 to bonds? I say no. When their child reaches age 18, they are capable of fully funding their child's education through their own annual savings. They can "cash flow" the $50k per year. So, effectively they will do the following:

1. Utilize their annual savings of $50k/yr to pay their child's education.
2. Liquidate $50k in stocks within their 529 each year, and withdraw that $50k from the 529.
3. Take the 529 money and use it to immediately re-purchase stocks in their 401k/HSA/Roth.

Their 529 money just moves from one investment account to another, so it doesn't matter if stocks are up/down/sideways when they withdraw the money. You may point out that you can't withdraw money and directly put it into a 401k. This is true, but money is fungible. By withdrawing from the 529 and spending THAT money on college, while simultaneously continuing to purchase stocks with each paycheck through a 401k, the example investor is effectively doing exactly what I outlined above.

Ultimately most people can't cash-flow college like this, but the same principle can be applied if one can cash-flow a significant portion of their child's expected college expenses. The higher an investor's annual savings relative to his child's expected annual college expenses, the more aggressive he should keep his 529 investments, even when his child is in teenage years.
What happens if there is a -30% year just starting college or even in the 2nd or 3rd year? Let's say one puts in $100k and it grows to $200k when college begins. The account suddenly goes to $140k just when you need to pull out $50k. It's short term the sequence of returns problems. Or it could go from $100k to $70k in the 3rd year, not leaving much left for the 4th. All the tax fee gains are lost in the short term with little time to recover.

Not sure if it makes any difference if funds are swapped with Roth or tIRA accounts, but if cash or bonds in taxable are swapped for equities, at least one can TLH if there are losses. Chance of loss and change in tax vs lost opportunity for a little more tax-free gain might be even or favor the latter. Still trying to calculate the break evens.
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1789
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Re: What is your 529 AA?

Post by 1789 »

Our two kids are 3.5 years and 4 months old. Accounts for both are invested in 100% US TSM.
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Soon2BXProgrammer
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Re: What is your 529 AA?

Post by Soon2BXProgrammer »

kids are 10 & 8, but they have won the game (80+% of current costs), so their accounts are 50/50 currently.
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cchrissyy
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Re: What is your 529 AA?

Post by cchrissyy »

80/20 and that may sound aggressive for high schoolers, but it's always been a smallish account so the returns won't make or break any decisions. I expect to leave it alone until the youngest kid's last year.
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