Tom’s Advice on How Aggressive Our 529 College Plans Should Be.
Transcript:
Tom Vaughan: College 529 Savings Plans. This is kind of interesting. One of the ways that I look at this is that if you look at the 2000 downturn, if you look at the 2008 downturn, in both cases, it took five years for the market to come back. So if you kind of just do some simple math there, if I had a 13 year old, okay, they’re five years away from graduating, and going off to college.
And so what I want to be careful of is what happens if today that 13 year olds money gets involved in another big downturn like the 2000 2008 downturn? Well, it’s going to take five years to recover. So at 13 or less, I can be 100% stock, or less. Now, generally speaking, one of the things that drives how much risk somebody is taking has to do with the risk tolerance for the person who owns the 529. But let’s just say for example, that person has a fairly high risk, 13 year old they’re at, they’re at 100% stock, and they’ve been there all the way through from two to 13.
Well, once I get there, now I’m ending getting into this five year period. So when they’re 14, I’m going to move it down to 80%. Because on average and 80% portfolio would have taken four years to recover. And when they’re, you know, 15, I’m going to move down to 60%, etc. By the time they get close to college, I’m going to get it down to probably 20%. I don’t go all the way to zero, I don’t go down to 10% because there still is four years worth of college that needs to be paid for. And so I do want to see some growth out of that. So I really, you know, starts at about five years before they’re going to go to college. That’s when we really start to you know, maneuver the risk of the portfolio. Prior to that we can be more aggressive unless somebody doesn’t want to be which is fine also