Like the title says, Im trying to decide between a target date funds and just picking some of my own low cost funds that follow the stock market as a whole.
Daughter is 2.5 right now and all the money is in a target date fund for 2042. I set it up shortly before she was born quickly as a place to put any baby shower/gift money we go for her. I figured better off having something, I can always tweak the investments later.
Right now her 529 performance is pretty much matching what Im seeing in my VOO ETF returns. I know that will slow as she gets closer to college age though as they will automatically move funds to bonds.
Ive been debating wether or not staying with the TDF makes sense, or should I keep it more stock heavy a bit longer. I know the risk is the market slumps just before she starts college and then we risk being down at the worst time. In that scenario my thought is my wife and I will still have income. We couldn't afford to outright pay for college for her, but we could get loans pay just the interest for her while in school, then wait for the market to recover to use her 529 money to pay off the loans.
I'm trying to decide if the added complexity is really worth it. If moving away from the TDf means thousands extra over the next 16 years I feel like I should switch. If I'm only potentially loosing out on a few hundred bucks the added complexity isnt worth it.
Numbers on the 529 are currently 10K. We put $100 a month into it, plus any other random money she might get throughout the year for birthdays/holidays, and we drop our state tax return in there every year.
Target date funds for 529 or just pick a low cost fund that follows the S&P?
byu/Spirited_Ad9681 inpersonalfinance
Posted by Spirited_Ad9681
6 Comments
You can only use $10k from a 529 to pay off loans in a lifetime
A lot gets talked about by content creators about the risks of being too conservative for too long. I want the expected growth from the S&P500 over the next 10ish years of 529 investing, and then maybe move to cash or equivalent. I don’t see a conservative strategy making sense when there’s enough time horizon to recover from a dip.
Sp500. Target date funds are overly conservative and charge higher fees
I split evenly between a tdf and an all equities option and the equities have outperformed by a decent amount. Kiddo is currently seven but I might move the equities to a tdf when we hit our target.
The whole point of the TDF is to set it and forget it. It will go from 88/12 now to 25/75 over the next 16 years.
If you want to actively manage it and keep it more aggressive, that is your right, but a 30% drop in 2036 will be hard to recover for a 2042 enrollment date.
Another way to keep it a bit more aggressive is to use a later TDF. For example you could use a 2045 TDF to keep it aggressive for a bit longer, but still have it auto taper off closer to the enrollment date.
My target date fund did so poorly. Follow the S&p