PP ....Where Did It Go

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ochotona
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Re: PP ....Where Did It Go

Post by ochotona » Fri Apr 10, 2015 9:53 am

sophie wrote: ochotona:  one of the reasons I moved to the PP was the simple act of sitting down with a calculator to figure out the return on my retirement investments over time.  These were mostly target retirement funds which were 90% stocks.  Since the late 1990s, my investment return was PITIFUL, in fact I'd barely managed to break even.  I laugh at the headlines that proclaim "record-breaking" levels for the Dow, because all that means is that the Dow has finally gained enough to make money in the years since the previous high.  I realized that, unlike all the back testing that looks at 30-50 years of the stock market, I personally can't wait that long.  The stock market's 9%+ returns do me little good if they don't happen on my schedule.  So it's not just about CAGR averaged over 50 years...volatility is important too, and I don't think it matters which decade you're in.  No one has a long enough working life to ride out the stock market without relying on a good bit of luck.
Agreed! Sequence of returns risk! PP for all of the money you plan to eat in the next 15 years!
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Re: PP ....Where Did It Go

Post by Cortopassi » Fri Apr 10, 2015 9:54 am

Well said.  It is all a personal decision and comfort level.  It is unfortunate, for me, that it took nearly 25 years to figure it out!  The only saving grace from all this is my wife and I are fiscally conservative.  All the other pieces were in place -- house paid off, girl's college funds in great shape, no debt.  I only wish I followed that conservative path (PP or otherwise) with my retirement investments.
But what do I know?
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Re: PP ....Where Did It Go

Post by ochotona » Fri Apr 10, 2015 10:20 am

Cortopassi wrote: Well said.  It is all a personal decision and comfort level.  It is unfortunate, for me, that it took nearly 25 years to figure it out!  The only saving grace from all this is my wife and I are fiscally conservative.  All the other pieces were in place -- house paid off, girl's college funds in great shape, no debt.  I only wish I followed that conservative path (PP or otherwise) with my retirement investments.
Congratulations, you're doing very well. Rule one of financial analysis is "ignore sunk costs". The emotional corollary to it is, "no regrets, ever". Today is t=0, and you need to figure out what you need to do on a point-forward basis to meet your goals. Work the problem with math, and don't get sidelined by emotions. And teach your kids about it, so they build on your wealth, and you become a multi-generational wealthy family.
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Re: PP ....Where Did It Go

Post by Pointedstick » Fri Apr 10, 2015 11:25 am

Cortopassi wrote: Well said.  It is all a personal decision and comfort level.  It is unfortunate, for me, that it took nearly 25 years to figure it out!  The only saving grace from all this is my wife and I are fiscally conservative.  All the other pieces were in place -- house paid off, girl's college funds in great shape, no debt.  I only wish I followed that conservative path (PP or otherwise) with my retirement investments.
Don't have a college fund. Every dollar you put in there is a dollar that the colleges will simply take. The less you have saved, the more financial aid and scholarships your daughters will get, and in any event IMHO any college that's so expensive that you have to save up to afford it is a bad deal. The best colleges (Harvard, Yale, etc) offer more or less free tuition to the children of non-rich parents, and the cheap state schools and 4th and 5th tier schools offer an education nearly as good, only lacking the elite student body, and for very little money. If you want to bankroll tuition at those places for your kids, it won't be hard at all. The big trap is 2nd and 3rd tier schools (especially the liberal arts varieties) that bill themselves as offering a Harvard-quality education, but for kids who can't get into Harvard (not said in those words of course :) )--these institutions are more or less scams in my opinion. You can tell them because they are all in the northeast, the buildings look new, they ooze elitism, their marketing literature implies that your child is a precious flower who they will take very good care of and expose to lots of interesting experiences rather than a mind to be molded and filled with useful information, and the yearly cost is $40k or higher.
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Re: PP ....Where Did It Go

Post by ochotona » Fri Apr 10, 2015 12:36 pm

Pointedstick wrote: Don't have a college fund. Every dollar you put in there is a dollar that the colleges will simply take. The less you have saved, the more financial aid and scholarships your daughters will get, and in any event IMHO any college that's so expensive that you have to save up to afford it is a bad deal. The best colleges (Harvard, Yale, etc) offer more or less free tuition to the children of non-rich parents, and the cheap state schools and 4th and 5th tier schools offer an education nearly as good, only lacking the elite student body, and for very little money. If you want to bankroll tuition at those places for your kids, it won't be hard at all. The big trap is 2nd and 3rd tier schools (especially the liberal arts varieties) that bill themselves as offering a Harvard-quality education, but for kids who can't get into Harvard (not said in those words of course :) )--these institutions are more or less scams in my opinion. You can tell them because they are all in the northeast, the buildings look new, they ooze elitism, their marketing literature implies that your child is a precious flower who they will take very good care of and expose to lots of interesting experiences rather than a mind to be molded and filled with useful information, and the yearly cost is $40k or higher.
OMG, that could be possible the worst advice given on college financing. One size does not fit all. I have sent two children through college debt free. My second is not going until Fall 2015, but 100% funded already, so I consider her college project "done".

Yes, if you put assets in the student's name, the FAFSA computation will grab most of it. So don't put it in the student's name. The 529 should be in the parent's name FBO the student ("For Benefit Of"). No Custodial accounts. I'm not sure about Education IRAs (Coverdells), have a small one, after the 529 came out I didn't see the point of the Coverdell any longer.

The real trick is, the FAFSA really only "works" for what I call poor and low middle class people. If you are a smart person, and have a good income, the FAFSA will compute your EFC, your Expected Family Contribution, way higher than you would ever imagine it should be. FAFSA thinks you should put a second mortgage on your home, take out college loans, burn all of your kid's money, and a bunch of yours, to pay for their college.

My son got $14,000 a year in merit-based, not need-based scholarships. Those enabled him to go to the non-Ivy, 2nd tier private college of his choice. But the majority was me writing checks out of the 529 account. If I hadn't had the 529, he'd be $100,000 in debt with student loans, and he's still in grad school, and the family will get him to his Master's degree debt-free, too. Because our EFC was $55,000 at the time!!!

My daughter is getting $8,000 a year in merit-based aid, but she's going to a State school, so I have to write checks out of the 529 FBO Daughter and also out of another bank account set aside specially for her. If I hadn't saved her entire life for college, she'd be $75,000 in debt with student loans by 2019. Because our EFC this year was $97,000 !!! (see, too much PP success). Oh yrs, did I mention I'm currently unemployed? That won't factor into the FAFSA until early 2016 when I do my 2015 taxes.

If you're truly a poor family, and you have a very gifted child who is highly sought after because he/she is a vegan homosexual Native Whatever, then yes, don't save a dime, and let your student throw him/herself at the feet of the scholarship granting body. But don't be surprised if the "aid" ends up being a subsidized Stafford loan, and you don't see grandkids for 10 or 12 extra years because the noose of student debt strangles their ability to launch into life.
Last edited by ochotona on Fri Apr 10, 2015 12:39 pm, edited 1 time in total.
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Re: PP ....Where Did It Go

Post by Tyler » Fri Apr 10, 2015 1:11 pm

sophie wrote:  I realized that, unlike all the back testing that looks at 30-50 years of the stock market, I personally can't wait that long.  The stock market's 9%+ returns do me little good if they don't happen on my schedule.  So it's not just about CAGR averaged over 50 years...volatility is important too, and I don't think it matters which decade you're in.  No one has a long enough working life to ride out the stock market without relying on a good bit of luck.
Very well said.

I personally don't care for the usual advice to be risky with money when you're young and conservative when you're older.  The misconception that youth negates all risk because volatility smooths out over time is quite common (in reality risk and volatility are more or less constant, and long-term average returns simply mask them).  But it's the secondary assumption that more conservative investments cannot generate "enough" returns (to the point where piling on risk is the only reasonable solution) that is particularly interesting to me.  Investment brainwashing is powerful stuff, and the maximization mindset has a tendency to numb the senses to the point where people really lose perspective.

IMHO, wise investing is like eating right.  It's a long-term lifestyle, not a series of well-timed sugar binges and fad diets.  After years of trying to invest my way to a good retirement, I finally realized I'd be much better off letting a balanced portfolio do its thing while focusing on earning more and spending less.  You know -- turning my energy to things I actually controlled.  Not coincidentally, my financial picture changed dramatically for the better and my net worth grew by leaps and bounds. 

That said, it's important for everyone to build a financial plan they are comfortable with.  I don't begrudge anyone for having a different approach.  It's your life savings after all -- do what you think is right!  I just want to offer a different way to look at things.
Last edited by Tyler on Fri Apr 10, 2015 1:27 pm, edited 1 time in total.
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Re: PP ....Where Did It Go

Post by Cortopassi » Fri Apr 10, 2015 1:14 pm

The last two posts (ochotona and PS) are perfect examples of why a one size fits all PP is certainly not for everyone!

I have tried to take a middle road -- my girl's college funds are College Illinois prepaid tuitions.  I wanted the security (sure the program itself has turned out to be a questionable Ponzi scheme, but as long as it last a few more years...) of tuition being covered, WITHOUT me being the one making investment decisions -- I can make level headed decisions!  I don't even want to imagine what I might have done with the money in a 529 if it were under my control when 2008 hit, it is likely I would be in terrible shape!

So, state school, fully paid.  Out of state or private, will pay the going hourly rate charged at IL schools.  Did not seem possible to lose, as long as the program stays solvent.  If they decided not to go, I can pull the original money out without penalty.

And Tyler, that is a great response and analogy to eating!
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Re: PP ....Where Did It Go

Post by Pointedstick » Fri Apr 10, 2015 1:25 pm

ochotona wrote: OMG, that could be possible the worst advice given on college financing. One size does not fit all. I have sent two children through college debt free. My second is not going until Fall 2015, but 100% funded already, so I consider her college project "done".

Yes, if you put assets in the student's name, the FAFSA computation will grab most of it. So don't put it in the student's name. The 529 should be in the parent's name FBO the student ("For Benefit Of"). No Custodial accounts. I'm not sure about Education IRAs (Coverdells), have a small one, after the 529 came out I didn't see the point of the Coverdell any longer.

The real trick is, the FAFSA really only "works" for what I call poor and low middle class people. If you are a smart person, and have a good income, the FAFSA will compute your EFC, your Expected Family Contribution, way higher than you would ever imagine it should be. FAFSA thinks you should put a second mortgage on your home, take out college loans, burn all of your kid's money, and a bunch of yours, to pay for their college.

My son got $14,000 a year in merit-based, not need-based scholarships. Those enabled him to go to the non-Ivy, 2nd tier private college of his choice. But the majority was me writing checks out of the 529 account. If I hadn't had the 529, he'd be $100,000 in debt with student loans, and he's still in grad school, and the family will get him to his Master's degree debt-free, too. Because our EFC was $55,000 at the time!!!

My daughter is getting $8,000 a year in merit-based aid, but she's going to a State school, so I have to write checks out of the 529 FBO Daughter and also out of another bank account set aside specially for her. If I hadn't saved her entire life for college, she'd be $75,000 in debt with student loans by 2019. Because our EFC this year was $97,000 !!! (see, too much PP success). Oh yrs, did I mention I'm currently unemployed? That won't factor into the FAFSA until early 2016 when I do my 2015 taxes.

If you're truly a poor family, and you have a very gifted child who is highly sought after because he/she is a vegan homosexual Native Whatever, then yes, don't save a dime, and let your student throw him/herself at the feet of the scholarship granting body. But don't be surprised if the "aid" ends up being a subsidized Stafford loan, and you don't see grandkids for 10 or 12 extra years because the noose of student debt strangles their ability to launch into life.
Sure, that's all true if your kids attend really really expensive schools and you have a lot of money, making your EFC high, as you say. The FAFSA is definitely a twisted game that you have to learn to beat if you want to play that game, and it's truly awesome to have wealthy parents who've saved hundreds of thousands of dollars for your higher education expenses, allowing you to go anywhere you want and graduate debt free. Your kids should be very grateful!

But I have yet to see any evidence of a real advantage to the non-Ivy more expensive schools, on average. There's a whole other thread on this. The non-ivy private schools are just pointless money pits IMHO. The outcomes are like 0-5% better than the 50-90% cheaper schools. The major liberal cities of the USA are chock-full of bitter underemployed college grads from these schools.

You can save as much as you want and send your kids to a school of any cost and level of prestige, generally. The question is what's the marginal value of each additional dollar spent? I tend to think that value is very low past a certain point, and it mostly amounts to social signaling.
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Re: PP ....Where Did It Go

Post by Pointedstick » Fri Apr 10, 2015 1:30 pm

Cortopassi wrote: The last two posts (ochotona and PS) are perfect examples of why a one size fits all PP is certainly not for everyone!

I have tried to take a middle road -- my girl's college funds are College Illinois prepaid tuitions.  I wanted the security (sure the program itself has turned out to be a questionable Ponzi scheme, but as long as it last a few more years...) of tuition being covered, WITHOUT me being the one making investment decisions -- I can make level headed decisions!  I don't even want to imagine what I might have done with the money in a 529 if it were under my control when 2008 hit, it is likely I would be in terrible shape!

So, state school, fully paid.  Out of state or private, will pay the going hourly rate charged at IL schools.  Did not seem possible to lose, as long as the program stays solvent.  If they decided not to go, I can pull the original money out without penalty.

And Tyler, that is a great response and analogy to eating!
That's a great option. the U of I is an amazing school. I grew up in the shadow of UIUC and know a lot of profs and grads. It's hard to go wrong there, even though I decided not to attend for silly reasons. Feel free to message me if you want any info about it.
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Re: PP ....Where Did It Go

Post by Cortopassi » Fri Apr 10, 2015 1:41 pm

Thanks, PS.  I graduated in 89 from Champaign with a BSEE.
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Re: PP ....Where Did It Go

Post by ochotona » Fri Apr 10, 2015 1:44 pm

Ivy League schools are not worth it; my wife and I both went to Brown; but even in-state schools in Texas are easily $25,000 a year. My entire college education at Brown a generation ago was $39,000. Taking account of inflation $95,000.

University of Texas is as expensive now, in real terms, as Brown University was in 1979-1983 !!!

There really is no, "Oh, I'll just skip the Ivies, and then everything will be much more affordable". No such thing. Nothing is affordable right now, except for community college.

The parents have to save money, unless you're poor, then don't bother.
Last edited by ochotona on Fri Apr 10, 2015 1:46 pm, edited 1 time in total.
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Re: PP ....Where Did It Go

Post by Pointedstick » Fri Apr 10, 2015 2:06 pm

It's not about skipping the ivies, it's about finding a good deal. If UoT is $25k a year that doesn't seem like a great deal, but it also in the range where a student can offset a significant fraction of the cost (if not all of it) by working.

But the rate of college tuition cost inflation is so ridiculous that something has to give soon. I guess that's cold comfort if you have a bright 17 year-old right now though. :( I calculated the expected costs of sending my son to a decent place in 16 years and came up with something like 200 or 300k at the current rate of tuition inflation. For that price, I'll set him up with a PP of his own or buy him a small business to run. There comes a time when you just have to throw up your hands and say, "this price is ridiculous, I'm doing something else. There has to be a better way!"

IMHO.
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