Where to put $400K To Be Used For College Expenses in 5 years?

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MrCheapo
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Where to put $400K To Be Used For College Expenses in 5 years?

Post by MrCheapo »

Hi,

So we sold a home and have $400K that we'll use for our kids tuition expenses in 5 years. We don't have 529 funds for them (long story).

So how should we invest it for the next 5 years so that it at least keeps up with inflation with minimal risk of losing money.

Thanks
JBTX
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Re: Where to put $400K To Be Used For College Expenses in 5 years?

Post by JBTX »

If you think you will likely need all that money, I'd invest conservatively. Somewhere between 0-25% stocks. You could throw $20k to $25k into ibonds each year.
annu
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Re: Where to put $400K To Be Used For College Expenses in 5 years?

Post by annu »

Some in I Bonds might be good option....especially with interest rates getting to 3%+ pretty....
ivgrivchuck
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Re: Where to put $400K To Be Used For College Expenses in 5 years?

Post by ivgrivchuck »

MrCheapo wrote: Sat Apr 17, 2021 9:47 pm Hi,

So we sold a home and have $400K that we'll use for our kids tuition expenses in 5 years. We don't have 529 funds for them (long story).

So how should we invest it for the next 5 years so that it at least keeps up with inflation with minimal risk of losing money.

Thanks
In your shoes I would consider something like following:

- 15% into VTI
- 15% into VXUS
- 50% into MYGAs
- 20% into I-bonds / savings account
25% VTI | 25% VXUS | 12.5% AVUV | 10% AVDV | 2.5% VWO | 25% BND/SCHR/SCHP
sidwin516
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Re: Where to put $400K To Be Used For College Expenses in 5 years?

Post by sidwin516 »

why not open 529 now? better late than never.
asdfgf
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Re: Where to put $400K To Be Used For College Expenses in 5 years?

Post by asdfgf »

sidwin516 wrote: Sat Apr 17, 2021 10:29 pm why not open 529 now? better late than never.
Yeah, this.

You can at least get 150K in one of them right now.

I think you can put the whole 400K in (may need to be more than one) also but part of it would count against your lifetime exemption (not as sure about this strategy).

There are a lot of good ones with various investment options, and you get tax-free gains.
ivgrivchuck
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Re: Where to put $400K To Be Used For College Expenses in 5 years?

Post by ivgrivchuck »

sidwin516 wrote: Sat Apr 17, 2021 10:29 pm why not open 529 now? better late than never.
Upside is smaller (only very few years of tax free growth, it's not worth of much), but downsides are the same (money is earmarked for education, and there are penalties to get it out for other purposes).

I wouldn't do it in this case, of course it's not a grave mistake or anything like that, but I'd consider it a questionable move...
25% VTI | 25% VXUS | 12.5% AVUV | 10% AVDV | 2.5% VWO | 25% BND/SCHR/SCHP
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CyclingDuo
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Re: Where to put $400K To Be Used For College Expenses in 5 years?

Post by CyclingDuo »

MrCheapo wrote: Sat Apr 17, 2021 9:47 pmSo we sold a home and have $400K that we'll use for our kids tuition expenses in 5 years. We don't have 529 funds for them (long story).

So how should we invest it for the next 5 years so that it at least keeps up with inflation with minimal risk of losing money.
Whether your kids start college in year 5 from now, or year 6, the bills come due every semester (not all at once as there will be 8 separate undergraduate semester bills spread out over 4 years) and the time horizon should be viewed on each individual year throughout the schooling.

So you really are investing the amount(s) for:

5-6 years from now Freshman year
6-7 years from now Sophomore year
7-8 years from now Junior year
8-9 years from now Senior year
9 years+ Graduate School years

If past precedent holds true for tuition costs going forward, they will rise at a clip that usually trumps inflation. I would structure the investments that includes a mix of the shortest term (freshman year) to the longest term (senior year and potential graduate school years).

We were 100% equities for the college funding right through the dot.com bust, and right up to and through the entire Financial Crisis when things dropped as well as the 2015-16 dip(s). Kept the allocation 100% equities entirely through their college years as well since it was working quite well and we didn't feel the need to change anything (plus we were both employed, so had cash flow from income to utilize if needed). First years of college for our children were 2011 for one and 2013 for the other. We didn't need it all in year one, so things climbed right back well enough from the Financial Crisis to cover all the undergraduate and graduate years with a nice chunk leftover. The funding tuition period really covered (for us) the years 2011 - 2019 which included undergraduate and graduate schooling.

You also have the cash flow option from your salaried income to utilize. I would address the funding when choosing your asset allocation to include things like your household income, what the kids can contribute via jobs in high school and college (summer jobs as well), the portfolio set aside for the college funding, any potential talent or academic scholarships, etc...to not be too overly conservative with your allocation since the senior year is at least 8-9 years away.

How many kids do you have, what years are each entering college, and are they headed for a state university, or a private school? Obviously which school they are going to is far off from being determined, but worth contemplating now and discussing with the children to set expectations.

CyclingDuo
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Wiggums
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Re: Where to put $400K To Be Used For College Expenses in 5 years?

Post by Wiggums »

We are at 70/30 and we leave the money invested until it is needed to pay tuition, housing and books. CyclingDuo makes a great point about the money needed one semester at a time. Yes, the market can dip, so you will need to decide if this is a problem for you.
"I started with nothing and I still have most of it left."
philled82
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Re: Where to put $400K To Be Used For College Expenses in 5 years?

Post by philled82 »

You can also mimic the aged based allocations from a respected 529 plan (ie. UTAH).

See these links for example:
https://my529.org/start/investment-info ... d-options/

https://my529.org/age-based-aggressive-global/
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vineviz
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Re: Where to put $400K To Be Used For College Expenses in 5 years?

Post by vineviz »

I second the recommendation to revisit the 529 decision, sine 5-10 years of tax free growth is nothing to sneeze at.

In terms of invest allocation I’d be comfortable with a mix of stocks and US Treasuries.

50% Vanguard Total World Stock ETF (VT)
50% iShares iBonds Dec 2030 Term Trsry ETF (IBTK)
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Topic Author
MrCheapo
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Re: Where to put $400K To Be Used For College Expenses in 5 years?

Post by MrCheapo »

vineviz wrote: Sun Apr 18, 2021 9:17 am I second the recommendation to revisit the 529 decision, sine 5-10 years of tax free growth is nothing to sneeze at.

In terms of invest allocation I’d be comfortable with a mix of stocks and US Treasuries.

50% Vanguard Total World Stock ETF (VT)
50% iShares iBonds Dec 2030 Term Trsry ETF (IBTK)
Any other suggestions on asset allocation? 50/50 seems a bit risky no? I want that money there for sure when they go to college.
Topic Author
MrCheapo
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Re: Where to put $400K To Be Used For College Expenses in 5 years?

Post by MrCheapo »

CyclingDuo wrote: Sun Apr 18, 2021 8:18 am
MrCheapo wrote: Sat Apr 17, 2021 9:47 pmSo we sold a home and have $400K that we'll use for our kids tuition expenses in 5 years. We don't have 529 funds for them (long story).

So how should we invest it for the next 5 years so that it at least keeps up with inflation with minimal risk of losing money.
We were 100% equities for the college funding right through the dot.com bust, and right up to and through the entire Financial Crisis when things dropped as well as the 2015-16 dip(s). Kept the allocation 100% equities entirely through their college years as well since it was working quite well and we didn't feel the need to change anything (plus we were both employed, so had cash flow from income to utilize if needed). First years of college for our children were 2011 for one and 2013 for the other. We didn't need it all in year one, so things climbed right back well enough from the Financial Crisis to cover all the undergraduate and graduate years with a nice chunk leftover. The funding tuition period really covered (for us) the years 2011 - 2019 which included undergraduate and graduate schooling.
We have two kids going through college and allocated $200K each. Certainly one will be in college whilst we are still working so we could afford her $200K/4 = $50K from our salaries if needed.
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vineviz
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Re: Where to put $400K To Be Used For College Expenses in 5 years?

Post by vineviz »

MrCheapo wrote: Sun Apr 18, 2021 10:43 am
vineviz wrote: Sun Apr 18, 2021 9:17 am I second the recommendation to revisit the 529 decision, sine 5-10 years of tax free growth is nothing to sneeze at.

In terms of invest allocation I’d be comfortable with a mix of stocks and US Treasuries.

50% Vanguard Total World Stock ETF (VT)
50% iShares iBonds Dec 2030 Term Trsry ETF (IBTK)
Any other suggestions on asset allocation? 50/50 seems a bit risky no? I want that money there for sure when they go to college.
You could reduce the uncertainty a bit by reducing the stock allocation to 25%. That’s roughly the minimum variance point, so probably not very helpful to go much lower. Example:

25% Vanguard Total World Stock ETF (VT)
25% iShares iBonds Dec 2026 Term Corp ETF (IBDR)
25% Invesco BulletShares 2028 HY Corp Bd ETF (BSJS)
25% iShares iBonds Dec 2030 Term Trsry ETF (IBTK)
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Iorek
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Re: Where to put $400K To Be Used For College Expenses in 5 years?

Post by Iorek »

I would do 60-70% in bonds. Maybe just put in Wellesley.
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corn18
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Re: Where to put $400K To Be Used For College Expenses in 5 years?

Post by corn18 »

I was in a similar boat when I had a banner bonus year. I had the college money sitting in a money market account earning 1% at the time waiting for the kids to start school. Then I did the math and we could cash flow the expenses so we just put all the college money in our 60/40 portfolio. That was in 2012.

As for 529's, I would not do it. Our oldest daughter was all set to go to college. Got into the one she wanted (equestrian program) and was a month from starting when we kicked her out of the house. She got sideways with drugs and was not ready for college. Glad we didn't have a 529 for her.
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sidwin516
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Re: Where to put $400K To Be Used For College Expenses in 5 years?

Post by sidwin516 »

ivgrivchuck wrote: Sun Apr 18, 2021 1:26 am
sidwin516 wrote: Sat Apr 17, 2021 10:29 pm why not open 529 now? better late than never.
Upside is smaller (only very few years of tax free growth, it's not worth of much), but downsides are the same (money is earmarked for education, and there are penalties to get it out for other purposes).

I wouldn't do it in this case, of course it's not a grave mistake or anything like that, but I'd consider it a questionable move...
the penalty is only on the gains which is 10% of the gains.. so if there isn't much u don't have to worry about it. My state gives me a state tax deduction for the first $4800. They also do a 2% min match. in addition, if you kids won't use it they can have it for their kids later one. in the 5 years to come you might decide to pay for more of it yourself or they can get scholarships etc. I put 600k for my 3 kids. I plan on using it as a vessel to help them get started.
sidwin516
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Re: Where to put $400K To Be Used For College Expenses in 5 years?

Post by sidwin516 »

asdfgf wrote: Sat Apr 17, 2021 10:58 pm
sidwin516 wrote: Sat Apr 17, 2021 10:29 pm why not open 529 now? better late than never.
Yeah, this.

You can at least get 150K in one of them right now.

I think you can put the whole 400K in (may need to be more than one) also but part of it would count against your lifetime exemption (not as sure about this strategy).

There are a lot of good ones with various investment options, and you get tax-free gains.
he can actually do 75k per kid easily with the gift form. From him and then from his wife. so that would be more than enough to cover the entire 400k. if he lives in a state like Ga or La that gives u also a tax credit for contributing and La 2% min matching on top....
DB2
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Re: Where to put $400K To Be Used For College Expenses in 5 years?

Post by DB2 »

If you want to go for an all-in-one, diversified, and stay rather conservative (30/70), there is the Vanguard Target Retirement Income Fund (VTINX). It does have some TIPs in it as well which should help a bit if inflation runs higher over the next five years compared to prior years. If it doesn't, the TIPs won't hurt you.

https://investor.vanguard.com/mutual-fu ... olio/vtinx

Another option is to split this and Wellesley if you want to bet on some Value.
Last edited by DB2 on Sun Apr 18, 2021 4:23 pm, edited 1 time in total.
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Re: Where to put $400K To Be Used For College Expenses in 5 years?

Post by Toons »

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Re: Where to put $400K To Be Used For College Expenses in 5 years?

Post by Monsterflockster »

MrCheapo wrote: Sat Apr 17, 2021 9:47 pm Hi,

So we sold a home and have $400K that we'll use for our kids tuition expenses in 5 years. We don't have 529 funds for them (long story).

So how should we invest it for the next 5 years so that it at least keeps up with inflation with minimal risk of losing money.

Thanks
I guess if you invest it you could always go to community college if the market tanks.

What do you want to do? You may be better off just buying a house and going that route anyways.
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anon_investor
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Re: Where to put $400K To Be Used For College Expenses in 5 years?

Post by anon_investor »

vineviz wrote: Sun Apr 18, 2021 9:17 am I second the recommendation to revisit the 529 decision, sine 5-10 years of tax free growth is nothing to sneeze at.

In terms of invest allocation I’d be comfortable with a mix of stocks and US Treasuries.

50% Vanguard Total World Stock ETF (VT)
50% iShares iBonds Dec 2030 Term Trsry ETF (IBTK)
Why the treasury ETF instead of actual treasuries?
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vineviz
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Re: Where to put $400K To Be Used For College Expenses in 5 years?

Post by vineviz »

anon_investor wrote: Sun Apr 18, 2021 5:09 pm
vineviz wrote: Sun Apr 18, 2021 9:17 am I second the recommendation to revisit the 529 decision, sine 5-10 years of tax free growth is nothing to sneeze at.

In terms of invest allocation I’d be comfortable with a mix of stocks and US Treasuries.

50% Vanguard Total World Stock ETF (VT)
50% iShares iBonds Dec 2030 Term Trsry ETF (IBTK)
Why the treasury ETF instead of actual treasuries?
Good question. Mostly just a reflexive reaction to not knowing exactly the dates of the expenses, but buying a few TIPS or nominal Treasuries would be a good strategy too.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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anon_investor
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Re: Where to put $400K To Be Used For College Expenses in 5 years?

Post by anon_investor »

vineviz wrote: Sun Apr 18, 2021 5:36 pm
anon_investor wrote: Sun Apr 18, 2021 5:09 pm
vineviz wrote: Sun Apr 18, 2021 9:17 am I second the recommendation to revisit the 529 decision, sine 5-10 years of tax free growth is nothing to sneeze at.

In terms of invest allocation I’d be comfortable with a mix of stocks and US Treasuries.

50% Vanguard Total World Stock ETF (VT)
50% iShares iBonds Dec 2030 Term Trsry ETF (IBTK)
Why the treasury ETF instead of actual treasuries?
Good question. Mostly just a reflexive reaction to not knowing exactly the dates of the expenses, but buying a few TIPS or nominal Treasuries would be a good strategy too.
Do you like that new iShares iBonds ETF product? I did not know they had treasury ones.
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Re: Where to put $400K To Be Used For College Expenses in 5 years?

Post by wolf359 »

Virginia has a 529 program called "Tuition Track" which matches the rate of inflation of college tuitions (based on average tuition growth at Virginia's public colleges.) While you may not be a Virginia resident, nor may you be interested in Virginia state schools, there may be a similar program in your state, or you may even use Virginia's program to have a proxy for an inflation rate based on tuition rather than the general CPI.

It might be an option to consider for parking college funds.
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Re: Where to put $400K To Be Used For College Expenses in 5 years?

Post by J295 »

High yield savings accounts. Perhaps CDs if rates increase.

You can seek value increases through other assets.
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Re: Where to put $400K To Be Used For College Expenses in 5 years?

Post by vineviz »

anon_investor wrote: Sun Apr 18, 2021 6:13 pm Do you like that new iShares iBonds ETF product? I did not know they had treasury ones.
I do like them, for the right circumstance. They're a good alternative for investors who have a a definite investment horizon and, for whatever reason, prefer not to deal with individual Treasury bonds.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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