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College Investment Ideas?
Old 09-08-2010, 04:30 PM   #1
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College Investment Ideas?

I have setup an account for my son, who is now 15 months old, right after he was born. I now have $2k in there and it is setup to automatically contribute another $50/month. I will probalby need to increase that, but I wanted to get something started. If I have another child (which we plan to)... it doubles.

1/2 of his money is in GE stock, 1/2 is currently cash. I can setup an automatic purchase system to buy into a suggested equity once per month at a fee of $5. however that's 10% of the $50 I'm putting in there! so it seems like a bad idea.

with 18-20 years till d-day, what are some recommended investment ideas for my son's college future? I am not using a 529 or other shelter because I liked the flexability of allowing him to use the cash for a business, house, etc if he doesn't go to college. however, at the same time I'm thinking about buying some of the college credits that you can get now and apply later (protecting you against inflation). Just some though, not a full 4 years, as in 18 years if he doesn't go to school I can get all that money back, but not with any interest!
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Old 09-08-2010, 04:35 PM   #2
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step 1, to me, is payoff your mortgage before saving a dime for college. Then use the cash flow from being mortgage free to fund other kid education needs.
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Old 09-08-2010, 04:51 PM   #3
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i had a good rebuttal but then thought it through. you make a really compelling point without saying a lot. I could move to a 15 year loan for only about $400 more per month than I spend now, and I could easily pull that from current savings/retirement monthly contributions.

however, I'm underwater. FHA supposedly released a new plan this week to help homeowners that are making their payments on time, and still have an income to qualify for new loans. it's supposed to be a mortgage forgivenss deal. If I was able to get on that bandwagon even a 15yr mortgage would be lss per month than my current 30yr.
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Old 09-08-2010, 05:45 PM   #4
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however, I'm underwater. FHA supposedly released a new plan this week to help homeowners that are making their payments on time, and still have an income to qualify for new loans. it's supposed to be a mortgage forgivenss deal. If I was able to get on that bandwagon even a 15yr mortgage would be lss per month than my current 30yr.
Don't bet on that.
However, I'm not as pessimistic as jIMOh. If you have a reasonable mortgage rate, and no CC debt, then a 100% stock fund can be a good bet for a 20-year horizon.

But, you're going to need to put in a lot more. You will presumably need around $80-$100K in today's dollars, plus you'd better factor in 1-2% above RPI inflation because college fees go up faster than RPI (because the single biggest budget item is salaries). Allowing for 10% gross growth with 4% total inflation, you're going to need to save $250/mo to get near $100K in 18 years.
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Old 09-08-2010, 05:52 PM   #5
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sounds reasonable, but still, where would you put the $250/month if it was you? That's the bigger beast I'm trying to kill right now.
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Old 09-08-2010, 05:59 PM   #6
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I'd put it in a low cost balanced mutual fund, like the Vanguard Star fund.
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Old 09-08-2010, 06:05 PM   #7
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VGSTX has pretty low fees it looks like, which is ideal. I'll look it over, thanks for sharing the tip.

I watch a lot of people over diversify their holdings and end up with a net loss even if their stocks perform after all the fees they eat up.
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Old 09-08-2010, 06:16 PM   #8
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With a 15-20 year horizon starting now, I'd have 1/3 in an S&P 500 tracker and the other 2/3 split between 3 or 4 emerging markets funds. But don't take investment advice from me.
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Old 09-08-2010, 06:17 PM   #9
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Star is what we used for the same situation. Worked well.
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Old 09-11-2010, 04:22 PM   #10
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1/2 of his money is in GE stock, 1/2 is currently cash.
...with 18-20 years till d-day, what are some recommended investment ideas for my son's college future?
I bonds for education-- they have specific registration requirements and a few other minor hoops to jump through in order to be redeemed tax-free, but they're easily handled through a TreasuryDirect account.

Why are you taking on so much single-stock risk instead of diversifying in an ETF or an index mutual fund? Been there, done that, don't care to repeat the experience.
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Old 09-11-2010, 05:13 PM   #11
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I would put the money in my own accounts. I have no business saving for my kids' college educations until I have my retirement in the bag. That means I need to contribute to my 401(k), my spouse's 401(k), my Roth IRA, my spouse's Roth IRA, my I bonds, my spouse's I bonds to the maximum before thinking about adding to my other taxable accounts for retirement.

The only reason to save anything for the kid is if you get a tax break for it. Otherwise, save for yourself where you get plenty of tax breaks. In 20 years, you will either be retired early and have lots of moolah or you will still be working and should be able to pay for college from your monthly cash flow. And you can always give them some of your money later if you are so compelled.

Parents who save for their kids' college expenses just drive up the price of college for those of us that don't.
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Old 09-11-2010, 10:39 PM   #12
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Parents who save for their kids' college expenses just drive up the price of college for those of us that don't.
I will assume you are being humorous. In reality it's the other way around.
One of the largest budgeted costs at many colleges is financial aid, which is essentially a tax on the student who can't get financial aid pay to support those who can. If only this ran with wealth and income it might be at least ethical, but what it runs with is political clout. The worst thing you can do, at least under current law is set up a non favored account for a child

"The federal need analysis formula shelters several types of assets. Money in retirement plan accounts is ignored, as is the net worth of the family's home and any small businesses owned and controled by the family. A portion of parent assets is also sheltered by an asset protection allowance based on the age of the older parent. This shelters about $50,000 for the typical family with college-age children (median age 48). As a result, less that 4% of dependent children have any contribution from parent assets. Money in a dependent child's 529 college savings plan (or other qualified tuition plan) is treated as though it were a parent asset on the Free Application for Federal Student Aid (FAFSA). This is a more favorable treatment than for child assets."
FinAid | Saving for College | Myths about Saving for College

I have personally known of cases of parents who lived in paid off million dollar homes, held multi million dollar retirement portfolios and owned businesses where they did not draw a salary since they reinvested the profits in the business and expected to sell the business for a bundle. Their kids were eligible for much better financial aid than the children of the local principal with a mortgage and the usual expenses.

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Old 09-11-2010, 10:40 PM   #13
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I have setup an account for my son, who is now 15 months old, right after he was born. !
See my other post but this is the worst possible way to save for college.
Gming the system is increasing


"In certain circumstances, a slight decrease in the parents' income may yield a significant increase in eligibility for Federal financial aid. If both of the following are true
  • The parents' adjusted gross income is under $50,000.
  • All family members are eligible to file an IRS Form 1040A or IRS Form 1040EZ income tax return or aren't required to file (or were eligible for certain federal means-tested programs, such as SSI, the food stamp program, the free and reduced price school lunch program, TANFF, and WIC).
then the family qualifies for the Simplified Needs Test which disregards assets when determining the expected family contribution. So if the family has a substantial amount of assets and the parents' income is close to $50,000, the parents should consider taking steps to reduce their income below the $50,000 threshold.
"
http://www.finaid.org/fafsa/maximize.phtml
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Old 09-11-2010, 10:56 PM   #14
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"As a result, less that 4% of dependent children have any contribution from parent assets."
FinAid | Saving for College | Myths about Saving for College
Exactly, get all your savings into tax-advantaged accounts and they do not count against you. As for the 4% story, that may be true, but note the words "parent assets". That is not the same as "parent income". And think about this: If 96% of dependent children do not use parent assets to attend college, where does the money come from?

I have a child in college. Annual cost is about 65% of our taxable income last year and child received no financial aid whatsoever. Our problem is that we can afford college from parent assets, but not from income.
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Old 09-12-2010, 11:28 AM   #15
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Most of the "financial aid" out there is in the form of loans. The schools takes a cut of the principle amount and the banks benefit from high interest rates. These institutions benefit from a Family Contribution formula that generates a lot of student loans

I think schools would have to find ways to lower education costs if loans were not so readily available.
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Old 09-13-2010, 11:09 AM   #16
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See my other post but this is the worst possible way to save for college.
Gming the system is increasing

l

why do you say that? the link you supplied actually supports doing exactly what i'm doing?

Quote:

Myth #6: The Stock Market is Too Risky
The stock market is risky, but one can manage the risk through a careful investment strategy.
The S&P 500 dropped 39% in value in 2008, causing some state 529 college savings plans to lose money and many prepaid tuition plans to have actuarial funding shortfalls. This caused about half of families to change how they save for college, according to a 2010 college savings survey.
However, stock market volatility is to be expected. During any 17 year period, the stock market will drop significantly at least two or three times. The severity of the 2008 stock market plunge was unusual, but not the drop itself. When you are saving for a long-term life cycle event like college, you should plan for the volatility by using an age-based asset allocation and by using dollar-cost averaging.
  • Age-based Asset Allocation. Age-based asset allocation starts off with an aggressive mix of investments when the child is young and gradually shifts toward a more conservative mix of investments when college approaches. It bottoms out with less than one fifth of the portfolio in risky investments a year before high school graduation. (Risky investments include stocks and other investments where there is a potential risk to principal. Low risk investments include bank certificates of deposit and money market accounts.) When the child is young the amount of any losses will be small and there is a lot of time to recover from the losses. When college is close there is more money at stake.
  • Dollar-Cost Averaging. Dollar-cost averaging invests a fixed amount of money at a regular interval. When the stock prices go down, the number of shares purchased increases. When stock prices go up, the number of shares purchased decreases. This implements the sage advice to buy low and sell high. Dollar-cost averaging is one of the most effective blind strategies for investing. It works best when the stock market is volatile
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Old 09-13-2010, 11:31 AM   #17
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I bonds for education-- they have specific registration requirements and a few other minor hoops to jump through in order to be redeemed tax-free, but they're easily handled through a TreasuryDirect account.

Why are you taking on so much single-stock risk instead of diversifying in an ETF or an index mutual fund? Been there, done that, don't care to repeat the experience.
thanks for the suggestion on the IBonds, I will look/consider it. The 'single stock' risk isn't really the long term plan. I just bought him about $1k worth of shares 6-10 months ago because the price on GE's stock was killer at the time. now I'm looking at other options for the rest of the cash and new contributions.
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Old 09-13-2010, 11:57 AM   #18
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Business Week profiled some interesting initiatives:
The 'No-Frills' College of the Future - BusinessWeek
Quote:
In the past few years, some schools have begun to experiment with ways to cut costs, such as pooling their buying clout to negotiate better deals on everything from computer hardware to maintenance supplies and exploring alternative revenue streams from patents on university research to real estate deals. Now they're making more lasting changes in the way they deliver education and allocate resources, in the hope that those changes will result in more permanent savings for students and families. What follows is a progress report on some of the more innovative ideas:
Until now, the three-year college degree has been more popular in Europe, but in the past two years about a half-dozen private colleges and universities in the U.S. have launched three-year degree programs, says Tony Pals, a spokesman for NAICU. Last year four schools launched three-year programs, and this fall two Ohio institutions, the University of Akron and Ursuline College in Cleveland, are starting their own. "They will be watched closely by other colleges as well as policymakers," says Pals, adding that several other colleges are currently studying the feasibility of offering three-year degree programs.
Looks like they're going to go heavily toward online learning (no dorms or athletic centers for these students) and the community-college credit-transfer concept.

Hard to separate the reality from the marketing, though.

Although there may be a general backlash against the rising cost of tuition, I suspect that the most a parent should be responsible for is a couple years at a community college followed by a couple years a State U. And depending on the kid, maybe a parent shouldn't even be responsible for that much.

Our kid took quite a different tack, but she's letting the federal govt subsidize three-quarters of it in exchange for training her to be a hired killer. Seems like a fair deal to me... and saved us all quite a bit of money, too.
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Old 09-13-2010, 12:06 PM   #19
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to me it was very stressful giving my parents a college tuition bill, and i married quite young (20) and so again I felt like I was putting the tuition bill on someone else (my wife) even though I worked full time. I put school off for a few years and now I am back and my business pays my tuition. I don't want money to play any role in my son's decision to go to school.
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Old 09-13-2010, 12:11 PM   #20
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why do you say that? the link you supplied actually supports doing exactly what i'm doing?
[/LIST]
Somehow my reply was lost so Ill try again.
my comment has nothing to do with the area of investment , it was limited to the common mistake of putting assets in a child name for college instead of paying down your mortgage etc.
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