529 Plans - Is a monthly contribution or lump sum better?

[Dash man]

We have six 529 college savings plans. Three for grandkids ages 7, 6 and 6. All three have around $100k each in their 529 accounts. We also have two nieces ages 12, 3 months, and a nephew age 4. Their accounts are about $25k, $5.5k and $18k. We currently contribute $500/month to the grandkids accounts and $250/month to the others.
We are considering, since our finances are doing well, contributing a lump sum to each account and stop the monthly contributions. Our goal for the grandkids is to have a nest egg of $300k and about $100k for the others. We know we need to give the oldest a nice bump to get there with only six years to go.
Is giving a lump sum or keeping the monthly contributions a better path. We can use some cash from our money market account or use a mature T-bill or CD, so no tax will be incurred funding the accounts in a lump sum.
Any thoughts on this?

 

[rk911]

What are you investing in? If equities then dollar-cost-averaging is key. Keep the monthly contributions.

 

[Dash man]

What are you investing in? If equities then dollar-cost-averaging is key. Keep the monthly contributions.

All equities. Mostly total US market with some international mixed in.
I’ve read a number of articles over the years showing dollar cost averaging does not perform better over long periods of time. Averaging in is great for folks that don’t have large sums or have market jitters. Our investments have done well enough that putting in lump sums will not affect our financial stability. That’s why we’re considering this.

 

[SecondCor521]

Is giving a lump sum or keeping the monthly contributions a better path.

Define "better path".

Investments, by definition, should go up over time. By that definition, a lump sum is better because on average the same dollar amount invested earlier will be purchased at a lower price and therefore the result will be larger.

But investments fluctuate, and over the short term they go down sometimes, as you well know. So if it makes anyone nervous or if there is doubt about the ability to reach the target amount or if the target amount is in doubt or if the ability to cover the difference out of cash flow when they're in college is in doubt, then monthly investments can provide some salve to those concerns.

What I might do, in your shoes, is to take ($target - $current), divide that by 1.0x%^n where x% is your expected rate of return and n is the number of years to target to see what that lump sum would be. Personally I might do half or two thirds of that amount now, then repeat the calculations every so often and lump sum in every so often. Edge up on the amount from below, as it were.

I guess that approach reflects my preference for being a bit underfunded in college accounts. My three kids are done with college now and I've overfunded by a bit. Which is OK and actually was my goal, and now I'm starting the 529->Roth rollovers for them with the leftovers. But that is only $35K per kid so I wouldn't want to overfund by more than that. But my kids also don't plan to have kids and have no plans for grad school, and my nephews and niece are all set for college too, so there's no other outlets for the excess. Thankfully I'm under the $35K per kid amount currently so it worked out for me.

 

[Dash man]

Thank you! We do have others in the family who could benefit if needed. The older niece and nephew lost their father, so we chose to help them. The younger niece, born a little over two months ago has great parents that will never have much money unless their career paths change. Parents are broke. Our target is a state school near home. The grandkids were are trying to fund Penn State tuition and other costs as projected.

 

[rk911]

All equities. Mostly total US market with some international mixed in.
I’ve read a number of articles over the years showing dollar cost averaging does not perform better over long periods of time. Averaging in is great for folks that don’t have large sums or have market jitters. Our investments have done well enough that putting in lump sums will not affect our financial stability. That’s why we’re considering this.

We've built a net worth in the upper mid-7 figures thru dollar cost averaging.

 

[Dash man]

We've built a net worth in the upper mid-7 figures thru dollar cost averaging.

That’s great for you! Congratulations!

 

[VanWinkle]

Knowing the future will answer your question...... wish I could help on that.

 

[rk911]

That’s great for you! Congratulations!

Didn't mean to sound boastful. As inelegant as it was, my point was slow and steadywins the race. Remember those articles in the old Money Magazine...."These stocks will return double-digit returns this year!!". We ignored the temptation and just plodded along with boring, no-load mutual funds, month after month, year after year always with a buy-and-hold strategy.

 

[Dash man]

We did a combination of dollar cost averaging (paycheck deduction into 401k) and putting lump sums from bonuses and stock options all in at once.
I didn’t think you were being boastful, but felt my response might have. Many people in this forum have done very well. I was sincere in my congratulations.

 

[Kork13]

In general, whether 529 or retirement or taxable ... The best time to add money to your investments is whenever you have it available & ready for investment. If you've got a chunk of cash sitting around doing nothing that you want to get invested, then drop it in as a lump sum. If all of your cash is currently serving other purposes, but you're still receiving a periodic income (from a job, pension, rentals, royalties, whatever) that you'd like to invest with, DCA at whatever interval you receive that income. If you're paid bi-weekly, DCA bi-weekly. If it's quarterly royalties, DCA quarterly.

BL: Focus on time in the market ... not timing the market.