Please read below and give him your thoughts…
My daughter is about to head off for her first semester in college. About 16 years ago, my wife and I started her 529 fund and contributed $800/mo. during this time. We stopped adding to it about a year ago as I semi-retired from the corporate world to co-found my own business. We kept the money in an S&P 500 fund through the years and the balance has swelled to over $317K.
In February, I got a little nervous about where the market might go and given I was going to have to begin tapping the account in about six months, I moved the money into a CD fund. Unfortunately, I probably cost myself another 20K in gains but it could just have easily gone the other way and I felt like my judgment was sound, even if the result wasn’t. This CD fund only delivers about .3% per year.
My daughter thinks she wants to go to graduate school so we are planning to fund six years of college. I am assuming an average of about $50K per year so the current balance should cover those expenses. Part of me says, we have the funds we need so why risk being more aggressive with the fund but another part of me would like to be a bit more aggressive and let the fund grow a little more. If there is any left over, that becomes a start on a fund for my future grandchildren.
I have several options. One would be to go back to an Index fund but I don’t know if I need to be that aggressive. Two other ideas that seem to make more sense are a fund that is designed for the 18+ age range and a similar fund that is slightly more aggressive for students also in that same age range. The less aggressive age based fund has averaged about 3% per year since inception and the more aggressive age based fund has averaged 5%. These two funds have the following mix:
Age Based 18+ Years Old
- Equity Index 9.45%
- International Equity Index 3.6%
- Emerging Market Equity Index .9%
- Real Estate Securities Fund 1.05%
- Bond Index Fund 17.5%
- Inflation-Linked Bond Fund 5.25%
- High-Yield Bond Fund 5.25%
- Short-Term Bond Fund 40.0%
- Money Market 10.0%
- Institutional Floating Rate Fund 3.5%
- Templeton Global Bond 3.5%
Aggressive Age Based 18+ Years Old
- Equity Index 18.9%
- International Equity Index 7.2%
- Emerging Market Equity Index 1.8%
- Real Estate Securities Fund 2.1%
- Bond Index Fund 27.5%
- Inflation-Linked Bond Fund 8.25%
- High-Yield Bond Fund 8.25%
- Short-Term Bond Fund 15.0%
- Money Market 0
- Institutional Floating Rate Fund 5.5%
- Templeton Global Bond 5.5%
Both of these are clearly better alternatives to the .3% I am getting from the CD fund but they also introduce more risk which, one could argue, I don’t really need to take. I have many other options with various trade-offs of performance and risk but given that we are now using these funds, these seem like the ones that make the best sense to consider at this time.
I would appreciate thoughts on how one might invest these funds going forward, given my situation.