It’s Finance Fridays again… and I’m still a little under the weather, so this will be a short post about my 529 allocation. Also… sorry for the late post.
I’ve written three prior posts about 529s, which are:
In my post about Choosing a 529, I had mentioned that my allocation is little different than the standard “aggressive” allocation that Utah uses. Fred requested that I list my exact allocation, so I will do so here.
What options are there?
Here is the more “standard” age-based aggressive global option:
from Utah Education Savings Plan (UESP) – https://uesp.org/age-based-aggressive-global/
The long table (for all funds, and all allocations) can be found here. Allocation Tables
What do you think about it?
From ages 0-6, you are 100% in stocks with a 70% US and 30% International Stock Mix.
At 7-9, you are 80% stocks and 20% bonds with 56% US and 24% International Stock Mix.
10-12, you are 60% stock, and 20% bonds with a 42% US and 18% International Stock Mix.
13-15, you are 40% stock, 50% bonds, and 10% FDIC insured, with 28% US and 12% International Stock Mix.
16-18, you are 20% stock, 55% bonds, and 25% FDIC insured, with a 14% US and 6% International Stock Mix.
19+ (enrolled), you are 0% stocks, 30% bonds, and 70% FDIC insured.
So… kind of like a retirement portfolio then?
Well yea. All of the above makes sense if you think about it from a “retirement” perspective and you consider “retirement” to be at 18.
Now for some of you, the idea of a 100% stock portfolio for the first 6 years may scare you. However, you need to remember you that are on a compressed schedule to let the compound interest work for you. This may be difficult to understand since it’s not the same style of thinking as how we approach retirement.
So… I’m going to try to explain the approach to 529s:
I think that it’s ok to be more aggressive with 529s than your risk tolerance would normally allow for. This isn’t money for your retirement, this is money for your college for your kids. Unlike retirement, saving money for college isn’t a make or break scenario. For this reason, I think that the potential benefits of earlier compound interest from ages 0-6 outweights the risks.
For this reason, I would advise people to only use Age-Based Aggressive Global or Age-Based Aggressive Domestic… or whatever variation your plan allows for.
I like a little bit of diversity which is why I opt for the Global version… but if you only like the US market, then the Domestic option is a consideration.
Ok ok ok… but what did YOU do?
To be honest, I forgot.
Also, to be honest, I probably should have just stuck with Age-Based Aggressive Global… but I tinkered just a little bit… and so here it is:
The first thing you may notice is that my relative allocations are the same, but the funds used are different. I’ve basically simplified things into a three fund portfolio.
So… why did you change things?
Well, I’m a simple man and to be honest, their Age-Based Aggressive Global plan had to many funds and numbers for me. It also required me to add numbers together to understand what % was stocks, bonds, or FDIC. For that reason, I’m simplified it into the institutional versions of the funds I know and love:
Total Stock Market Index (VITPX)
Total International Stock Index (VTPSX)
Total Market Bond Index (VBMPX)
For some, my allocations may still be too conservative. I know of some other bogleheads which are a little more cavalier with their 529s basically going 100% stock until age 12. Overall, there is no real “best” way to do this. It also depends on how much you were hoping to save for your children.
What is your advice?
My advice? Pick a plan and stick to it.
Like I said before, the allocation doesn’t matter as much as making sure you are putting away the money month after month toward the 529. Whether you miss the mark by a little above or below isn’t all that important.
That said, I would opt for a variation of the age-based aggressive option if it is available to you.
Saving for 529s isn’t the same as saving for retirement.
Being more aggressive than you normally would be is ok.
Overall, I would lean toward any variation of the Age-Based Aggressive options above.
I’ve listed my own Customized Age-Based plan above.
What do you do for your 529? Are you more aggressive than you normally would be?
Do you use a customized plan?
Agree? Disagree? Questions, Comments and Suggestions are welcome.
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100% stock for us. As you say, this isn’t “make it or break it” money. I’ll give it the best chance to grow. If we suffer an ill-timed bear market, well, that’s life. I’m hoping the boys will score scholarships and have $ left over when they’re done. If so, it could grow for another two or three decades and be used for their kids.
Using that Rule of 72, the leftovers could be worth quadruple to octuple by then.
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