Why The Age-Based 529 College Approach Has Failed For Me

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I hate to say this but my college “Age-Based” 529 plan selection has failed to live up to my expectations.

It seemed like such a brilliant idea 13 years ago.  It was an Age-based plan that in theory would re-balance the asset investment types for me based on the age of my kids.  To me it seemed like a slamdunk!  Unfortunately, the stock market decided to do the exact opposite from the strategy that my state’s college 529 plan was following…. What a huge disappointment!

So, instead of it being a great investment vehicle, at most it’s been a glorified savings account.  At least I get to deduct the amount I contribute to it from my state income tax!

Future Concerns:

Now as my kids are growing older, the age-based plan starts to re-balance the money in the plan from equities to bonds.  Unfortunately, this is also a bad time to do such a re-balance since the US Treasury rates are rising!  As the treasury rates rise, the bond funds should suffer.  Obviously this just adds insult to injury!

In fact, the only thing that has worked for me is that I’ve been able to dollar cost average my contributions along the bump stock market road.  This at least give my account a bit of a return, but still less than have of what my “all equities” 401k plan has been able to accomplish.

So in conclusion, if you are considering a similar college investment route with your kids and their college 529 planning… I recommend thinking long and hard about other options that just the Age-Based option!  If I had to do it over, I wish I would have choose a mix like half in the age-based plan, and half in an “all equities” plan.

It’s not too late for me though, I still might change the strategy since my oldest is only 13 years old.

Learn from my mistakes,

Don

 

Financial Madness And My Financial Thoughts

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This year is crazy, but crazy good not crazy bad, with way to may financial thoughts over-flooding my brain.

Financial Madness:

I admit, I’ve been caught up in the incredible stock market rally… until lately.  While I was beating the market earlier, I’ve bought some more risky stocks lately that have taken my return down quite a bit.  Oh, I’m still up for the year so far, but I hit my highs a month or so ago.

Okay, that’s the stock market, on real estate front, I’m still looking for my first investment property, but with a catch!  I want to buy a property that cost as much as a mid-level luxury car.  Perhaps something like a high-end Lexus, but definitely no where close to the cost of a Ferrari…  So ideally, I would like to find a duplex or high that requires a little bit of work, but cost less thank 100k.  At this point in my life, I would like to just get a taste of what it’s like to be a landlord, then decide from there.

Primary Residence Thoughts:

I would also like to buy a bigger house.  Not that I need one, it’s just seems like a good investment while rates are relatively low.  But even this is maddening!  I want to buy a house that provides benefit from a taxes perspective, and one that I believe will rise in value more quickly than my current house has.  We were luck in that fact that our house value didn’t really drop during the “Great Recession”, but while this in and of itself was a blessing, it also means that any bigger house that I buy in the city also hasn’t declined in price.  So for me, I get now benefit from lower house prices.

Why do I want to say in my city? I don’t, but since my kids are in school and have established a place in the system, I won’t uproot them and move to a different city.  Financially maddening, but my kids come first… even when it hurts.

Speaking of kids, in the neighborhoods that I’m looking at, we are doing research to see how live in those areas so that I can ensure that there are kids that my kids can play with.  Perhaps I’m spoiling my kids?

My Personal Financial Thoughts:

I’m starting to realize that I’ve been too conservative with managing money, and while being in such a state is better than being in deep debt, it’s still not an optimal solution.  At one time in the past, I believed that financial asset class diversification was only for the millionaire and up crowd, but lately I’ve changed my mind.  I now believe that those options should be explored as part of any financial plan.  So gold (precious metals), currencies and other investment avenues is something that I’m considering, but not acting on currently.

Even thought I’m considering all financial avenues, I’m focusing primarily on stocks and real estate opportunities.  In a future post, I’ll share more of my financial thoughts and why I’m seriously thinking of buying a new house, rental property, and investing more in the stock market all at the same time.

Bests,

Don

 

Life is more than cartoons and crayons

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I’m having second thoughts about the way that I’m raising my kids.

Let me provide some background on my kids first, just to give you a point of reference.

  • Both kids get straight A’s in school, and do sports and other activities.
  • Both kids have good money management skills, thanks to the fact that the both have an allowance.
  • Both are respectful and well-mannered.
  • People are always telling us how great our kids are.

So what’s my problems?  Why am I writing this rant?  Am I insane?  maybe…

While I pat both my wife and I on our backs about the kids, I have to wonder if I can make it better, especially with respect to finances and entrepreneurship.

Initially, instead of teaching them to work for money, I wanted to teach them first to manage money, then eventually to make money work for them.  This is in stark contrast to the way I was raised.  I did a lot of chores, and got paid for certain chores.  While my kids have to make their beds and occasionally pick up their room, they don’t really get paid for doing chores, per say.  And this is my problem.  How do they learn to earn money if they aren’t earning money?

Rich Kid

Green with Envy, but Already Rich?

I’ll come home and see my kids either watching cartoons or other shows, or creating something (usually drawing or writing a short story), or playing minecraft…  To me this is wasted time and energy (although I have to admit, I do like my daughter’s short stories and drawings).  How do I encourage their business savvy without making it a chore?  I’m starting to wonder if I should require them to work for their allowance like I had to do as  kid… In hopes that such an allowance model would make them more money-wise.

My oldest is only 12, so perhaps I’m being to critical.  After all, in comparison, I can’t hold a candle to either of them.

I’m the parent, so it’s really up to me to show them the other paths than just watching TV and doodling.

Time to refocus and think.

Bests,

Don

My Personal Finance Pyramid Update – Lower (Upper Middle Class)

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My Personal Finance Pyramid

If you have read this blog in the past, you know that I created a visual chart to gauge my personal finance progress as I climb a wealth pyramid that I have created.  The pyramid (based off of Maslow’s Pyramid of Needs) seemed to be a great representation of such a wealth-pursuing journey.  In many ways, it helps me visualize the various levels and created milestones for me to watch for, since I love feedback!  So without further ado, here is my update on my progress climbing my “Personal Finance Pyramid“!

I have obtained the level of Lower “Upper Middle Class” status!  sort of…

Financial Pyramid

You are probably wondering why I wrote “sort of“.

Well, during the run of the stock market after “The Great Recession”, I managed to climb up to the lower green bar of the “Upper Middle Class” status area.  But now since the stock market has dipped again, I’ve fallen in the upper portion of the Asset Accumulation level again.  Close to “Upper Middle Class”, but not quite.

Upper Middle Class is actually a tricky category to be placed in since it’s more than just wealth and income.  In my part of the country, currently I fulfill those requirements… but the standard of living is lower where I live vs a larger city like New York.  As for eduction, I believe I fulfill those requirements, but barely.  No fancy ivy league schools in my past college life.

Another reasons I consider my family “lower upper middle class“ is because we live at a more frugal state than others in my city with comparable income.  But that said, many of my neighbors make a similar amount of income, so I’m not that far off.  My house is just a little over 2,000 sq feet though, so it’s smaller than the norm is these days.

Now for the Upper Middle Class lifestyle versus my current “middle class” lifestyle.

I have and do a lot of the same things as the upper middle class does, but instead of a Lexus I have a Toyota Camry.  And instead of taking vacations overseas, I still go on entire family vacations typically to the beach.  Oh, I could afford to take overseas vacations, but I would like to build up my dividend stream first to fund such activities.  Besides, I’m still growing my Wealth Snowball that was created in the Asset Accumulation level.  I guess lower “upper middle class” would mean that I have one foot in the Asset Accumulation level, and one foot in the Upper Middle Class level.

What financial numbers does it take to be considered the Upper Middle Class?

  • Household Income of over $100,000 (or for an individual to be at or above $95,000 in year 2012).  Update (2013): I’ve recently read that a good starting number is around $120,000.
  • Net Worth of around 500k+  (at least in 2012)

Anyway, that’s my assessment of my current state.  If the market keeps dipping though, there is a good chance that I’ll slip entirely back into the “Asset Accumulation” phase.

I hope the stock market has been more gentle with you than it has with me lately!

Bests,

Don