The table below shows the total return for the contributions that have been made to date. The first column shows how the bear market of 2008 significantly reduced our college savings accounts. Not only were all the gains from 2006 and 2007 eliminated, the losses also reduced the principal from the contributions. However, the recovery since March 9, 2009 has enabled the accounts to break even. Most of the improvement in the 529 accounts had occurred by 10/14/09. For 2010, the return has essentially been flat. Here are the results as of 9/14/10:
| Total Return 11/5/08 | Total Return 10/14/09 | Total Return 1/6/10 | Total Return 9/14/10 | |
| Vanguard Aggressive Growth Index Portfolio | -25.08% | -0.51% | 3.39% | 3.13% |
| Vanguard 500 Index | -27.74% | -15.15% | -11.24% | -11.32% |
| Vanguard Extended Market Index | -29.89% | -1.63% | 5.98% | 10.17% |
| Vanguard Developed Markets International Stock Index | -31.25% | -11.09% | -9.91% | -12.72% |
| Vanguard Morgan Growth | - | 27.22% | 34.50% | 34.06% |
| Total | - 28.74 | -3.61% | 0.04% | 0.06% |
This analysis had shown me the high volatility of equity investments in our 529 plans. Since our daughter is 13 years away from attending college, we will continue to invest the funds in the stock market. When it gets closer to needing the funds, we will definitely want to avoid this level of fluctuation. Thus, we plan to move a significant portion to interest bearing accounts within 2-4 years of needing the money for college.
In addition, this analysis shows the benefit of continuing to make contributions as the market declines, i.e. dollar cost averaging downward. The 2009 contributions, made in January 2009, were distributed among the Aggressive Growth Index, Extended Market Index and Morgan Growth Index funds. Those funds are now above the amount principal contributed. The other two funds, which did not receive any contributions in 2009, are still below the original principal, being down 11.32% and 12.72%
Our plan is to make the maximum state tax deductible contribution for 2010.
For more on Crossing Generations, check back every Thursday for a new segment.
This is not financial, saving or investment advice. Please consult a professional advisor.
Copyright © 2010 Achievement Catalyst, LLC
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2 comments:
In California, there is no state tax deductible contribution allowed for 529 plans. Nevertheless, we do have a Fidelity ScholarShare plan, and put the contributions into an age-based portfolio. It is supposed to automatically shift from stocks to more conservative investments when the child approaches college age. You might consider a similar option for your state, if you don't want to personally manage these investments. Nevertheless for the plan we're in, it has also been "flat" for last 3 years. We just started to break even...
PFStock,
We also have age based portfolio investment options. I haven't chosen them because I prefer the control making the changes myself:-)
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