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My thought process - 4 year money
Old 01-06-2023, 07:45 PM   #1
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My thought process - 4 year money

I had asked this a few years ago here and really appreciated the discussion.

Bottom line: I want to have $200k in the hopper, ready to go for college money in 4 years. Not saying $200k will cover it all- but that's what I want to know is ready. Won't need it all on day one - for argument sake let's say I need $50k a year.

Would like to..... preserve the capital hopefully close to inflation - hoping that is 3.5%.

Of course, beating 3.5% would be lovely as the excess money -frankly would go towards living expenses. My competing thoughts:

1.)You GOT the $200k. Just make 4.25-4.4 on a combo of CD and Treasuries. Big deal - avoid 3% PA tax on the Treasuries. At the end of the 4 year rainbow, I KNOW I have my $200k - and hopefully 4.4 was enough to stay a smidge ahead of inflation.


2.)I dont know the bottom. But stocks are certainly lower than a few years ago.

2a.)Bonds (they say...you know, them) that bond prices go *up* when interest rates go down. So if I feel that rates won't go up after Q2 this year.....and I feel some sort of a recession or sadly geopolitical event will prompt lower rates between now and 4 years - perhaps high quality bonds give interest and some cap gains too.

Enter something like VWINX... the board here knows better than I do but I feel correct in saying that their holdings are decent quality, venerable things - not SPACS, not Wood stocks, not Cramer's latest rant, etc. Perhaps....VWINX does better than the 4.4% CD?

Then I look at 529 funds (I have none). Heck - the "target commencement" funds for this year were DOWN 8%. Last year not great either. If that happened to me in 4 years, WITHOUT the benefit of a decade long bull market that I mopped up - my goodness I've gone backwards at the last minute..... should a 9-11, a Covid, a Bear Stearns moment or whatever happen.

I'm right now thinking.....

$125k in CDs and Treasuries.
$50k in VWINX
$25k. in PFF

Start drawing from this in 4 years. If there is a nasty market event - perhaps the VWINX and PFF money will have 2 extra years to recover - while I draw on the CD/Treasury money.

I'd love to make more money. BUT imagine "Honey DD , I don't have enough because I tried to get more and it didn't work". Ugh the thought of that hurts the gut.

Appreciate any opinions.....thank you for reading.
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Old 01-06-2023, 09:15 PM   #2
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Why do people like to make things more complicated?

A general rule of thumb is if you need the money in less than 5 years don’t invest it in equities. I generally also use short-term high credit quality instruments.
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Old 01-07-2023, 01:23 AM   #3
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Does this $200K have to be separate from your other investable assets?

What I am thinking is that perhaps you already have a bigger pot of money with a long-term AA that you like. Then, you can just get the college money each year from that bigger pot and reallocate the rest as appropriate.
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Old 01-07-2023, 02:29 AM   #4
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CDs or UST or GSE bonds or secondary market TIPs. Stocks and/or funds/ETFs are unsuitable.
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Old 01-07-2023, 03:50 AM   #5
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For 2 Years I would just use T-Bills and forget about it.
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Old 01-07-2023, 04:13 AM   #6
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Treasuries and HYSA/CD's if they beat the treasuries. A bit more work if you want complicated but safe, you could game the "open a new account" offers to boost yield on a part of it too and move it from bank to bank to get sign up bonuses.
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Old 01-07-2023, 04:38 AM   #7
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Quote:
Originally Posted by audreyh1 View Post
Why do people like to make things more complicated?

A general rule of thumb is if you need the money in less than 5 years donít invest it in equities. I generally also use short-term high credit quality instruments.
+1

I always like to defer myself to the KISS method...

Ladder individual Treasuries/CDs or even keep the next 12 - 18 months in money markets (4.3% range). You know you need the $$ at fixed dates so don't try to get fancy for an extra ._%.
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Old 01-07-2023, 06:06 AM   #8
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Quote:
Originally Posted by MichealKnight View Post
I had asked this a few years ago here and really appreciated the discussion.



Bottom line: I want to have $200k in the hopper, ready to go for college money in 4 years. Not saying $200k will cover it all- but that's what I want to know is ready. Won't need it all on day one - for argument sake let's say I need $50k a year.



Would like to..... preserve the capital hopefully close to inflation - hoping that is 3.5%.



Of course, beating 3.5% would be lovely as the excess money -frankly would go towards living expenses. My competing thoughts:



1.)You GOT the $200k. Just make 4.25-4.4 on a combo of CD and Treasuries. Big deal - avoid 3% PA tax on the Treasuries. At the end of the 4 year rainbow, I KNOW I have my $200k - and hopefully 4.4 was enough to stay a smidge ahead of inflation.





2.)I dont know the bottom. But stocks are certainly lower than a few years ago.



2a.)Bonds (they say...you know, them) that bond prices go *up* when interest rates go down. So if I feel that rates won't go up after Q2 this year.....and I feel some sort of a recession or sadly geopolitical event will prompt lower rates between now and 4 years - perhaps high quality bonds give interest and some cap gains too.



Enter something like VWINX... the board here knows better than I do but I feel correct in saying that their holdings are decent quality, venerable things - not SPACS, not Wood stocks, not Cramer's latest rant, etc. Perhaps....VWINX does better than the 4.4% CD?



Then I look at 529 funds (I have none). Heck - the "target commencement" funds for this year were DOWN 8%. Last year not great either. If that happened to me in 4 years, WITHOUT the benefit of a decade long bull market that I mopped up - my goodness I've gone backwards at the last minute..... should a 9-11, a Covid, a Bear Stearns moment or whatever happen.



I'm right now thinking.....



$125k in CDs and Treasuries.

$50k in VWINX

$25k. in PFF



Start drawing from this in 4 years. If there is a nasty market event - perhaps the VWINX and PFF money will have 2 extra years to recover - while I draw on the CD/Treasury money.



I'd love to make more money. BUT imagine "Honey DD , I don't have enough because I tried to get more and it didn't work". Ugh the thought of that hurts the gut.



Appreciate any opinions.....thank you for reading.


I am in the same boat. Avoided 529s for many years. Recently started putting money in the plan since 2021 and due to drop in equities I am in red.

Since you donít need $100K for another 6-7 years, putting that amount in equities makes sense. Remaining $100 K can be CDís and / or treasuries providing guaranteed returns.
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Old 01-07-2023, 06:19 AM   #9
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Quote:
Originally Posted by audreyh1 View Post
Why do people like to make things more complicated?

A general rule of thumb is if you need the money in less than 5 years donít invest it in equities. I generally also use short-term high credit quality instruments.
I agree with this. It's 200k, it's your kid's college money. Just put in in something safe and let it earn interest. Chase every last dollar with your other money if you like.
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Old 01-07-2023, 06:31 AM   #10
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Thanks

Appreciate all the replies so far. As to why get even a bit fancy over guaranteed returns? Well, part of my reason for wanting the experienced voices here is to perhaps validate to myself - to stay conservative with funds earmarked for this purpose.

Why think about doing more? Simple - one can call it greed, ambition, desire for more money, etc. I feel it's a reasonable question for to ask myself: If things like bonds and preferred stocks go *up* - (theoretically) when interest rates decline - then is it possible for a VWINX or PFF to enjoy more than the 4.3% safe money? And is it a prudent investment, not the latest SPAC thingy.

NW asked a question - the $200k is part of my overall nest egg, a nest egg that I've always planned will be reduced for college expenses - -and after that is over, I plan to sell my big house, get a normal house, generate about $700k extra cash and use that towards more living expenses in future for when,(hopefully) kids are done with schooling and doing something good with themselves.
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Old 01-07-2023, 09:52 AM   #11
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Originally Posted by MichealKnight View Post
and after that is over, I plan to sell my big house, get a normal house, generate about $700k extra cash and use that towards more living expenses in future for when,(hopefully) kids are done with schooling and doing something good with themselves.
My suggestion: Stay simple. KISS. When kid heads off to college (in 4 years right?), sell the house then. Don't wait until they graduate college. I came home the first summer from college. That was it. I would put away his/her freshman year 2 years ahead. So when they are a junior in HS I would fund their first year of college (treasury or CD). During their senior year in HS I would put away for their sophmore yr of college (treasury or CD, rinse and repaet for 4 years. Selling the "BIG" house during their freshman/sophmore year will give you a nice bump.
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Old 01-09-2023, 02:19 AM   #12
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I think what you have proposed is okay, though I would be more risky and go more like 50-50. Keeping roughly half of your savings safe like with CDs, the other half in a broad index stock fund or some combination of stocks and funds that are at more at risk.

Even though you want safety, 4 years of college will mean spending some of your savings 6-7-8 years from now, even longer if graduate school is pursued. So it would be prudent to try to get some growth and/or better inflation protection IMO.
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Old 01-09-2023, 07:09 AM   #13
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There aren't any wrong answers, but there might be some uncomfortable ones!

Whatever you choose, I'd make sure you can stick with the plan for the entire time. That means CDs, Cash, Stocks, whatever. It maybe tempting for you to change your allocation due to your feelings over the next few years - please don't! It'll likely be the wrong choice at the wrong time.

It sounds like you have a 4-7 year time frame for the money. I personally would start with most of it in a balanced fund, then slide some every year into CDs that are ready to mature when you need them. This is more aggressive than might typically be recommended, but I tend to lean on the aggressive side. Over time I think it gives better results, but with a bumpier ride. As long as you're comfortable knowing you will likely make a little more money but may instead absolutely lose some money doing this, that would be my personal choice.

For me, it's like my emergency fund - I don't have one. I have my stock investments. When I first started, I ran the risk of losing some money. But as time goes on and I do this longer and longer, I'm waaay ahead. But lots of people aren't comfortable with that, and that's ok. Do what you're comfortable with, AND what you know you can stick with.
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Old 01-09-2023, 10:41 AM   #14
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Not the answer to your question, but PA has a state tax deduction for 529 contributions of (currently) $32K. Be sure to open a 529 account when your child starts college. You can deposit whatever you need each semester (there's a stable value option with no loss of principal) and withdraw it immediately, and still be eligible for the tax break.
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Old 01-10-2023, 08:21 AM   #15
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I think you need about 170K now, for getting 200K in 4 years time.
I would purchase an EFT/Fund of Triple A corporate bonds with 3-5 years maturity.



Why not ask the College, I pay you now, and you educate my kid in 4 years time!
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Old 01-10-2023, 08:28 AM   #16
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Old 01-10-2023, 11:20 AM   #17
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+1

I always like to defer myself to the KISS method...

Ladder individual Treasuries/CDs or even keep the next 12 - 18 months in money markets (4.3% range). You know you need the $$ at fixed dates so don't try to get fancy for an extra ._%.
+2
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Old 02-01-2023, 10:14 PM   #18
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Why would you spend that much money on school? Not a good idea to go into debt like that, you will be paying it off the rest of your life.

Lots of industries are moving away from hard degree requirements, in favor of stronger life skills, and people who fit the "type" of what the role is needing for the given job. It is even a hiring term "NTB = Non Traditional Background".

Companies are finally realizing that a slew of workers can be hidden gems who don't fit the traditional mold. Myself included.
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Old 02-08-2023, 10:59 PM   #19
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my 2 cents.
Buy New issue CDs, I just looked on Fidelity website.
3 year paying 4.80% more than Treasury or AAA corp bonds. Do not be silly with your children's education. If you want to take a little risk buy a small amount of Google.
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Old 02-09-2023, 09:11 AM   #20
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If it were me, I would place any monies needed within 5 years or so in either Treasuries/CDs or high yielding savings accounts.
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