Do you think the S&P 500 will continue trending up in a straight line?

[Anonymous]

Anonymous wrote:

Anonymous wrote:Fools! Does no one remember the fear in 2008 and 2009. I remember DW getting fired and myself barely holding on to a job and watching the market go down to almost 6000.

Dow Jones Industrial Average (DJIA) reaching a closing high of 14,164 on October 9, 2007.

The DJIA hit a market low of 6,443.27 on March 6, 2009, having lost over 54% of its value since the October 9, 2007 high.

What a sale that was. Buy low.

If only we had money to buy then. But all our extra money was tied up in the stock market. At least we didn't pull our money out and we kept up regular contributions. Things are pretty rosy today.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:if you had 100k in savings, ready to put in your children's 529 or similar (won't need for 15-18 years)...would you do it now, or leave in savings and wait for a correction?

Wait for correction. I have $200K in 529 - my oldest is 8. I have moved it to a conservative blend earlier this year. I am not willing to take a correction where it will take 7 years to recover.

This is one of the many draw backs of 529. There are some rare households that make good use of 529s but my sense from reading dcum and talking to people is that they are way more popular than they should be.

So what is considered making good use of a 529 vs poor use? Why do some people think they are way too popular?

I'm PP.

Good use:
- so wealthy that you will have lots of money left over after you die no matter the scenario; have "over-saved" for retirement
- have maxed out all other available tax-advantaged saving, including 401s, IRAs, pensions, rental real estate if you're inclined
- kids would never qualify for any financial aid anyway because parental income and net worth are so high
- looking for additional ways to get tax-advantaged savings before establishing inter-generational irrevocable trusts (or in addition to those trusts)

Bad use:
- moderate income and net worth
- under-saved for retirement
- have not taken full advantage of all other tax-advantaged investments
- kids might be able to qualify for financial aid

Rationale:

- 529s cannot be used for your retirement, or indeed for anything other than kids' or grandkids' education. Even if your spouse wants to use it to go back to school, you'll need to ask the IRS politely
- for most colleges, grad schools and professional schools, 529s disadvantage the kid's financial aid application, more so than parental assets like IRAs and real estate held in the parents' names
- some (not all) 529s are restrictive in terms of what state the kid can go to college in order to get the full financial benefit
- most (not all) 529s have high fees and poor rates of return. The main exception to this is self-directed 529s, if you know what you're doing (most don't)
- 529s mess up your time horizon vis-a-vis asset allocation. For example the PP above who is thinking about moving assets to a more conservative mix because kid is X years away from college, whereas, due to PARENTS' age it would likely be better to keep assets aggressive

Conclusion:

529s, like whole life insurance and a bunch of other financial products that are aimed at anxious mom and pop, are over-marketed because of the commissions they generate and are sub-optimal for many people who use them. You are generally better off saving more for retirement. Your kid can always get loans, and if you want your kid to get a free ride then you can offer to pay off those loans if the kid doesn't earn much, like a familial back-end debt relief program. If your kid ends up in investment banking or orthopedic surgery, then f*** that, they can pay their own loans - you need to save for your own retirement! If kid ends up a nurse or teacher, then you pay the loans. The interest rates are good. As noted above, 529s make sense for some very affluent people but, despite what we read on DCUM, that is not the average.

I realize that this is an anonymous site. If you don't believe me then hire a fee-based financial adviser who does not receive commissions for these products and ask him/her for a second opinion. Or, go ahead and max out that 529, it's your money and your choice.

All that being said, if you have already got some money in 529s and you fit into the "bad use" category above, don't sweat it. This means that you are prudent, you plan for the future, and you care about your kids. That's 90% of the battle - you and your kids are going to be just fine! But from now on, consider making extra retirement contributions instead of high 529 contribs, and also study the terms and performance of your 529 and see if you are able to improve expected returns.