[Non US] Segregate Kids University Fund

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Neus
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[Non US] Segregate Kids University Fund

Post by Neus »

So I have this idea to separate my Kids university fund from my retirement account

This segregated account AA will be 100% in US stock, with an investment horizon of 12 years

Currently, it has USD 80.000 with no planned additional contribution, which doesn't seem like much but I plan to send my child to Singapore, which combined with Singapore's MOE grants should be comparable to the current tuition cost

Some questions:
1) Is it better to not segregate kids' university funds?
2) If segregating is a better idea
a) Is it a good idea to have AA of 100% stock for kids' education with 12 years investment horizon? (No rebalancing)
b) I plan to switch all of them into 100% short-term bond, 1 year before university start, is this a good idea? or Should I reallocate 8% per year into bond?
Last edited by Neus on Wed Aug 03, 2022 3:34 am, edited 1 time in total.
LeftCoastIV
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Re: Segregate Kids University Fund

Post by LeftCoastIV »

Wouldn't your kids university funds already need to be separated from retirement accounts (401K, IRA, etc.)?

If you are referring to keeping it separate from your taxable brokerage account, so you can select a different AA, that seems reasonable. Some may say it's "mental accounting" but to each their own.

You may want to consider a "life stage" fund that maps to when your child will be entering university, so the rebalancing happens automatically.

Also, how confident are you in the Singapore plan? You're passing up U.S. tax breaks by not using a 529 plan.
Topic Author
Neus
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Re: Segregate Kids University Fund

Post by Neus »

LeftCoastIV wrote: Wed Aug 03, 2022 3:25 am Wouldn't your kids university funds already need to be separated from retirement accounts (401K, IRA, etc.)?

If you are referring to keeping it separate from your taxable brokerage account, so you can select a different AA, that seems reasonable. Some may say it's "mental accounting" but to each their own.

You may want to consider a "life stage" fund that maps to when your child will be entering university, so the rebalancing happens automatically.

Also, how confident are you in the Singapore plan? You're passing up U.S. tax breaks by not using a 529 plan.
I'm not in US/US citizen, so unfortunately I'm not getting US tax breaks/401K/IRA and in my knowledge, as non US investor, such life stage fund is not available for me
Valuethinker
Posts: 45317
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Re: [Non US] Segregate Kids University Fund

Post by Valuethinker »

Neus wrote: Wed Aug 03, 2022 3:11 am So I have this idea to separate my Kids university fund from my retirement account

This segregated account AA will be 100% in US stock, with an investment horizon of 12 years

Currently, it has USD 80.000 with no planned additional contribution, which doesn't seem like much but I plan to send my child to Singapore, which combined with Singapore's MOE grants should be comparable to the current tuition cost

Some questions:
1) Is it better to not segregate kids' university funds?
2) If segregating is a better idea
a) Is it a good idea to have AA of 100% stock for kids' education with 12 years investment horizon? (No rebalancing)
b) I plan to switch all of them into 100% short-term bond, 1 year before university start, is this a good idea? or Should I reallocate 8% per year into bond?
Things can change (a lot). I wouldn't now send my kids to university in Hong Kong, say.

You don't specify your country of residence/ origin. Or is it implicitly Singapore? Lots of Singaporeans study abroad - for example in Canada at UBC, Waterloo, U of Toronto (and others). I had a colleague from Mauritius who did her actuarial science degree not in Quebec (which also speaks French) but at U of Manitoba in *Winnipeg* (where with windchill it can be -40 C in winter) :shock: :?

Australia also has many fine universities and a good post-degree visa programme. And much nicer weather ;-).

You can't really hedge SGD exposure except by holding SGD bonds. Probably I would set my "home currency" to pay SGD fees as the USD - although one might find it tracks another currency better.

Basically you have to treat this as one of your future needs for funds, and "tweak" your asset allocation to include that as a requirement.

However most humans "mentally account" so if you open up a segregated investment account and fund that to pay university costs, it's not the worst mistake in the world.
Topic Author
Neus
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Re: [Non US] Segregate Kids University Fund

Post by Neus »

Valuethinker wrote: Wed Aug 03, 2022 8:46 am
Neus wrote: Wed Aug 03, 2022 3:11 am So I have this idea to separate my Kids university fund from my retirement account

This segregated account AA will be 100% in US stock, with an investment horizon of 12 years

Currently, it has USD 80.000 with no planned additional contribution, which doesn't seem like much but I plan to send my child to Singapore, which combined with Singapore's MOE grants should be comparable to the current tuition cost

Some questions:
1) Is it better to not segregate kids' university funds?
2) If segregating is a better idea
a) Is it a good idea to have AA of 100% stock for kids' education with 12 years investment horizon? (No rebalancing)
b) I plan to switch all of them into 100% short-term bond, 1 year before university start, is this a good idea? or Should I reallocate 8% per year into bond?
Things can change (a lot). I wouldn't now send my kids to university in Hong Kong, say.

You don't specify your country of residence/ origin. Or is it implicitly Singapore? Lots of Singaporeans study abroad - for example in Canada at UBC, Waterloo, U of Toronto (and others). I had a colleague from Mauritius who did her actuarial science degree not in Quebec (which also speaks French) but at U of Manitoba in *Winnipeg* (where with windchill it can be -40 C in winter) :shock: :?

Australia also has many fine universities and a good post-degree visa programme. And much nicer weather ;-).

You can't really hedge SGD exposure except by holding SGD bonds. Probably I would set my "home currency" to pay SGD fees as the USD - although one might find it tracks another currency better.

Basically you have to treat this as one of your future needs for funds, and "tweak" your asset allocation to include that as a requirement.

However most humans "mentally account" so if you open up a segregated investment account and fund that to pay university costs, it's not the worst mistake in the world.
I’m in indonesia
Singapore is the most affordable + high quality edu + safe + so near (1 hour flight), so it’s the natural choice, especially when the 2nd nearest (Australia) is much more expensive.

Yes, segregated seems more natural.

But how do i change the allocation with time, to ensure high probability of success.

I’m curious how education fund / target date allocation works in US, as it can be a good template to follow.
Valuethinker
Posts: 45317
Joined: Fri May 11, 2007 11:07 am

Re: [Non US] Segregate Kids University Fund

Post by Valuethinker »

Neus wrote: Wed Aug 03, 2022 9:57 am
Valuethinker wrote: Wed Aug 03, 2022 8:46 am
Neus wrote: Wed Aug 03, 2022 3:11 am So I have this idea to separate my Kids university fund from my retirement account

This segregated account AA will be 100% in US stock, with an investment horizon of 12 years

Currently, it has USD 80.000 with no planned additional contribution, which doesn't seem like much but I plan to send my child to Singapore, which combined with Singapore's MOE grants should be comparable to the current tuition cost

Some questions:
1) Is it better to not segregate kids' university funds?
2) If segregating is a better idea
a) Is it a good idea to have AA of 100% stock for kids' education with 12 years investment horizon? (No rebalancing)
b) I plan to switch all of them into 100% short-term bond, 1 year before university start, is this a good idea? or Should I reallocate 8% per year into bond?
Things can change (a lot). I wouldn't now send my kids to university in Hong Kong, say.

You don't specify your country of residence/ origin. Or is it implicitly Singapore? Lots of Singaporeans study abroad - for example in Canada at UBC, Waterloo, U of Toronto (and others). I had a colleague from Mauritius who did her actuarial science degree not in Quebec (which also speaks French) but at U of Manitoba in *Winnipeg* (where with windchill it can be -40 C in winter) :shock: :?

Australia also has many fine universities and a good post-degree visa programme. And much nicer weather ;-).

You can't really hedge SGD exposure except by holding SGD bonds. Probably I would set my "home currency" to pay SGD fees as the USD - although one might find it tracks another currency better.

Basically you have to treat this as one of your future needs for funds, and "tweak" your asset allocation to include that as a requirement.

However most humans "mentally account" so if you open up a segregated investment account and fund that to pay university costs, it's not the worst mistake in the world.
I’m in indonesia
Singapore is the most affordable + high quality edu + safe + so near (1 hour flight), so it’s the natural choice, especially when the 2nd nearest (Australia) is much more expensive.

Yes, segregated seems more natural.

But how do i change the allocation with time, to ensure high probability of success.

I’m curious how education fund / target date allocation works in US, as it can be a good template to follow.
I understand, then, the attractiveness of Singapore. Unless your goal is to get your kids an Australian visa, with the long term goal of them living there, then me mentioning Australia (or Canada) is just a distraction. I believe Sing is very tough on citizenship (and one would have a 2-3 year military service obligation) but it's probably worth investigating (of course your home country, or Sing, may not allow dual citizenship).

I would say you phase the bonds percentage as you get closer to the date when they will need the money (age 18, I presume). ie 0-10, say, 80-100% stocks. Then 10-18 add +7% bonds each year, to reach c 50% bonds by age 18.

Another way of doing this is to estimate what the "number" needed for tuition is (but bearing in mind this will probably rise with at least Singaporean inflation).
chipperd
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Re: [Non US] Segregate Kids University Fund

Post by chipperd »

The Vanguard 2035 fund would follow your 12 year time horizon.
You could just copy the asset allocation using the funds named in the portfolio composition.
Link:
https://investor.vanguard.com/investmen ... tthx#price

Click on the "Portfolio Composition" at the top of the page for the current make up of that fund and copy.
Way less than 100% stocks you mentioned. It stands at 42%.

Not sure when that composition changes, but I would say you could just check and change maybe 2x/year to get a really close approximation.

Here is a link to give you a visual of the "glide path" of reduced risk over time via the 5 funds this fund invests in:
https://institutional.vanguard.com/inve ... /fund/0305

No guarantee of success obviously, but that would get you what I believe you are looking for.

:sharebeer
"A portfolio is like a bar of soap, the more it's handled, the less there is." Dr. William Bernstein
Topic Author
Neus
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Re: [Non US] Segregate Kids University Fund

Post by Neus »

Valuethinker wrote: Thu Aug 04, 2022 4:54 am
Neus wrote: Wed Aug 03, 2022 9:57 am
Valuethinker wrote: Wed Aug 03, 2022 8:46 am
Neus wrote: Wed Aug 03, 2022 3:11 am So I have this idea to separate my Kids university fund from my retirement account

This segregated account AA will be 100% in US stock, with an investment horizon of 12 years

Currently, it has USD 80.000 with no planned additional contribution, which doesn't seem like much but I plan to send my child to Singapore, which combined with Singapore's MOE grants should be comparable to the current tuition cost

Some questions:
1) Is it better to not segregate kids' university funds?
2) If segregating is a better idea
a) Is it a good idea to have AA of 100% stock for kids' education with 12 years investment horizon? (No rebalancing)
b) I plan to switch all of them into 100% short-term bond, 1 year before university start, is this a good idea? or Should I reallocate 8% per year into bond?
Things can change (a lot). I wouldn't now send my kids to university in Hong Kong, say.

You don't specify your country of residence/ origin. Or is it implicitly Singapore? Lots of Singaporeans study abroad - for example in Canada at UBC, Waterloo, U of Toronto (and others). I had a colleague from Mauritius who did her actuarial science degree not in Quebec (which also speaks French) but at U of Manitoba in *Winnipeg* (where with windchill it can be -40 C in winter) :shock: :?

Australia also has many fine universities and a good post-degree visa programme. And much nicer weather ;-).

You can't really hedge SGD exposure except by holding SGD bonds. Probably I would set my "home currency" to pay SGD fees as the USD - although one might find it tracks another currency better.

Basically you have to treat this as one of your future needs for funds, and "tweak" your asset allocation to include that as a requirement.

However most humans "mentally account" so if you open up a segregated investment account and fund that to pay university costs, it's not the worst mistake in the world.
I’m in indonesia
Singapore is the most affordable + high quality edu + safe + so near (1 hour flight), so it’s the natural choice, especially when the 2nd nearest (Australia) is much more expensive.

Yes, segregated seems more natural.

But how do i change the allocation with time, to ensure high probability of success.

I’m curious how education fund / target date allocation works in US, as it can be a good template to follow.
I understand, then, the attractiveness of Singapore. Unless your goal is to get your kids an Australian visa, with the long term goal of them living there, then me mentioning Australia (or Canada) is just a distraction. I believe Sing is very tough on citizenship (and one would have a 2-3 year military service obligation) but it's probably worth investigating (of course your home country, or Sing, may not allow dual citizenship).

I would say you phase the bonds percentage as you get closer to the date when they will need the money (age 18, I presume). ie 0-10, say, 80-100% stocks. Then 10-18 add +7% bonds each year, to reach c 50% bonds by age 18.

Another way of doing this is to estimate what the "number" needed for tuition is (but bearing in mind this will probably rise with at least Singaporean inflation).
Valuethinker

Well, Australia is indeed attractive, but 80k USD invested right now with a 12-year horizon needs to perform in the high percentile range to be able to meet the tuition and living costs in Australia. So it will be considered if the portfolio indeed performs in the high percentile, while Singapore seems a more sure path.
I would say you phase the bond percentage as you get closer to the date when they will need the money (age 18, I presume). ie 0-10, say, 80-100% stocks. Then 10-18 add +7% bonds each year, to reach c 50% bonds by age 18.
--> Seems reasonable

Thanks!
Topic Author
Neus
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Re: [Non US] Segregate Kids University Fund

Post by Neus »

chipperd wrote: Thu Aug 04, 2022 5:30 am The Vanguard 2035 fund would follow your 12 year time horizon.
You could just copy the asset allocation using the funds named in the portfolio composition.
Link:
https://investor.vanguard.com/investmen ... tthx#price

Click on the "Portfolio Composition" at the top of the page for the current make up of that fund and copy.
Way less than 100% stocks you mentioned. It stands at 42%.

Not sure when that composition changes, but I would say you could just check and change maybe 2x/year to get a really close approximation.

Here is a link to give you a visual of the "glide path" of reduced risk over time via the 5 funds this fund invests in:
https://institutional.vanguard.com/inve ... /fund/0305

No guarantee of success obviously, but that would get you what I believe you are looking for.

:sharebeer
Chipperd,

Thanks! checking.
wlk_
Posts: 10
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Re: [Non US] Segregate Kids University Fund

Post by wlk_ »

To clarify: It stands at 42% US stocks, but it also has 29% Intl stocks.
Bonds are 29%.
That's not unsual for the targeted duration.

As an alternative, Vanguard also has Target Enrollment funds for scholarship (https://investor.vanguard.com/accounts- ... omposition).
The composition is quite similar for 2035: 76% stocks/24% bonds.
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JoeRetire
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Re: [Non US] Segregate Kids University Fund

Post by JoeRetire »

Neus wrote: Wed Aug 03, 2022 3:11 am a) Is it a good idea to have AA of 100% stock for kids' education with 12 years investment horizon? (No rebalancing)
That depends on how much you are depending on these funds for your child's education.
There's no guarantee what will happen to stocks in a 12 year period.
This is gonna be my time. Time to taste the fruits and let the juices drip down my chin. I proclaim this: The Summer of George!
Topic Author
Neus
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Re: [Non US] Segregate Kids University Fund

Post by Neus »

JoeRetire wrote: Fri Aug 05, 2022 8:50 am
Neus wrote: Wed Aug 03, 2022 3:11 am a) Is it a good idea to have AA of 100% stock for kids' education with 12 years investment horizon? (No rebalancing)
That depends on how much you are depending on these funds for your child's education.
There's no guarantee what will happen to stocks in a 12 year period.
Well.. I do depend on these funds to fund my child education
Topic Author
Neus
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Re: [Non US] Segregate Kids University Fund

Post by Neus »

wlk_ wrote: Fri Aug 05, 2022 8:31 am To clarify: It stands at 42% US stocks, but it also has 29% Intl stocks.
Bonds are 29%.
That's not unsual for the targeted duration.

As an alternative, Vanguard also has Target Enrollment funds for scholarship (https://investor.vanguard.com/accounts- ... omposition).
The composition is quite similar for 2035: 76% stocks/24% bonds.
wlk_
Thanks! checking

Does the Asset Allocation constant until 2035, or changed every year as the date gets near?
And what happens when it hits 2035 (does it liquidate to become 100% cash?)
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JoeRetire
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Re: [Non US] Segregate Kids University Fund

Post by JoeRetire »

Neus wrote: Fri Aug 05, 2022 8:56 am
JoeRetire wrote: Fri Aug 05, 2022 8:50 am
Neus wrote: Wed Aug 03, 2022 3:11 am a) Is it a good idea to have AA of 100% stock for kids' education with 12 years investment horizon? (No rebalancing)
That depends on how much you are depending on these funds for your child's education.
There's no guarantee what will happen to stocks in a 12 year period.
Well.. I do depend on these funds to fund my child education
Then the risk that comes with 100% stocks might not make any sense.
This is gonna be my time. Time to taste the fruits and let the juices drip down my chin. I proclaim this: The Summer of George!
Topic Author
Neus
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Re: [Non US] Segregate Kids University Fund

Post by Neus »

JoeRetire wrote: Fri Aug 05, 2022 9:20 am
Neus wrote: Fri Aug 05, 2022 8:56 am
JoeRetire wrote: Fri Aug 05, 2022 8:50 am
Neus wrote: Wed Aug 03, 2022 3:11 am a) Is it a good idea to have AA of 100% stock for kids' education with 12 years investment horizon? (No rebalancing)
That depends on how much you are depending on these funds for your child's education.
There's no guarantee what will happen to stocks in a 12 year period.
Well.. I do depend on these funds to fund my child education
Then the risk that comes with 100% stocks might not make any sense.
Noted
I will follow the target enrolment date fund AA above then (76-24)
After some backtesting and Montecarlo, it seems the difference in value between 76-24 vs 100% stock isn't that significant either, so 100% stock isn't necessarily better
Thanks!

Note: interesting that the IWDA ticker is 70% USA, so it's close enough to 60-40 allocation used by the target enrolment date fund
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