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Hey guys, just wanted to get someone elses take on this, as I pretty much have no one in my life that I can bounce these things off of. Here's my 401k - Aggressive Growth Model. I've been investing up to employee match on it for something like 6 years or something.. I'm only 30, so I figured it's safe to set it and forget it. code:Q4 last year was great, Q1 and Q2 this year were less so, but still growing, then came Q3 where it pretty much wiped out all my gains for the last year plus. I'm just wondering if it's sound investment strategy at this point to continue to leave it in my aggressive growth model, scoop up funds at a lower price, or rebalance it completely into something much more stable for the meantime, like a conservative model, and move it back into aggressive model once things start picking up again?
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Oct 6, 2011 18:17
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quote:It's not just the 10% penalty. It's 10% plus the general income tax burden. Lets say you happen to get 100,000 in there by the time you're 35. If you wanted to withdraw it (even if you could, more on that in a minute) you'd show 100k in income. Let's say, best case scenario, you quit your old job December 31 and then took the distribution Jan 1. As a single person income tax will hit you for 28% of ~90k or ~$25k and then $10k on top. That means you will keep about 65k of your 100k. There's more to it than this. Depending on his 401k, he could possibly take a very large loan from his 401k to start his business and not be subject to tax or penalty (though there are specific requirements, interest rates and repayment plans needed for this). It's a much better alternative to actually withdrawing from your 401k.
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Oct 6, 2011 18:22
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I've been reading some 100% equity allocation threads and thinking more in depth of this idea of minimizing risk while maximizing return and hitting that sweet spot. Some thoughts on a strategy for allocation and rebalancing. Some Basic Assumptions: 1) We are only buying Index Funds when speaking about equity. 2) Index Funds in Equity will have a cyclical pattern of lows and highs (going beyond the normal day to day, or even week to week, fluctuations). 2) An index fund does not have a chance of bottoming out. 3) Transactional fees for rebalancing are not significant. Basic Premise: Every fund you buy will have a basic standard deviation statistic as its risk. From this, you can build basic thresholds for when a sustained % of growth or % of decline is approaching its peak. To rebalance, you maintain a bond heavy allocation (70/30? 60/40?) past the threshold during periods of growth, and a equity heavy allocation (90/10? 100/0?) past the threshold during periods of decline. Simulations would be needed to determine the best way to derive that threshold separately for periods of growth and periods of decline. We could probably do regression analysis too to be able to better identify the precursors to a change. There's probably something in here is obvious or there's a reason why this isn't done. Or it is and I just don't know about it. If someone could just let me know whether or not this is stupid, it'd be appreciated.
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Oct 6, 2011 20:21
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Ravarek posted:A question for 80k: sorry seemed to have missed this. The part about leveraging low-risk assets is probably impractical for the ordinary investor. But the concept of risk parity is interesting and a sound strategy. I've always considered the highly tilted small/value portfolio a form of risk parity. A small allocation (30% or so) dedicated to highest small and value load you can get. This gets you roughly equal allocation to beta, small, and value risk factors. Plus the rest of your portfolio (70%) in bonds. This would approach risk parity (exact percentages need to be tweaked) with allocation to asset class equally weighted by risk rather than dollar-weighted. This equalizes risk rather than letting equities dominate the risk and return of a portfolio and thus should minimize fat tails. The existence of a small and value premium SHOULD compensate for lower equity allocation to get you close to the expected return of a traditional 60/40 portfolio without leverage.
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Oct 6, 2011 21:22
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Rurutia posted:There's probably something in here is obvious or there's a reason why this isn't done. Or it is and I just don't know about it. If someone could just let me know whether or not this is stupid, it'd be appreciated. In an asset allocation, bonds serve as a source of stable return in your portfolio, not a place to park cash when you decide equities are overbought (in my opinion, at least). The obvious thing you're missing is that you're describing a strategy for using a moving average, a well-known and not particularly sophisticated technical indicator. Even though markets tend to be cyclical, they are not predictable, so this system for calling market tops and bottoms will be right about as often as it'll be wrong. Even if you could prove through historical regression that the threshold levels you select do in fact lead to above-market returns in the long term, I imagine that gain would be small and almost certainly less than the cost of re-balancing.
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Oct 6, 2011 21:28
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bam thwok posted:In an asset allocation, bonds serve as a source of stable return in your portfolio, not a place to park cash when you decide equities are overbought (in my opinion, at least). Yes, because bonds are low risk and stocks are high risk, optimal allocation is about giving you the best bang (reduction of risk) for your buck. What I'm outlining would probably give you lower ceiling in your earning potential, but what I'm shooting for is a higher expected value with much lower risk by exploiting the fact that at lows, equities have a much lower probability of dropping than at highs. Thus, if you consider a risk allocation, risk in an equity changes as the market changes. As for using a moving average, I agree that its not going to be the best predictor, but it doesn't need to be if you don't use it by itself. Not only that, I'm not talking about constant rebalancing, I'm talking about something you'd do only for major dips and obviously unsustainable highs, which if you look at the past 5 years, you'd only rebalance three times and the margin of error for precision is pretty big. Rurutia fucked around with this message at 23:23 on Oct 6, 2011 |
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Oct 6, 2011 23:14
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Rurutia posted:Yes, because bonds are low risk and stocks are high risk, optimal allocation is about giving you the best bang (reduction of risk) for your buck. What I'm outlining would probably give you lower ceiling in your earning potential, but what I'm shooting for is a higher expected value with much lower risk by exploiting the fact that at lows, equities have a much lower probability of dropping than at highs. Thus, if you consider a risk allocation, risk in an equity changes as the market changes.
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Oct 6, 2011 23:43
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gvibes posted:I think that what you are describing is a lot more difficult than you think it is. I'm well aware. I'm in grad school for statistics. I just want to make sure I'm not crazy before I potentially put more work into it. A sanity check so to speak. Worse case scenario, I learn a lot more about making long-term investments and the market.
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Oct 6, 2011 23:52
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Rurutia posted:Yes, because bonds are low risk and stocks are high risk, optimal allocation is about giving you the best bang (reduction of risk) for your buck. No; bonds tend to have low variance while stocks tend have high variance, which is an especially important distinction when you're discussing funds as opposed to directly purchasing securities. Variance, as you well know, is a statistical approximation for risk, not a measurement of risk itself. The average mutual fund age is something like 16 years, hardly long enough for their stddev of yearly returns to capture all the risks actually faced by investors. Plotting yourself on a CAPM curve isn't enough to ensure an optimal allocation in anything but the most superficial sense. quote:What I'm outlining would probably give you lower ceiling in your earning potential, but what I'm shooting for is a higher expected value with much lower risk by exploiting the fact that at lows, equities have a much lower probability of dropping than at highs. Thus, if you consider a risk allocation, risk in an equity changes as the market changes. How is this different from "buy low, sell high", and why is it that you think your ability to pick the right time to withdraw from or invest in the market is better than the managers of the funds you'd be using, who do the exact same thing but get to hire PhD mathematicians, financial engineers, and in many cases have access to privileged information? Statistically speaking, even THEY rarely beat the market in the long run. If you're willing to accept a lower return in exchange for lower variance anyway, why not just increase your initial allocation in bonds? quote:As for using a moving average, I agree that its not going to be the best predictor, but it doesn't need to be if you don't use it by itself. Not only that, I'm not talking about constant rebalancing, I'm talking about something you'd do only for major dips and obviously unsustainable highs, which if you look at the past 5 years, you'd only rebalance three times and the margin of error for precision is pretty big. Again, what is it that makes you think there's some obvious way of calling highs and lows that you can systematically exploit where you'd be right more often than you'd be wrong? Remember, missing out on gains is just as bad for your bottom line as avoiding losses. I guess what you're really talking about is ad-hoc re-balancing whenever the equities portion of your asset allocation grows too large or shrinks too small, as opposed to re-balancing at a defined interval. I'm pretty sure that most brokers offer this as a standard feature already.
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Oct 7, 2011 00:13
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To me its not much more complicated than normal rebalancing, but you want to do it on a more extreme level. Instead of having 60/40 be your target and rebalance when you get to 70/30, you think that you can time the market based on % moves and make much more drastic rebalances. I understand the appeal of this to you since you come from a math background. However, the markets don't move based on their standard deviations, they move on supply and demand. If the markets up 10% on the week, a statistically significant jump, there will be lots of trend followers (a very popular trading strategy) that will want to jump on board, even after a move like that. Essentially it boils down to you trying to call tops/bottoms based on intuition and some basic technical analysis. It takes more than that to have an ideal portfolio, I'm afraid. It's not an inherently stupid idea though like you asked so don't beat yourself up!
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Oct 7, 2011 00:50
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^^^ Yeah, I completely agree with you. I'm probably just thinking about this too much from reading boglehead and BFC. I don't know that I will do better or that there is an obvious time. I'm not even suggesting that I'm going to actually do it for myself. I'm asking on a theoretical level, would it make sense and if it does, is it done. It's more of a thought exercise. I get that others have more resources, which is why I wanted to vet this out as, has anyone looked at it? One of the newer professors at my school actually was recently offered a 300+k job to run regression analysis on the market, so yeah. I have no delusions about what I'm saying and mostly agree with what you're saying. quote:No; bonds tend to have low variance while stocks tend have high variance, which is an especially important distinction when you're discussing funds as opposed to directly purchasing securities. Variance, as you well know, is a statistical approximation for risk, not a measurement of risk itself. The average mutual fund age is something like 16 years, hardly long enough for their stddev of yearly returns to capture all the risks actually faced by investors. Plotting yourself on a CAPM curve isn't enough to ensure an optimal allocation in anything but the most superficial sense. I'm not sure why the first part of what you said here is different from what I said. Yes, variance is only an approximation of risk, but the goal of using it is to minimize risk by utilizing their correlation. As for the second part, I see what you mean. Would it make more sense to plot yourself against the market as a whole if you're using Index Funds? (My ignorance really showing through here.) The way I'm thinking of it right now is that as a whole, the market is going to to be able to capture more of the external factors so that even if your fund is the odd man out at any point in time, it should average out to be the same as that of the market over time. quote:I guess what you're really talking about is ad-hoc re-balancing whenever the equities portion of your asset allocation grows too large or shrinks too small, as opposed to re-balancing at a defined interval. I'm pretty sure that most brokers offer this as a standard feature already. No, I'm not. Unfortunately, I'm also not sure how else to explain it to be more clear. I don't really believe in rebalancing to original allocation often as a whole, even in my current practice. edit Actually, the guy above me summarized it pretty well. Also, just so you guys don't think I'm going to go and just jump into a lovely allocation. I'm doing a 85/15 split, with 25 in international. (Age: 24) Rurutia fucked around with this message at 01:06 on Oct 7, 2011 |
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Oct 7, 2011 00:59
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Rurutia posted:I'm asking on a theoretical level, would it make sense and if it does, is it done. It's more of a thought exercise. It makes sense if your timing is correct. That is up for debate, but has largely been proven as an ineffective strategy. However, there certainly are money managers out there that do exactly this for their clients. I don't know if there are funds/ETFs/what-have-you that do this automatically, but switching between various index funds (emerging markets, high yield debt, treasuries, s&p 500, nasdaq) depending on the macro picture is certainly a viable strategy, IF you are better than the market. Which is why I think this is a question more along the topic of the Stock Picking/Trading thread (I post there too). This is not a long-term investing strategy because the basis of that is mostly passive investing. This is certainly active investing.
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Oct 7, 2011 01:08
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Rurutia posted:Also, just so you guys don't think I'm going to go and just jump into a lovely allocation. I'm doing a 85/15 split, with 25 in international. (Age: 24) Why are you underweighing international so much?
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Oct 7, 2011 02:30
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Inept posted:Why are you underweighing international so much? Because I'm not familiar with International markets. I've thought about doing proportional split for Domestic/International, but its not something I'm going to do before I think more about it. Speaking of which, if you could give me some insight, that'd be awesome.
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Oct 7, 2011 04:55
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Rurutia posted:Because I'm not familiar with International markets. I've thought about doing proportional split for Domestic/International, but its not something I'm going to do before I think more about it. I don't understand why not being familiar with international markets would prevent you from diversifying the equity segment of your portfolio. You don't need to be a financial analyst to realize the benefits of spreading out your exposure. Let me put it this way: The United States now accounts for less than 50% of the world's GDP. Why would you allocate 85% of your equity exposure to U.S. stocks other than the fact that you simply live there? It would make more sense to go half domestic and half international (or somewhere in that ballpark) if you're looking at things logically. Try not to be overly patriotic when investing. "Home country bias" can really skew your portfolio.
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Oct 7, 2011 07:06
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That, and since you're presumably employed in the US, you're already rather exposed to the US economy (it would be no fun to be laid off and have 85% of your portfolio go down with it if the US economy goes over a cliff). Kind of similar to the reason you'd generally not want to hold a ton of stock in the company you work for.
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Oct 7, 2011 12:35
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Ravarek posted:I don't understand why not being familiar with international markets would prevent you from diversifying the equity segment of your portfolio. You don't need to be a financial analyst to realize the benefits of spreading out your exposure. Let me put it this way: The United States now accounts for less than 50% of the world's GDP. Why would you allocate 85% of your equity exposure to U.S. stocks other than the fact that you simply live there? It would make more sense to go half domestic and half international (or somewhere in that ballpark) if you're looking at things logically. Try not to be overly patriotic when investing. "Home country bias" can really skew your portfolio. 70% of my equity exposure is to US Stocks. (25/85~=30%) And it's not that I don't understand the above, it's that I haven't put in the research as to what funds to buy. I'm not even sure how they work in terms of, do they encompass all regions outside of the US, or is it just particular sectors? Because if its the latter, I'd want to make sure I got full coverage. I agree with home country bias. It's just the way it is set up for now and I'll most likely change it once I figure out what a good proportion in International is and if I just want to increase my current Index Fund or buy others. (For right now, I actually just went with the one used by Vanguard's Target fund: Vanguard Total International Stock Index Fund Investor Shares) VVVV I did read that when I initially were looking at the core Vanguard funds and honestly, their descriptions are so vague I wasn't really sure what to make of it. I'm neurotic, can't you tell, haha. Rurutia fucked around with this message at 15:43 on Oct 7, 2011 |
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Oct 7, 2011 14:02
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Rurutia posted:I haven't put in the research as to what funds to buy. I'm not even sure how they work in terms of, do they encompass all regions outside of the US, or is it just particular sectors? From Vanguard's website: Vanguard posted:This fund offers investors a low cost way to gain equity exposure to both developed and emerging international economies. The fund tracks stock markets all over the globe, with the exception of the United States. Because it invests in non-U.S. stocks, including those in developed and emerging markets, the fund can be more volatile than a domestic fund. Long-term investors who want to add a diversified international equity position to their portfolio might want to consider this fund as an option. So yes, it encompasses all regions.
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Oct 7, 2011 14:44
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smurph98gt posted:I'm just wondering if it's sound investment strategy at this point to continue to leave it in my aggressive growth model, scoop up funds at a lower price, or rebalance it completely into something much more stable for the meantime, like a conservative model, and move it back into aggressive model once things start picking up again? 1. You have so many funds that presumably overlap in quite a few places that it's nearly impossible to figure out what your allocation is. By that I mean simple stock/bond, domestic/international. Do you have a good way to track this kind of basic stuff? 2. You describe it as "set it and forget it" but then you're tracking quarterly growth on something you won't be touching for decades, and also trying to time the market. Hrmm? 3. You're trying to time the market. 4. You're freaking out because of the drop and so now you want to move into a "stable/conservative" model, which is the worst idea ever since it relies on you timing the market accurately which, even if you did, you're doing it backwards. Buy high, sell low? This makes no sense. 5. It sounds like you got sold on a "growth model" by HR which sounds great and all but you probably have no idea what is actually in your portfolio. 6. It looks like you have no bonds in your portfolio unless that's what the capital appreciation whatever the hell it's called is, I'm not looking it up. My advice is to forget about touching your portfolio for now, but start reading. In a month or so, decide on what your stock/bond and domestic/international ratios should be, and pick a few funds with the lowest expense ratios that will get you to those ratios to switch your money into. Like: 40% S&P 500 index for domestic stocks 40% International fund for international stocks 20% Bond index fund for bonds Don't get all fancy pants about it unless you need to. Right now the pants are way too fancy and you've got pockets you don't know about and sequins glued onto your rear end.
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Oct 7, 2011 16:48
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So I just set up a fidelity investment account for their credit card and just got access to a 401k that an old internship had set up for me a few years back. There's only $200 in it, but hey, money's money. Would there be any disadvantage to rolling it in to a Roth IRA just for the hell of it? I'm in my last year of med school so I don't have a retirement account set up yet and I won't be in residency until next June. Is there a limit to the number of Roth IRAs you can have? Should I just not worry about it?
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Oct 7, 2011 18:06
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Residency Evil posted:So I just set up a fidelity investment account for their credit card and just got access to a 401k that an old internship had set up for me a few years back. There's only $200 in it, but hey, money's money. Would there be any disadvantage to rolling it in to a Roth IRA just for the hell of it? I'm in my last year of med school so I don't have a retirement account set up yet and I won't be in residency until next June. Is there a limit to the number of Roth IRAs you can have? Should I just not worry about it? It's not a bad idea, and there's no limit to the number of IRA accounts you can have. Only the yearly contribution limit of 5K matters, but that $200 doesn't count toward that anyway. The only thing that you need to be aware of is transferring from a 401k to a Roth means that you'll have to pay taxes on that $200 at your current marginal tax rate, since a 401k is tax deferred, while a Roth is not.
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Oct 7, 2011 19:23
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Briantist posted:Earlier this year I opened up an account at Vanguard. I rolled over a SIMPLE I had from a previous employer to a Traditional IRA, and I rolled over a Roth I had with sharebulder to a Roth with Vanguard. Both are in a target retirement fund.
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Oct 11, 2011 17:04
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Briantist posted:*stuff about traditional vs Roth IRA and Admiral shares* Hey Vanguard IRA buddy. Here's a few things for you to consider. The Admiral shares that Vanguard offers are nice, but they're hardly a game changer. From the Vanguard site, $10k invested over 10 years will incur about $432 in expenses on Investor shares and $153 in expenses on Admiral shares. Also, if you invested 10k 10 years ago, you would have $13,187.22 in the Admiral fund and $13,071.25 in the Investor fund. Not a huge difference. The decision versus Roth and Traditional depends on your tax outlook, but based on the fact that Admiral versus Investor shares don't get you a huge benefit, I would say that the Roth v Trad decision should have much, much higher precedence than Investor v Admiral shares. If I were you, I would max out your Roth IRA and not worry about share type. The fact that you're investing with Vanguard at all means the expense ratios are already about as low as they're going to go. Daremyth fucked around with this message at 17:40 on Oct 11, 2011 |
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Oct 11, 2011 17:36
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Daremyth posted:Hey Vanguard IRA buddy. Here's a few things for you to consider. The Admiral shares that Vanguard offers are nice, but they're hardly a game changer.
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Oct 12, 2011 18:02
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So glad I found this thread! Here's my situation: 25 year old in my last semester of college, about to graduate with an english degree. Parents divorced, mom's job paid for my education (no debt) and dad pays me a little less then 12k/yr while I'm in school. Worked for 3 years before college, as of this morning ~11k in a savings with laughable interest and ~15k in stock. I'm happy with my stock performance, but as I've been adding to my savings account, I've been hoping for a better return with near that security. What would y'all recommend? I've also got a question about mutual funds. They're just big pools of investments managed on behalf of their members right? There are tons of funds out there then, aye? My small bank offers 15, I can't even imagine how much choice there must be. Hedge funds are then more exclusive, better performing, invite only funds for larger investors, yeah? How does payment work? % or flat fee?
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Oct 12, 2011 20:02
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wanderlost posted:Hedge funds are then more exclusive, better performing, invite only funds for larger investors, yeah? How does payment work? % or flat fee? Wikipedia - Hedge Fund. You have to be an accredited investor to invest in one. I'm fairly certain most payment is done as a % of income plus a % of assets. Performance isn't necessarily better. Hedge funds can go bankrupt like any other investment. IMO, their main goal is to make money for their managers first and if you the peon millionaire investor makes money too then that's gravy.
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Oct 13, 2011 06:23
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A lot of stuff here, so I'll break it up.wanderlost posted:I'm happy with my stock performance, but as I've been adding to my savings account, I've been hoping for a better return with near that security. What would y'all recommend? wanderlost posted:I've also got a question about mutual funds. They're just big pools of investments managed on behalf of their members right? There are tons of funds out there then, aye? My small bank offers 15, I can't even imagine how much choice there must be. wanderlost posted:Hedge funds are then more exclusive, better performing, invite only funds for larger investors, yeah? How does payment work? % or flat fee? What are you invested in? You mentioned that you've gotten decent performance out of them, but what are you holding? If you've only got 15k invested and you're in individual companies, you are (almost certainly) exposing yourself to a lot of unsystematic risk. That may be paying off, but without understanding the market/companies that you've picked, it's generally not advised.
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Oct 13, 2011 12:08
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Anything above about a percent is going to involve reduced liquidity or increased risk or both. The most effective use of your savings is likely getting it sheltered from taxes in a ROTH IRA. If you have 20+years to retirement the savings in taxes alone will trounce the 1 or 2% interest you can make in the next few years.
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Oct 14, 2011 02:16
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Does anyone have a particularly good link that explains the process of doing a 401k rollover to an IRA? I've tried Google but all that's accomplished is giving me a headache because I'm literally retarded when it comes to this stuff.
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Oct 15, 2011 22:01
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The Rokstar posted:Does anyone have a particularly good link that explains the process of doing a 401k rollover to an IRA? I've tried Google but all that's accomplished is giving me a headache because I'm literally retarded when it comes to this stuff. Don't have them cut you a check as then it gets complicated. Do a direct rollover
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Oct 16, 2011 02:48
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This is mainly for a friend of mine. They just had a child and were wondering the best way to start saving for college. A 529 seems like the best option, but were confused on which one. It seemed a little confusing since each state had their own. Can you join any state? Is there a state/plan that is better than others? And do you recommend a place to open it (Vanguard, Fidelity, other)? Thanks for any help. They currently are starting with $2000 but will be trying to make regular contributions.
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Oct 18, 2011 00:25
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Niwrad posted:This is mainly for a friend of mine. They just had a child and were wondering the best way to start saving for college. A 529 seems like the best option, but were confused on which one. It seemed a little confusing since each state had their own. Can you join any state? Is there a state/plan that is better than others? And do you recommend a place to open it (Vanguard, Fidelity, other)? You can use any state's plan. A few things to keep in mind: -Each state has it's own company in charge of the plan. There's no mixing and matching. -Your home state may have added benefits in addition to federal tax benefits (ex: New Jersey offers a $1500 scholarship...hey, every bit counts!)...or their own incompetent government may try to find some loophole to access those funds for other purposes and pay things back (OH GOD DON'T THEY DARE EVER DO THIS  )I am looking into this myself because I am expecting my first child around the holidays. I'm focusing on the meat and potatoes of investing (keep fees low, go index, scale risk according to timeline) so I am considering Iowa and Nevada (Vanguard operated). The one other thing that may swing home state funds is the potential "prepaid tuition plans." Usually those are awesome if your state has one because you can lock in the value of your contributions (kind of like buying a share of the education time, not just the final dollar amount regardless of inflation). Some individual colleges offer this, too, but I can't imagine taking the gamble of putting that much cash to lock in a tuition amount early for one school. NJ doesn't have one, but their incentive is that the first $25K doesn't factor into financial aid for NJ schools. edit: Oh man, Vanguard kept their $3000 initial requirement for the Nevada plan. But the Iowa plan has just a $25 minimum! Here's a cool map (I swear I don't work for Vanguard) https://personal.vanguard.com/us/whatweoffer/college/finda529?Link=checktherefirst&LinkLocation=college_overview balancedbias fucked around with this message at 02:34 on Oct 18, 2011 |
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Oct 18, 2011 02:14
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balancedbias posted:You can use any state's plan. Last time I checked certain states offered the plans only for their state universities while others let you go wherever. Has it changed?
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Oct 18, 2011 04:50
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nelson posted:Last time I checked certain states offered the plans only for their state universities while others let you go wherever. Has it changed? Hmm...I guess I should couch what I said by saying "there are many options for different state plans you can use." I didn't verify for all 50 states.
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Oct 19, 2011 01:43
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balancedbias posted:You can use any state's plan. A few things to keep in mind:
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Oct 19, 2011 15:50
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Niwrad posted:They just had a child and were wondering the best way to start saving for college. A 529 seems like the best option There is a pretty big downside to a 529. The child may not want to go to college. Or they might be very smart and get a full scholarship. I'd prefer something like a UGMA/UTMA, which has no restrictions on how the beneficiary uses the funds (once they reach 18 or 21 depending on state).
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Oct 19, 2011 16:33
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balancedbias posted:The one other thing that may swing home state funds is the potential "prepaid tuition plans." Usually those are awesome if your state has one because you can lock in the value of your contributions (kind of like buying a share of the education time, not just the final dollar amount regardless of inflation). quote:On the surface, prepaid plans offer greater peace of mind than savings plans, because they come with a “guarantee” that investments will keep up with rising costs. However, only a handful of states, including Florida, Massachusetts, Mississippi and Washington, have actually put the full faith and credit of their state treasuries behind their prepaid 529 offerings, pledging to make up the difference if the plans fall short of their obligations. Texas and the Private 529 Plan have created a guarantee in a different way, by making participating schools promise to accept the prepaid credits regardless of future tuition increases.
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Oct 19, 2011 16:40
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nelson posted:There is a pretty big downside to a 529. The child may not want to go to college. Or they might be very smart and get a full scholarship. I'd prefer something like a UGMA/UTMA, which has no restrictions on how the beneficiary uses the funds (once they reach 18 or 21 depending on state). If the child doesn't want to go to college, the 529 beneficiary can be changed to another family member, including another of your children, or even THEIR children. Also, my understanding is that if they get a scholarship, an amount up to the scholarship value can be withdrawn from the 529 free of penalty/taxes. Edit: also, probably one of the biggest benefits of a 529 plan is that whoever started the plan (i.e. YOU) keeps control of it, even after the beneficiary turns 18. This is a big deal, because can you imagine what you would've done at 18 years old if you suddenly had access to thousands of dollars? flowinprose fucked around with this message at 17:24 on Oct 19, 2011 |
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Oct 19, 2011 17:22
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flowinprose posted:If the child doesn't want to go to college, the 529 beneficiary can be changed to another family member, including another of your children, or even THEIR children. Also, my understanding is that if they get a scholarship, an amount up to the scholarship value can be withdrawn from the 529 free of penalty/taxes. I sat on it.  Been lurking since I just began to invest in my country's state bonds. But as for that "when you're eighteen" money, I surprisingly lucked out. When I happened on the "holy poo poo I got money" I bought a laptop for school. Became my private computer. Replacement laptop was also bought through that account, then my first car (used) was paid fully, and finally I bought a new xbox when my old one croaked. The money was on a bank account in my name since I was born. The money in it is locked in there for three years, and the full amount in it is inflation adjusted. So $100 put in there will be in ten years be the equivalent of $100 ten years later, plus some interest.Frankly, I lucked out. While I'm debt free, my older brother got a loan on a luxury car and has credit card debt. He's considering renting a car when he has sold his current one. His girlfriend is trying to push him towards a used Yaris or something like that. I think my brother has made me debt phobic. I put in towards savings, both on that inflation adjusted account and regularly buy more state bonds.
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Oct 19, 2011 19:05
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At this point with certain sources saying that there will be another crash/dip, would it make any sense to stop contributing to my 401k until that point is reached? Granted I am only 26 so of course I am supposed to ride this poo poo out, and nobody can truly predict what the market will be like in 35 years, but I am just dumb when it comes to this stuff and I can already think of things I could do with the extra $ per paycheck.
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Oct 19, 2011 19:35
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