It takes a lot of time and you have to go through a lot of bad ones. Before I had a baby, I thought the simplest way to figure out what kind of gear I would need was to read reviews on sites like Baby Gear Lab and Baby Center (if only parenting were this simple.) As ergo was consistently named one of the best carriers, I felt fortunate when my sister-in-law re-gifted me her never used ergo carrier. Unfortunately, my baby did not feel the same way. I quickly discovered why the ergo was never used by my sister-in-law. Whenever I put my baby in the ergo, he cried. Not cute little kitten squeals, but full on pterodactyl type shrieks. So desperate was my little one to escape from the ergo that he would arch his back and use his feet to launch himself off of me in some kind of deranged baby suicide attempt. There was nothing ergonomic about the ergo for my baby or I, so we moved onto the baby k’tan. I loved my baby k’tan – it was soft, comfy, easy to put on and oh so cuddly. It rem
When I was a senior in high school my mom came into my room and had one of the briefest and realest conversations with me that I have ever had. I was working on college applications and still in the process of figuring out which schools I would apply to. I had created a list of 10 schools. Most were schools that had admission standards that I could meet, in cool locations, and close to friends who I had grown-up with. I think she knew at the time that I was looking at schools that fit that criteria instead of investigating other important items such as:
- Which schools specialized in the majors that I was interested in?
- Which schools had a proven track record of helping undergraduates find employment after graduation?
- Costs of tuition versus benefits
So, my mom comes into my room and says to me, “Son, you can
go to a state school and we’ll be fine, or you can go to a private school and
our family will struggle”. I nodded, and
understood the situation. I changed that
list from 10 to 4, all SUNY schools.
I can say with no hesitation that I had a great college experience. I went to SUNY Albany. I met great people, had a quality education, made the most of the opportunities presented to me, and walked out with zero debt.
Now as a new parent, I have been thinking about how to set up our family so that we can provide the academic, emotional, and financial support so that our son can go to the best possible school that he can get in to. Full disclosure, this isn’t a knock against my mom or anything like that. I wasn’t exactly the best student and she did for me what a lot of people (including myself) dream of, which is to have her child graduate from a decent school with no debt (Thanks Mom!!).
As most of you know, states have sponsored programs called 529s. The program name 529 comes from the Internal Revenue Source Code 26 U.S.C. 529. 529s are programs that allow a family to invest in a higher education fund that provides tax advantages. You can use the earnings to pay for higher education expenses such as tuition, room and board, books, equipment, and other college related expenses.
I can only speak from my experience, and as a New York resident, you have two options when investing in a 529. You can enroll in a direct plan or an advisor led plan. So, what are the main differences between the two?
A direct plan is:
- Cheaper
o It has a lower expense ratio since you are not paying an advisor.
- You will determine the asset allocation on your own
o The direct plan has recommended asset allocation options, such as by age where the funds are selected for you.
§ For example: If you select the age fixed settings
o Age 0 to 5 – will be 100% Stocks
o Ages 5 – 10 – will be 75% Stocks and 25% Bonds
o Ages 10 14 – will be 50% Stocks and 50% Bonds
o Ages 14 to 18 – will be 25% Stocks and 75% Bonds
o These are just rough estimations, these aren’t exact numbers but this is how the age settings work.
- The available fund options are all index funds
An advisor led plan:
- Costs more
o
You are paying to have an
advisor
- You will have guidance on
developing an investment plan
o
Your advisor will discuss
time frames and asset allocations with you
§
Although, and this is my
opinion, you can figure this portion out on your own if you put in a
bit of
research. A great resource to read to
develop an investment philosophy is the Intelligent Investor by Graham (Which I’ll write about in my next post).
- You may be privy to
different funds.
o
I don’t know this for a
fact since I don’t use an advisor, but other blogs have stated that an
advisor
led account may provide actively managed fund options.
§
As a note, it is my
understanding that over an extended period, actively managed funds do
not beat
out the returns of an index fund.
However, if you believe that this is the route you want to go, I
completely respect that. But, do note
that an actively managed fund will no doubt incur greater expenses, which will
eat into your returns.
So, what I’d like to share with you today is my experience in developing a plan for my son’s 529 plan.
First, I went with a direct plan, because I wanted to keep my expenses as low as possible. To open an account all you need is the social security number of your child, and the rest is as simple as creating any other generic account.
Second, you must determine your asset allocation. Since I have been reading the Intelligent Investor as I am simultaneously planning our son’s college savings fun, I’m following Graham’s recommendation of at least 75/25 in any direction.
What that means is at the riskiest you should be 75% stocks and 25% bonds. And, at the most conservative you should be 75% bonds and 25% stocks. So, since our son is young, I’m going to be risky, and then re-assess the situation as he gets older.
In addition, read about the funds that you are investing in, and then sleep on it before you fund the account. If you do not like the allocations, you can always change it later, but it is best to be sure in your decision and stick with your plan.
Third, you must plan backwards and determine how much money you will need to invest. My father in-law gave me this wonderful tool that helps in determining how much money you will need to set aside to meet your financial goal.
Also, most ‘experts’ are projecting college expenses to be through the roof 18 years from now. CNBC/BuzzFeed wrote a short article on projected expenses in the future for college.
The decision is up to you as to whether you put stock into projections like this. Nonetheless, you should develop a number in mind and work backwards from there using the tool from the Vanguard website.
Lastly, stick to your financial plan and fund the
account.
I hope this post was helpful, and I look forward to hearing
any of your comments, thoughts, questions, or feedback!!
Thank you for reading and please hit the subscribe button at the top!!
P.S. Mom, if you are reading this. Thank you. For everything.
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