Saving for newborn

[Fraculator]

Hey there! I just had a child and my wife and I are trying to figure out an investment /savings option. I don't love college 529 accounts because my personal experience found me using only some of the money in a 529 and leaving some. I like the idea of index funds like those offered by vanguard. My main question would it be a bad idea to buy into a vanguard target retirement fund with a 20 year target goal as an account for when my child turns 20 or so? All it does is shuffle the risk down as time goes on so it seems on paper like a good idea. Anyone have experience using vanguard funds as an alternative to a basic savings account or 529 for a child?

[MonkeyMama]

Yes, we just have our kids' money in taxable accounts at Vanguard. There are several reasons for this. We personally didn't use our "college money" for college. We used towards our first house instead. But that's living in a state with cheap college and crazy expensive housing, and is likely to be the same situation for our own kids.

Though I'd say that was probably the biggest motivating factor, secondarily we have no tax incentive to use any education tax shelters. Of course, if our income went up and/or we inherited money you can always move money into a 529 plan. So we wouldn't lose that benefit if our situation changed.

The other thing to consider would be financial aid. How you old assets can affect financial aid. Others will chime in. Is not anything I know much about or care about since it is very N/A for our situation.

P.S. Congrats on the new baby!

[feh]

My main question would it be a bad idea to buy into a vanguard target retirement fund with a 20 year target goal as an account for when my child turns 20 or so? All it does is shuffle the risk down as time goes on so it seems on paper like a good idea.

I wouldn't do this. It's not a terrible idea, but there is a key difference in the scenarios - a person retiring in 20 years will still need to pull funds for 20+ years after they reach retirement, while all of the college savings will be spent in ~5 years. As a result, the 20 year target fund will be too aggressive 20 years from now.

I suggest determining your own plan. I can post the asset allocation we used for our son in his 529, if you are interested.

[Fraculator]

I wouldn't do this. It's not a terrible idea, but there is a key difference in the scenarios - a person retiring in 20 years will still need to pull funds for 20+ years after they reach retirement, while all of the college savings will be spent in ~5 years. As a result, the 20 year target fund will be too aggressive 20 years from now.

I suggest determining your own plan. I can post the asset allocation we used for our son in his 529, if you are interested.

Thanks for the replies. That would be cool if you could do that. Keep in mind that I'm not necessarily saving in a 529 either if that makes a difference. I'm guessing your allocation would apply to any fund i choose, whether its 529 or otherwise, correct? Maybe i'll contact vanguard and see what they recommend if I have my own funds in mind. What I'm trying to avoid (Ive only done stock investments no funds, so I dont really know how it works) is being required to have numerous funds to manage as opposed to one of those target date lifecycle funds that you dump the capital into one place and it gets allocated for you. I'm not opposed to allocating myself, just thought itd be easier to follow a set. Regardless, look forward to your post

[Like2Plan]

I agree with what feh said about the asset allocation.

Take the portfolio composition of Target Retirement 2015 (VTXVX) as of Jun 30th 2016 for example:

Vanguard Total Bond Market II Index Fund Investor Shares** 30.5%
Vanguard Total Stock Market Index Fund Investor Shares 28.2%
Vanguard Total International Stock Index Fund Investor Shares 18.5%
Vanguard Total International Bond Index Fund Investor Shares 13.6%
Vanguard Short-Term Inflation-Protected Securities Index Fund Investor Shares 9.2%
Total — 100.0%

I wouldn't feel comfortable with that much exposure to stocks if my child was currently attending college.

My DS started attending college not too long after the 2008 meltdown, so I was glad to be mostly in bonds by that point.

Question for you: Are you able to transfer your left over 529 funds to your child?

[MonkeyMama]

Good points from the others. Our asset allocations have been very specific to our own situation also. So I agree that I would not use a Target Retirement type fund.

[Fraculator]

Question for you: Are you able to transfer your left over 529 funds to your child?

I could have my 529 funds transferred to my child, it's a couple thousand which is a great start but still not what I'd like

[snafu]

We opened regular, [taxable] investment accounts for our [now adult] sons initially with gift monies at birth plus modest, automatic monthly contribution. These are flexible, accepting contributions from family members for gifting occasions like birthdays, Christmas, prizes, awards...from a multitude of sources. Thanks to a government funded program, our guys were entrepreneurial as teens and contributed some earnings to their own funds.

We were pretty aggressive the initial decade, much more conservative later when they were drawing down to pay college and university costs. I too support Vanguard for low fees. You can switch investment emphasis based on economic conditions, whatever you decide. If I were starting today, I'd consider ETFs as very efficient.

[Drake3287]

Although I won't try to recommend any investments, I took my typical conservative approach and started saving for my 3 kids college costs also after they were born. The thought of having a huge downturn in the stock market prior to college is a huge worry.

This of course is all based on what you can afford, but for 21 years (typical graduation age) my wife and I both put aside about $100. from each of our pay checks into each child's "college" fund. For 3 kids this was a total of $600. per pay roll period.

Although this amount varied a little over the years, it ended up giving each child well over $150,000 for college. It was a fairly pain free way of saving for college and I can't tell you how nice it was to be able to write college checks with no worry about where the money was coming from. I literally know no one that was able to do what my wife and I did. Most of my friends with good incomes will be paying college costs off for many years to come and have even put off retirement.

Bottom line, start saving early and it'll be the best thing you'll ever do. Even a small amount after 21 years will make a big difference.

[TexasHusker]

Every time the child has a birthday, buy one ounce of gold. For example,

Year 1 - 1 ounce
Year 2 - 2 ounces
Year 3 - 3 ounces

etc.

By the time (s)he is grown, you'll have some serious loot. It's a bit of dollar cost averaging, too.