Least amount of Equities for final years of 529 College Savings?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
User avatar
Topic Author
windaar
Posts: 1674
Joined: Thu Mar 08, 2012 6:31 am

Least amount of Equities for final years of 529 College Savings?

Post by windaar »

With only a few years left before kids go to college, and 250K+ in each 529 account, I transitioned to more conservative allocations. Accounts currently have 30% Equities and 70% Guaranteed with 1.2% interest. With a close horizon I'm concerned about stock volatility, but also need to protect against inflation as best I can. I'm wondering what is recommended for the equity side since I'm more interested in protecting the funds rather than growing them. Thanks for any ideas.
Nobody knows nothing.
Grt2bOutdoors
Posts: 25625
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Least amount of Equities for final years of 529 College Savings?

Post by Grt2bOutdoors »

Anywhere from 10-30%. If you look at any of the state sponsored direct 529 plans - Vanguard, My529, NYS529 Direct - you'll see that most age based allocations either dial it down to 10% equity at age 18+ or right down to zero and the age 17 bucket usually doesn't hold more than 20% equity.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
User avatar
KingRiggs
Posts: 1154
Joined: Wed Dec 12, 2018 11:19 am
Location: Indiana

Re: Least amount of Equities for final years of 529 College Savings?

Post by KingRiggs »

All depends on what you’d do if stocks took a 40% hit…

If you’d just cash flow any shortfall, then you’re probably fine remaining aggressive.

If your kids would have to alter their college aspirations because it was no longer affordable, you should be more conservative, as you’ve already got tuition covered at most schools.

Having “won the game”, you can do whatever your tolerance for risk dictates.

When I “hit my number” in the kids’ 529s, the thought of losing 40-50% of my hard-earned cash just before they needed it made me sick. Switched to very conservative portfolio a few years before money was needed.

As they were nearing the end of their education needs, I found that I still had a decent balance for each. Switched allocation back to 100% stocks, as now the money will grow for grad school or grandkids.
Advice = noun | Advise = verb | | Roth, not ROTH | | "Remember, there's always money in the banana stand." - George Bluth, Sr.
cdc
Posts: 168
Joined: Fri Jun 02, 2017 1:05 pm

Re: Least amount of Equities for final years of 529 College Savings?

Post by cdc »

The fund I’m in is a target fund that glides equity from 100% 15 years before college to 20% when your kid starts college. That sounds about right to me.
User avatar
White Coat Investor
Posts: 17413
Joined: Fri Mar 02, 2007 8:11 pm
Location: Greatest Snow On Earth

Re: Least amount of Equities for final years of 529 College Savings?

Post by White Coat Investor »

windaar wrote: Sun Sep 26, 2021 8:47 pm With only a few years left before kids go to college, and 250K+ in each 529 account, I transitioned to more conservative allocations. Accounts currently have 30% Equities and 70% Guaranteed with 1.2% interest. With a close horizon I'm concerned about stock volatility, but also need to protect against inflation as best I can. I'm wondering what is recommended for the equity side since I'm more interested in protecting the funds rather than growing them. Thanks for any ideas.
What are the consequences to you personally of a downturn? Can you cash flow college for a year or two and save the 529 for later years or grad school or grand kids? If so, I would argue you still have significant capacity to take risk.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
BernardShakey
Posts: 1147
Joined: Tue Jun 25, 2019 10:52 pm

Re: Least amount of Equities for final years of 529 College Savings?

Post by BernardShakey »

windaar wrote: Sun Sep 26, 2021 8:47 pm With only a few years left before kids go to college, and 250K+ in each 529 account, I transitioned to more conservative allocations. Accounts currently have 30% Equities and 70% Guaranteed with 1.2% interest. With a close horizon I'm concerned about stock volatility, but also need to protect against inflation as best I can. I'm wondering what is recommended for the equity side since I'm more interested in protecting the funds rather than growing them. Thanks for any ideas.
Mine are actually in school (one in last year of undergrad and one in grad school) and I'm at about 25% equities in their accounts.
An important key to investing is having a well-calibrated sense of your future regret.
User avatar
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: Least amount of Equities for final years of 529 College Savings?

Post by willthrill81 »

I would never recommend fewer than 20% in stocks. Historically, 20/80 has been no more volatile than 100% bonds.
The Sensible Steward
fourwheelcycle
Posts: 1968
Joined: Sun May 25, 2014 5:55 pm

Re: Least amount of Equities for final years of 529 College Savings?

Post by fourwheelcycle »

If you have fully funded your retirement needs (for your age and employment horizon), and you have enough liquid non-retirement resources to cash flow any unfunded college expenses occasioned by a drop in the value of your 529 equities, you can stick with your 30% equity allocation (or go higher) all the way through college.

If not, I would consider four years as a reasonably safe number for stock market recovery after a significant drop like 2008. So, I would create a spreadsheet of cash flow needs by college semester - eight semesters for each child. I would move each semester's funding from equity to bonds (or Guaranteed) four years before the billing due date for each semester.
User avatar
SmileyFace
Posts: 9184
Joined: Wed Feb 19, 2014 9:11 am

Re: Least amount of Equities for final years of 529 College Savings?

Post by SmileyFace »

0% equitied is acceptable to hold the funds safe.
Pdxnative
Posts: 981
Joined: Sat Nov 07, 2015 1:17 pm

Re: Least amount of Equities for final years of 529 College Savings?

Post by Pdxnative »

There’s no virtue—and minimal upside—in taking more risk than you’re comfortable with. So if, as you’ve stated, preserving the funds is the priority, then it’s fine to keep gliding down so you’re at 90-100% in the guaranteed fund when entering college, 100% throughout college. Nothing wrong with going to 0-10% right now in equities if the kids are in HS.

If you’re worried about missing out on equity gains, just increase your equity allocation in retirement fund by a bit during the college years. The challenge with an equity allocation in the college fund during college is that you’re spending down the fund by 25%/year. So if equities are down when the tuition bill is due, do you sell them to maintain the appropriate allocation? If not, you end up with your overall allocation getting riskier as your time horizon shrinks.
User avatar
Harry Livermore
Posts: 1937
Joined: Thu Apr 04, 2019 5:32 am

Re: Least amount of Equities for final years of 529 College Savings?

Post by Harry Livermore »

White Coat Investor wrote: Sun Sep 26, 2021 9:44 pm
windaar wrote: Sun Sep 26, 2021 8:47 pm With only a few years left before kids go to college, and 250K+ in each 529 account, I transitioned to more conservative allocations. Accounts currently have 30% Equities and 70% Guaranteed with 1.2% interest. With a close horizon I'm concerned about stock volatility, but also need to protect against inflation as best I can. I'm wondering what is recommended for the equity side since I'm more interested in protecting the funds rather than growing them. Thanks for any ideas.
What are the consequences to you personally of a downturn? Can you cash flow college for a year or two and save the 529 for later years or grad school or grand kids? If so, I would argue you still have significant capacity to take risk.
I think WCI gets to the crux of it here.
In our case, we do/ did not have as much in our 529s as you, nor could we afford to lose much or any of it, so I throttled back to 0% equities before each kid was a freshman in high school (or in the case of our now-sophomore, left the balanced fund alone until after the 2020 roller coaster seemed through)
Cheers
User avatar
Michael Patrick
Posts: 350
Joined: Wed Dec 19, 2018 9:25 am
Location: Madison, WI

Re: Least amount of Equities for final years of 529 College Savings?

Post by Michael Patrick »

I was pretty aggressive in the years leading up to when my daughter started college, and the gamble paid off quite handsomely.

Shortly before she started college the market started to gyrate pretty crazily. I moved the money in a couple of steps from 100% equities to a fund that is guaranteed to pay between 1% and 3%, because I wanted to be able to sleep at night.
Post Reply