College Savings and risk of age-based
I am a resident of Illinois and currently have a Bright Start direct-sold plan for my each of my kids. One is 12, the other is 14. They are both in age-based portfolios, and each account currently has about $74,000 in it.
I know you not a fan of Bright Start and I’m considering rolling the funds out to either Fidelity or Vanguard, where we already have accounts for our retirement investing. I have a few questions:
1. Is age-based reasonable for kids these ages? Or will those portfolios be too agressive? The bond market seems a bit crazy these days and have 50-75% of the assets in that market seems bad.
2. Is there a significant difference in costs between the Fidelity NH/National plan and a Vanguard plan? Is one an obvious pick over the other in our situation?
3. Given that we probably have about 50% of the costs saved assuming a 4 year private college, to minimize the impact on loans, etc., who’s name should these accounts be in? The kids? Ours? Someone else?
Thanks in advance for any guidance you can provide.
Terry Says: Whoosh — that’s a tough question. I think that essentially what you’re asking is whether a stock market “crash” could wipe out your savings with college just 6-7 years away. And you’re also asking whether an interest rate increase could “wipe out” your gains in the bond portion of the funds. And both are very real possibilities in the next few years.
(Parenthetically, that is why many families switched to the “safe” option inside Bright Start back in 2007– worried about a market decline with college coming soon. But the “safe” fund wasn’t so safe. And that’s what I am still angry about –since the same fund managers are still in the program.)
I don’t think it matters a bit whether you are at Fidelity or Vanguard. Either can handle rolling the account into their program — and you may have a wider choice of “safe” options for at least a large portion of your money. Look into it.
No one really knows when the market(s) will turn. But now you have a relatively short time horizon — and while I don’t know exactly how your age-based fund is invested in Bright Start, I would think this is the time to become far more conservative and look for a short-term interest rate option (very low returns, but very safe) with at least half of the money.