Thursday, November 06, 2008

College 529 Savings Account - Signifcantly Down

In preparation for our year end financial review, I looked at the college 529 savings account for our four year old daughter. We originally opened the account in December, 2005 and have made the maximum state tax deductible contribution for each year. To date, we have split the contributions with 31.25% each in the Aggressive Growth and International funds and 18.75% each in the 500 Index and Extended Market funds.

The bear market of 2008 has destroyed the college savings accounts. Not only have all the gains from 2006 and 2007 been eliminated, the losses have also reduced the principal from the contributions. Here are the results as of 11/5/08:

YTD 11/5/08Loss since 2005
(not annualized)
Vanguard Aggressive Growth Index Portfolio



Vanguard 500 Index



Vanguard Extended Market Index



Vanguard Developed Markets International Stock Index






Until doing this analysis, I didn't realize we had lost almost 29% of our contributions. It's a good thing we don't need the money for another 14 years. Hopefully, the market will recover by then :-) Seriously, this bear market has clarified my future investment strategy for college funds. I will definitely move a significant portion to interest bearing accounts within 2-4 years of needing the money for college.

In the meantime, we will continue to make the maximum state tax deductible contribution for 2009. However, this time we will stagger the contributions over several months, in case the market continues to decline. Also, the contributions will be divided such that each fund again will have 25% of total contribution made since 2005.

For more on Crossing Generations, check back every Thursday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

1 comment:

Moneymonk said...

Just be glad she not starting college this year! you have time to recoup