Paying for college

GroovyGeek
Sat, 19 Jul 2008 22:13:34 +0000

I am sure they won’t gamble with 529 money and invest in a combination of stocks and bonds based on child’s age.

Way too many people view bond investments as “safe”. Nothing could be farther for the truth, even high-quality bonds decline SUBSTANTIALLY in value during recessions (which is why their yield rises). The only safe bonds are the ones that you hold to maturity. Since practically no mutual fund holds bonds to maturity, there is no such thing as a safe bond mutual fund. If you don’t believe me, open the chart for most any bond fund and see what happened in April 2004.



Turns out it is an ‘aggressive growth’ 529 so, although it is its ‘most conservative’ mode right now (w/college 1 year away) it’s still 40% stocks.

Ouch, sounds like you are getting a new adviser. In my opinion finances for the average joe are a simple affair that ought to be taught in school, and would put the whole cottage industry of planners out of business. There are times in life when one needs to make sure that a fine point in the law will not trigger massive tax consequences, but for 90% of the population those are once or twice per lifetime, not an annual rite of passage.

1) Keep 6 months cash worth of living expenses on hand in case you are laid off.
2) Invest 401(k) only in index funds only -1/3 large cap, 1/3 midcap, 1/3 small cap. Keep it going until you are 10 years away from retirement. 95% of actively managed funds will underperform the index, and most people have close to zero change of finding one of the remaining 5%. You won’t get rich fast that way, but neither will you get poor fast.
3) Don’t put any money in the stock market that you will absolutely need in the next 10 years. Yes, I did say 10 years.
4) Save yourself some money and use TurboTax or TaxCut to do your taxes. I you make less than 200k a “tax adviser” will do the exact same thing but will charge you 20x the cost of the software, or more. Chances are they will do the same if you make more than 200k, as long as salary is the major source of income. The law does get complicated quickly for small business owners, self employed, etc, when a tax accountant may be useful. However, I know somebody who makes 30k from salary only who religiously goes to H&R Block every year, when they could file a 1040EZ online for free in about 10 minutes.
5) Learn about compound interest, it could save your life. Don’t believe me? Just ask those folks who are loosing their homes because they did not understand what compound interest coupled with adjustable rates could do to them. People who pay minimum balance on their credit card fall into the same category.
6) Learn to read, and use the skill. Too many people just follow blindly what their adviser tells them to do, without questioning it. If you don’t understand it, ask. If your adviser can’t explain it so you understand it, don’t do it. This is not targeted at the OP, just a general observation. Someone in another forum was repeatedly stating that 529 proceeds must be deposited directly into the school account of the student to avoid taxes — their adviser had told them so.
7) Save at least 5% of what you make, preferably 10%. Anyone who makes $30k/year can do it, though there are usually plenty of excuses.