One more college investing question

**sweeps** · 02-04-2008, 12:51 PM

I'm thinking the $1500 scholarship is an easy winner. But just for due diligence:
(1) How much money is/will be invested in the plan?
(2) How many years will this money be in the plan?
(3) What is the performance record of the Franklin Templeton plans vs. the Vanguard plans?
(4) Is the scholarship guaranteed? Can they cancel that perk in a few years?

Can you open both plans? The less you have in the FT plan, the less of an impact the expense ratio has on you. You could put the bulk of your savings in the Vanguard plan, while still getting the FT scholarship bonus?

**Scanner** · 02-04-2008, 02:28 PM

That's true. . . I think once a minimum is met for the NJ Plan, you get the scholarship. I could then put the remainder in the NV or NY plan.

I didn't think of that. . .it makes matters a bit more complex but we'll just have to deal with the complexities.

**Scanner** · 02-04-2008, 02:30 PM

(1) How much money is/will be invested in the plan?(

We have about $6500 sitting in 2 Ohio 529's ($13000) and about $4000 sitting in Coverdell IRA's

2) How many years will this money be in the plan?(

8 years for our 10 year old.

13 years for our 5 year old

18 years for our -4 month old

3) What is the performance record of the Franklin Templeton plans vs. the Vanguard plans?

Who knows? But Franklin Templeton is non-indexed and you can bet they probably lag Vanguard but probably not by much since we would pick an age-based target fund (automatically changing stock/bond mix)

(4) Is the scholarship guaranteed? Can they cancel that perk in a few years?

The gov't giveth.

The gov't taketh away.

That's life.

**dardhel** · 02-04-2008, 03:17 PM

I have Ohio 529s and live in NJ aswell. However, I didn't use the Putnam options and went with their Vanguard options which have a much lower expense ratio. I believe they are around .4%. You can probably keep your ohio 529 and just move to a different investment option.

**maat55** · 02-04-2008, 06:27 PM

Are these plans on fixed rate performance or mutual funds? Expense ratios would be a minor consideration as compared to the performance %. I must admit, I know nothing about 529's but I assume they are mutual fund investments.

**disneysteve** · 02-05-2008, 09:38 AM

Originally posted by Scanner View Post

I guess my question is, what is worth more? A $1500 scholarship (if they attend a NJ college) or a .6% difference in expense ratio over the years?

Originally posted by Scanner View Post

We have about $6500 sitting in 2 Ohio 529's ($13000)

8 years for our 10 year old.

13 years for our 5 year old

18 years for our -4 month old

A 0.6% difference in expense ratio means an additional $6 per $1,000 invested per year. With $13,000, that means $78/year in added fees. That means it would take 19.2 years for the higher expenses to exceed $1,500. However, that doesn't factor in growth in account value and additional contributions. Those things would increase the extra fees paid.

Even without that, though, in 8 years, you will have paid an extra $624 in expenses. In 13 years, an extra $1,014 and in 18 years an extra $1,404. And again, this doesn't count growth and added contributions.

No matter what, with the more costly NJ plan, that $1,500 scholarship isn't actually worth $1,500 due to the higher expenses. For the 10-year-old, it is only worth about $876. For the newborn, it is worth just $96.

You really need to compare performance data, too. If the Vanguard plan has a track record of outperforming the other plan, that would tip the scales even more.

**Scanner** · 02-05-2008, 10:15 AM

DisneySteve,

"Past performance is no guarantee (or indicator) of future performance."

I would only say you look at past performance if you are comparing two similar actively managed funds side by side and you are deciding between 2 managers.

Vanguard indexes most of their investments.

It's kind of like me deciding to do the following for my portfolio:

60% Domestic
10% Small Cap
10% International
20% Bonds

because that's what they did in the 80's.

The 80's have come and gone.

2007 has come and gone.

It's yesterday's news. I don't care if Vanguard scored a 100% return last year.

I don't place too much weight on how something did in the past.

But I guess I get an idea of how much a .5% in expense ratio adds up. Thanks.

**disneysteve** · 02-05-2008, 10:35 AM

Originally posted by Scanner View Post

DisneySteve,

"Past performance is no guarantee (or indicator) of future performance."

I would only say you look at past performance if you are comparing two similar actively managed funds side by side and you are deciding between 2 managers.

Absolutely true. Can't argue with you there.

Something else to think about - how each plan does their asset allocation. Neither is better or worse, but they are different.

https://uii.nysaves.s.upromise.com/content/programInfo/invOption.html#age

NJBEST College Investing Plan - About

As you can see, it appears that the NY plan offers more options for the age-based portfolios, but they also do different asset allocation than the same age in the NJ plan. For example, the NY aggressive option is 65% stock/35% bond from ages 6-10. The NJ plan is 100% stock from birth to age 8 and then shifts to 75% stock, 20% bond and 5% cash. So they are allocated differently and rebalance at different ages. You have to look at those differences and see which you prefer.

**disneysteve** · 02-11-2008, 12:26 PM

Scanner, what did you decide to do?

**Scanner** · 02-11-2008, 02:28 PM

Thanks for keeping tabs on me.

I have sent away for the NJBest program. I will contribute to the amount the state gives a scholarship.

For the remainder. . .I plan to rollover our Ohio 529 into the Vanguard NV one to save on the expense ratio.

Now. . .I have to explain this half-baked scheme to the wife

One more college investing question