How to allocate college funds

[SecondCor521]

I've recently spent some effort trying to do a better job allocating my kids' college funds.

I'd like people's opinions.

To constrain things a bit, assume the following, which is fairly close to my situation:

3 kids
Starting college in 2018, 2019, 2020
4 years of college money saved per kid
Two asset classes being considered: US stocks and US bonds (VTSAX and VBTLX or similar)

If you had to pick a time horizon at which:

Before that time horizon, you would invest in bonds
After that time horizon, you would invest in stocks

What time horizon would you pick?

As an example, if you pick "3 years", that would mean that expenses for college years in 2018, 2019, and 2020 would be in bonds, and expenses for college years 2021 and later would be in stocks. If you pick "1 year", that would mean that expenses for 2018 would be in bonds and expenses for 2019 and later would be in stocks.

Thanks for your votes and input!

 

[43210]

EITHER: Treat everything (retirement, college, everything else) as one big portfolio with your chosen asset allocation overall.

OR: Place short term spending needs in very safe investments, e.g. cash, even if you otherwise invest aggressively.

(OR: Some hybrid of these.)

Poll:
[x] None of the above.

 

[6miths]

3 now in college and one graduated. Has been 100% equity from day 1. Continues to be.

 

[FlaGator]

Just did the rebalance for my HS junior's 529 according to this:

Bonds at: Change on: Grade
35% 2015-16
45% 2016-17 9/1/2016 HS-2
55% 2017-18 9/1/2017 HS-3
65% 2018-19 9/1/2018 HS-4
75% 2019-20 9/1/2019 C-1

My thinking is the last of the money won't be needed for 5+ years, and there is the possibility of grad school (taking it to 6-7 years), so taking some risk with a portion isn't completely stupid. Know this is not the most conservative approach, but the kids are on track for state tuition money (if they go in-state), and they also have the FL pre-paid plan as well.

If I was planning to pay out of pocket without those other vehicles, I think I would be more conservative and not take as much market risk.

 

[mrfeh]

Money you need in less than 5 years should not be in equities.

 

[MichaelB]

No easy answer here. The cost of college is rising much faster than CPI, so 100% fixed income means the college funds will run short and more money will be needed.

I'd probably go with the entire amount in a lower volatility balanced fund, such as Vanguard Wellesley. That fund has enough equities to offer some real growth, but not so much as to risk a major long term loss.

 

[RE2Boys]

I currently have two sons in college, a freshman and a sophomore. Through HS I kept their 529 money about 20% in equities, rest is short-intermediate bond fund.

Once they started college, moved everything into a stable value fund currently paying 2.59%, figure the rate will go up when interest rates rise. Concentration on preserving capital with some return at this point as the time to begin withdrawals is NOW.

I don't have a full four years of college saved up though. Figure they will run out of money by end of junior year and my fall-back plan was to use US Savings Bonds that were eligible for the educational interest exclusion (though that is in jeapardy due to the tax law proposal, may have to accelerate the conversion into 2017).

So vote none of the above.

 

[PatrickA5]

My son's 529 (he's a Junior in college) has been in a guaranteed rate fund for the last 5 years. I've missed out on a lot of upswing in the market, but just couldn't take a chance that a bear market hits right before or during his college years.

 

[BeachOrCity]

Ask yourself this question:
If I had X percent of college funds in equities and the stock market dropped 50% would that impact my childrens college (or my retirement) plans?

If the answer is "yes". Tnen lower the percent and ask again until you get to "no".

 

[USGrant1962]

I use Vanguard's 529 plan and follow their aggressive age-based option, which is 10% stocks / 90% bonds starting at age 18. I'm comfortable with that approach. The more conservative options reduce stocks and add cash to the mix at various ages.

https://investor.vanguard.com/529-plan/age-based-options

 

[gcgang]

Money you need in less than 5 years should not be in equities.

+++!!!

 

[6miths]

Ask yourself this question:
If I had X percent of college funds in equities and the stock market dropped 50% would that impact my children's college (or my retirement) plans?

If the answer is "yes". Then lower the percent and ask again until you get to "no".

This is the way I went. The answer was 'no' hence 100% equity. And let's see if I had gone to bonds instead of equity 5 years ago I would have 150k rather than 300k in my children's education account at this point. If the market goes down 50% tomorrow I will have 150k. Of course anything could have happened but this is just one of several buckets and if it went to zero we are fortunate enough to have other buckets to draw on.