Home Forums Members Forum 529 Account Investment Elections Advice

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  • Bradley Tumas
    Participant
    Post count: 11

    I started a 529 account for my son and it gives a list of investment elections to choose from. I did a little bit of research and selected 4 investments and put 25% in each. I am able to diversify my selections and choose up to 10 different but was unsure what to select. I’ve had an 8% return over the past month but wanted to see if I could optimize my selections to improve the return. I attached the three pages of available selections. Thanks!

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    Sean Hyman
    Keymaster
    Post count: 7064

    You’ve got massive overlap in those selections. So, not as much true diversification as you might think. But the more important point is that the market is massively overvalued right now and when the bottom falls out, it won’t matter how diversified you are…it will take those stocks down notably as well.

    No one knows the day or hour when that happens. But we know that the risks are now as high as the crash of 2000. The last two bear markets have retreated 40-60%. Tech stocks/NASDAQ, even more.

    So, whenever you’re willing to, you might consider holding the money in the money market selection within the account. Let the market fall a ton for a good while and then invest in some of the selections like the S&P 500 fund after that. 500 companies is more than enough diversification. And you can allocate the cash to it like I mention in my last newsletter, in the Members Area tab on the site. https://logicalinvestor.net/members-only/monthly-members-downloads/the-logical-investor-newsletter-january-2021/

    For more on how bad markets can crash, I’d encourage you to check out last week’s video in the Members Area: https://logicalinvestor.net/members-only/the-logical-investor-weekly-video-02-04-21-market-crashes/

    Leslie Harvath
    Participant
    Post count: 425

    @bradleytumas Bradley, just to echo Sean, those choices gave me the shivers (of fright). We parked our 529 in what plan calls a Conservative Portfolio (comprised of Fixed Income & Money Markets) at the beginning of this year, and we’ve earned 7%, so that extra 1% is definitely not worth the INCREDIBLE risk you are taking. What year does he graduate?

    JimH
    Participant
    Post count: 31

    @bradleytumas Just my two cents worth. I am 100% Cash in my 529 Accounts for my children and grandchildren at this time. I’m waiting patiently for the greatly overvalued market to crash before putting my cash back in. I’ll invest 1/3 of that cash back into an S&P 500 Index fund when the S&P 500 Index ($SPX) hits 2200. Another 1/3 when it hits 1900 and another 1/3 if it hits 1600. If it doesn’t hit 1600 then I’ll invest the last 1/3 during the Wave 2 pullback. By doing this, my 529 will be positioned very nicely for the next Bull Market. Take a look at $SPX during the last Bull Market and you’ll see that after the 2008-2009 bear market the S&P 500 did extremely well (and will do well again after the next crash). An 8% return pales in comparison to losing 50% of your 529 after a crash.

    Bradley Tumas
    Participant
    Post count: 11

    My son is 9 months old and we just put our first contribution into his 529 account. I did very little research, I just selected 4 elections for the time being and decided to ask for advice from the LI group shortly after. Thanks for everyone’s input, I’m going to look into bringing my son’s 529 and my 401k to Cash (if I’m able).

    Sean Hyman
    Keymaster
    Post count: 7064

    Yeah, I’d suggest money market. Let the market crash out for a while and then invest in tranches like in the last newsletter. Even though he’s got a lot of time, the lower you can start, the more that will be magnified % wise over time. Keep in mind, the market can go up more before this happens. But I’d urge anyone not to start in the topping phase of a bubble. That can set someone back for many years.

    Bekka
    Participant
    Post count: 358

    This conversation benefits me too, thanks y’all!

    Bradley Tumas
    Participant
    Post count: 11

    Which one of the elections I sent photos of are Money Market? I am able to change the elections but it has to be from the list provided, I’m not able to put to cash from my understanding.

    Sean Hyman
    Keymaster
    Post count: 7064

    This one in yellow below.

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    Bradley Tumas
    Participant
    Post count: 11

    Thanks Sean! The phone consultant said it should be a Vanguard Money Mkt so I missed that. I was able to complete that exchange for my son’s 529 account.

    I am having an issue with my 401k plan through my company by Fidelity. The advisor there stated there is no option to bring to cash or a pure money market selection. He said the two selections in the photo are the closest to a money market. Also there is an option for a Brokerage account where I could select my own stocks to invest in. Let me know what you think!

    He told me he didn’t advise taking it out of the market, that I’m young and I should just go for the ride during a market correction but that’s crazy. I’d rather miss out on the loss and capture the gains.

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    Sean Hyman
    Keymaster
    Post count: 7064

    Most every broker is going to advise you to remain fully invested or close to it.

    Brokers have two goals: bring assets in and retain those assets.

    Going to cash, makes it easier for people to take money out, transfer out, etc. So they discourage that. Also, a ton of brokers have no idea when the market, fund or stock gets super risky. But in the end, that decision has to be yours.

    A money market fund is ideal. It’s like a souped up savings account. It just earns slightly more interest on your cash while you await the stock sell-off.

    Leslie Harvath
    Participant
    Post count: 425

    Congrats, Bradley, on starting your child so young! Wishing you many blessings!

    Bradley Tumas
    Participant
    Post count: 11

    Thank you!

    Sean, do either of those two options appear to be close to Money Market? I’d like to ensure my 401k isn’t left in the market at risk.

    Sean Hyman
    Keymaster
    Post count: 7064

    The person you took out the 529 with would be the one that should properly explain each of those to you, to ensure you’re making the proper choices.

    Sean Hyman
    Keymaster
    Post count: 7064

    Have them go through them with you because you’ll not only want to understand them now but also when you switch to other positions later on.

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