Hi,
I have a total about 13K for two kids' registered education plan (RESP in Canada). They are one and five years old. Right now about 80% is in stocks and 10% short-medium bonds and 10% cash. I am going to contribute another 7500 dollars to the plan this year so total would be 24K including government grant.
I don't know how could I best convert this to a pp because I'm too heavy on stocks even with new contribution. If I buy long term bonds with new contribution, it will be 50% stocks and 50% bonds without gold and cash. Or I could do 50% stocks, 25% gold and 25% LT. Which would be better? I can't sell stocks now because I will be loosing money. Thanks for your advice!
converting kids education fund to pp but too heavy on stocks: what to do?
Moderator: Global Moderator
Re: converting kids education fund to pp but too heavy on stocks: what to do?
I'm a little unclear on what investment vehicles are available to you in your plan, or what the rules are, so keep that in mind......
The first thing I would say is "Don't let perfection be the enemy of good
Based on what you talked about, it appears that all 4 asset classes are available, so my first question would be why not just set up a 4 x 25, even if it means taking a loss on your stocks?
If that is not an option, 50/50 stocks/bonds is much better than 80/20 like you have now, IMO.
50% stocks, 25% LTT, 25% gold is even better than 50/50, IMO and would be much more preferable than 80/20.
Don't get too caught up in not being able to set up a perfect PP if you're not able to. The main thing is to try to diversify as much as possible between the 4 main asset classes, depending on what is available to you through your plan.
My father was good enough to set up a 529 for my kids and turned over the investment selection to me. There are very limited options, so I basically did a 60/40 total stock/total bond allocation for it. Certainly not perfect, but better than all bonds, or all stocks I guess.
I also have another educational account set up for my kids, where I have them in 70% PRPFX, 15% S&P, 15% LTT. Again not perfect, but I can sleep at night with that.
The first thing I would say is "Don't let perfection be the enemy of good
Based on what you talked about, it appears that all 4 asset classes are available, so my first question would be why not just set up a 4 x 25, even if it means taking a loss on your stocks?
If that is not an option, 50/50 stocks/bonds is much better than 80/20 like you have now, IMO.
50% stocks, 25% LTT, 25% gold is even better than 50/50, IMO and would be much more preferable than 80/20.
Don't get too caught up in not being able to set up a perfect PP if you're not able to. The main thing is to try to diversify as much as possible between the 4 main asset classes, depending on what is available to you through your plan.
My father was good enough to set up a 529 for my kids and turned over the investment selection to me. There are very limited options, so I basically did a 60/40 total stock/total bond allocation for it. Certainly not perfect, but better than all bonds, or all stocks I guess.
I also have another educational account set up for my kids, where I have them in 70% PRPFX, 15% S&P, 15% LTT. Again not perfect, but I can sleep at night with that.
Re: converting kids education fund to pp but too heavy on stocks: what to do?
I can buy any ETF under this plan. So I could buy ZFL (LTT), CGL (gold), and CDZ or XIC (stocks). I don't think it's a good idea to buy LTT directly as the minimum purchase and selling is 5000 dollars.
Selling stocks at a loss is an option, really to do a proper pp? The stocks are down like 10%.
Does everyone agree 25% gold 25% LTT and 50% bonds better than 50% LTT and 50% stocks? And why or why not?
Thanks.
Selling stocks at a loss is an option, really to do a proper pp? The stocks are down like 10%.
Does everyone agree 25% gold 25% LTT and 50% bonds better than 50% LTT and 50% stocks? And why or why not?
Thanks.
Re: converting kids education fund to pp but too heavy on stocks: what to do?
If you want a PP, it sounds like it will require selling some stocks.
The price you paid for the stocks is irrelevant to their future direction. The stock market doesn't really care what price you paid, it will move in its own fashion independent of you. The world doesn't revolve around you
The price you paid for the stocks is irrelevant to their future direction. The stock market doesn't really care what price you paid, it will move in its own fashion independent of you. The world doesn't revolve around you
everything comes from somewhere and everything goes somewhere
Re: converting kids education fund to pp but too heavy on stocks: what to do?
I'd add that ALL things being equal, selling stocks at a loss is a good thing... would you rather have them at their current price, but have to pay 20% of a large gain in tax?
A loss always makes the REAL decision easier. I'd hate to have my stocks with zero basis and 40% capital gains rate like they did back in the 70's... consider yourself luck with your decision tree at this point.
A loss always makes the REAL decision easier. I'd hate to have my stocks with zero basis and 40% capital gains rate like they did back in the 70's... consider yourself luck with your decision tree at this point.
"Men did not make the earth. It is the value of the improvements only, and not the earth itself, that is individual property. Every proprietor owes to the community a ground rent for the land which he holds."
- Thomas Paine
- Thomas Paine
Re: converting kids education fund to pp but too heavy on stocks: what to do?
Sorry moda, I don't understand what you are saying - why selling stocks at a loss is a good thing and turning paper loss to a real one unless you have to. Many who did in 2008 regretted greatly. Can you explain in easier terms for a newbie? This account is for kids college education so it is a long term and when kids cash it out they are likely to pay no tax and I pay no capital gain tax in this account. Thanks!
Re: converting kids education fund to pp but too heavy on stocks: what to do?
metta,
A loss is a loss... do you call gains when you don't sell "paper gains?" Those that sold in 2008 probably regret it, but those that sold in 2001 and invested in the PP are probably incredibly happy.
Think of it this way, if you lose money in a stock crash, and your net worth all in stocks is now $10,000, you might get a tidy ordinary loss on your tax return if you sold, bringing your "Realizable Net Worth" to about $11,000 (depending on fed/state brackets).
However, if someone else was sitting on LTT's and had $10,000 at the exact same time you had $10,000 in stocks, his "Realizable Net Worth" at that point could likely be $9,500 since he has a gain associated with it.
So you both have the same "paper wealth," but your "Net Realizable Wealth" is much higher for having that loss associated with it. Your wealth is what it is at any given point, and it's NOT a good idea to limit yourselves in imaginary ways when there are real limits, opportunities, and uncertainty out there. Japanese families that looked at their stock portfolio in 1990 and thought "paper loss" to themselves have been slaughtered over the last 20 years adjusted for the risks they took. "Paper Loss" is a term bad advisors use to distract people from the fact that they've been paying a shyster 1% of their wealth every year for the performance they could have gotten out of I-bonds purchased in 2003.
A loss is a loss... do you call gains when you don't sell "paper gains?" Those that sold in 2008 probably regret it, but those that sold in 2001 and invested in the PP are probably incredibly happy.
Think of it this way, if you lose money in a stock crash, and your net worth all in stocks is now $10,000, you might get a tidy ordinary loss on your tax return if you sold, bringing your "Realizable Net Worth" to about $11,000 (depending on fed/state brackets).
However, if someone else was sitting on LTT's and had $10,000 at the exact same time you had $10,000 in stocks, his "Realizable Net Worth" at that point could likely be $9,500 since he has a gain associated with it.
So you both have the same "paper wealth," but your "Net Realizable Wealth" is much higher for having that loss associated with it. Your wealth is what it is at any given point, and it's NOT a good idea to limit yourselves in imaginary ways when there are real limits, opportunities, and uncertainty out there. Japanese families that looked at their stock portfolio in 1990 and thought "paper loss" to themselves have been slaughtered over the last 20 years adjusted for the risks they took. "Paper Loss" is a term bad advisors use to distract people from the fact that they've been paying a shyster 1% of their wealth every year for the performance they could have gotten out of I-bonds purchased in 2003.
"Men did not make the earth. It is the value of the improvements only, and not the earth itself, that is individual property. Every proprietor owes to the community a ground rent for the land which he holds."
- Thomas Paine
- Thomas Paine
Re: converting kids education fund to pp but too heavy on stocks: what to do?
So how would you feel about selling a stock for a loss, and then buying it back a second later. Would that make you uncomfortable?
You are still selling at a loss, yet your position is unchanged.
What I am getting at is that you should ignore the price you have paid for things, except if you are doing tricky tax moves (which I don't think applies in this context).
EDIT: I think the idea of a "paper loss" stems from the belief that stocks will always go up if you simply wait long enough. This is dangerous for two reasons: Firstly, they don't always go up in an individuals investment horizon. Secondly, labeling something as merely a "paper loss" is ignoring the possibility of an emergency requiring the liquidation of assets.
You are still selling at a loss, yet your position is unchanged.
What I am getting at is that you should ignore the price you have paid for things, except if you are doing tricky tax moves (which I don't think applies in this context).
EDIT: I think the idea of a "paper loss" stems from the belief that stocks will always go up if you simply wait long enough. This is dangerous for two reasons: Firstly, they don't always go up in an individuals investment horizon. Secondly, labeling something as merely a "paper loss" is ignoring the possibility of an emergency requiring the liquidation of assets.
Last edited by melveyr on Wed Jan 18, 2012 4:22 pm, edited 1 time in total.
everything comes from somewhere and everything goes somewhere