Personal Finance Financial Planning & Investing

[4Q Basket Case]

Something of a repeat of my post from March 18, along with something to consider.

Thinking about all the nastiness in the financial markets. We can yell and curse and stomp feet and burp about what's causing it, whose fault it is, and who to blame until we're blue. It won't help. What will help is rational decision-making.

If you're one or more business cycles away from retirement, put cotton in your ears and keep on keeping on. As another poster characterized this philosophy, "Keep calm and invest on."

The most successful investor of our time (maybe all time) is Warren Buffett. One of his great quotes is, "The market is designed to transfer money from the active to the patient."

So be a patient recipient of the market's largesse.

For those closer to retirement, or in retirement, here's something to consider: Convert some or all of your Traditional IRAs to Roth IRAs.

Here's the deal: In Traditional IRAs, contributions are in pre-tax dollars, but you pay tax on withdrawals. In Roth IRAs, the contributions are in post-tax dollars, but withdrawals -- even if there are massive gains since the contribution -- are tax-free.

The reason it might be a good time to convert is that you have to pay tax on the conversion now. Which sounds counterintuitive.

But you have to pay tax on withdrawals from Traditional IRAs anyway. And because today's market, especially the tech sector, is down significantly, the amount of the tax you incur in the conversion to Roth might be less than what you'd pay on Traditional withdrawals in the future. Since you'd be converting at a down time, you stand to gain a lot -- tax free -- when the market comes back.

And it will come back. So this is a twist on buying low and selling high.

Now, everybody's tax situation is different. One size definitely does NOT fit all. There could be reasons specific to you that this isn't a good idea. There could be reasons it's a great idea.

Regardless, it's definitely worth asking the question. Talk with your financial advisor and make the right decision for you.

Whether you decide to convert or not, you're making a conscious decision and taking control of your situation.

 

[BamaNation]

I think perspective and pictures really help here. Here's the complete VTI (Vanguard total stock market index) since its creation 24 years ago. Stay the course. Probably a good time to again point you to the Personal Finance sub-menu at the top right of the page which points to a bunch of specific topics we've had in this series. Thanks to 4Q and others for providing depth, insight, and calming voices amidst the bull and bear runs over the 6 years that we've had this series.





ALSO, this could be a GREAT time to simplify your holdings by selling funds/stocks that are currently at a loss and immediately reinvesting in an index fund (not the same fund but one that is similar), harvesting the loss (Tax Loss Harvesting or TLH), and using that loss to reduce your taxes for 2025 and/or in the future. I talked about something like this in my Complexity vs Simplicity post a few years back. This may be particularly useful for inherited funds / individual stocks and/or high-expense funds that you've been wanting to change.

 

[BamaNation]

Here's another chart showing treasury yields. To quote the WSJ article where I found this, "bond traders are reflexively pricing in the simplest scenario—a short-term economic shock followed by a rapid return to the status quo."

Whether this is the case or not will be proved out in the coming weeks, but that's what the "smart money" is doing. Things may change rapidly intra-day or intra-week. But longer-term, I'm "betting" this way too by staying the course.

 

[4Q Basket Case]

The current volatility in the equity and debt markets is a great illustration of an old adage: "The markets can handle bad news. They don't like it, but they can handle it. What they can't handle is uncertainty."

It's true that nothing is ever 100% certain. But there's a base level of "life happens" uncertainty just built in. It's when you inject uncertainty that is materially greater than the inherent level that you get problems. It's especially bad if it's injected quickly as opposed to over time.

That's what we have now -- a massive wave of uncertainty injected ex cathedra, all at once, for reasons that have nothing to do with the underlying economy's fundamentals. Are tariffs for real? Are they a bluff? Is someone (or a group of someones) intentionally manipulating the markets? What in the world is the reasoning behind this? Will things get back to normal? Even if they do for a while, could these morons do it again (or something else equally illogical) and this mess raises its head in the future? How is it even possible to plan for the future?

That's a lot of well-founded uncertainty, all coming in just the last few weeks.

Why this is happening, I don't know. I'm not sure even the perpetrators know. It makes no sense whatsoever.

I have re-visited my original position on pointing fingers and yelling and stomping. I initially thought that was a futile exercise, and our energy would be better spent doing other things.

I now think it might actually help in that it can focus the DC political streetwalkers (which is all of them regardless of their political party, personal plumbing, skin color, or preferred characteristics of a life partner) on their chances for re-election.

Still, that's a question for the ballot box and doesn't help your investment portfolio today. So what should you do now? Likely nothing.

The rest of this post, including the closing sentence, is an excerpt from a WSJ newsletter:

​

Q: The stock market is in chaos. Should I stay in or get out?​

The Trump administration’s shifting signals about tariffs have sent stocks and bonds—and investors’ stomachs—heaving up and down. The key to survival is thinking clearly—and asking the right questions, writes Jason Zweig.​

A: Now isn’t the time to load up on stocks whenever they slump—or dump stocks out of fear they’ll fall further. Instead, ask yourself these questions:​ What do you own? You can’t make a reasoned decision about whether or what to sell if you don’t know exactly what and how much you own. (With the S&P 500 down more than 10% this year, you may be less overexposed than you were a few months ago.) Why do you own stocks? To benefit from the stability of longstanding trade agreements? Probably not. Most likely, you want to participate in the long-term growth of the U.S. (and global) economy. That leads directly to the third question: What has changed? People, companies, markets and countries are remarkably resilient. Still, markets might not recover on the timeline you need. Look inward: If you’re in or near retirement, you can’t wait years or possibly even decades. Finally, if you didn’t already own this asset, would you buy it at this price? Beware of the tendency to measure your gains and losses against a vivid, recent reference point rather than against what matters: the price you originally paid. You may find that you’re sitting on a profit, not a loss. If you can’t answer the four questions, you have no business taking drastic actions.​

 

[BamaNation]

If the tariffs isolate & expose China for who they really are, even unintentionally, and it forces them to uncharacteristically capitulate, then that will be a good thing and worth the short-term pain. Given typical Chinese views on saving face, I don't have much hope in this being what happens. If tariffs are the impetus of reordering the underpinning of the US economy, probably not so good. But, @4Q Basket Case , you're spot on in that the uncertainty is what is stoking the sell side. That and being able to get 4+% in "risk-free" treasuries. "Why buy into the market uncertainty if I have a sure thing in treasuries risk-free?" That's the mantra for the traders. We aren't traders, we're investors so...

While past performance is no predictor of future results, it does give perspective. Perspective is what we (I) need right now. If you're selling because of short-term actions / policies, you're probably not cut out for market investing, IMHO.

Charts give lots of perspective. Here's the last 25+ years S&P chart with the 1999-2001 dot bomb, 2007-2009 global financial crisis, 2020-2021 Corona, and April 2025. Nothing is certain through any of these events except that with time & perspective, the line keeps moving toward the upper right. You just have to have the nerves and calmness to don't just do something, but stand there and stay the course.



On a personal note, we had been contemplating what to do with cash from recent dividends in our brokerage & Roth accounts. Going against my own advice of not timing the market, I was waiting to see what happened with the tariffs. Market kept moving down and I was expecting it to keep moving down for a few more days. Then it spiked on Wednesday and I paid 7% more than I would have on Monday if I hadn't been indecisive.

Additionally, yesterday, I was continuing to put some remaining dividends to work as the market was down 2% and a short few hours later it was up 3% so I made 5% on what I invested yesterday.

The story for me is to not try to time the market - time IN the market is better than TIMING the market.
As they say, Nobody knows nothing. If they tell you they do, they're lying. So, don't try to predict anything. Just invest for the long term and one daily move of -5-8% won't even matter 20 years from now. But being in the market at your desired asset allocation on the day it goes up +5-8% really will matter.

 

[PA Tide Fan]

Since the market is down right now I'll bring up the practice of rebalancing a portfolio periodically. If the recent drop has caused an investor's portfolio to have 5-10% less in stocks than they normally would then it makes sense to buy the market right now to get the stock portion of the portfolio back to where it was. During times when the market is soaring and the stock portion becomes higher than normal an investor would sell some stocks to get it back down to a normal allocation again. By doing that an investor is always buying a little when stocks are low and selling a little when stocks are high. This works perfectly in any tax-deferred account where there are no tax consequences. In a taxable account an investor needs to calculate how much tax is involved in rebalancing.

 

[BamaNation]

... annnnd we're back above the S&P level prior to "Liberation Day." Still down a couple % YTD. Who knows what will happen good/bad in days/weeks/years ahead, but yet another example for me of "just don't do something, stand there" to Stay the Course !

If you Tax Loss Harvested equities on Apr 2-3 you're up ~10% in a month. Yet again, another reason to know what our allocation risk tolerance is and stick to it and rebalance / TLH when necessary.

Refer back to what 4Q posted from Jason Zweig's article, too!

(BTW, a great podcast interview recently with Zweig on the Bogleheads on Investing podcast. I recommend listening to ALL of the BHOI episodes. GREAT interviews in a non-hype way. Rick Ferri is the host and has written several books, is a board member of the John C Bogle Center for Financial Literacy and has his own fee-only advising practice. He's solid and sort of the opposite of the current sleazy crop of idiot/hype/meme financial gurus.)

 

[BamaNation]

WSJ had an interesting article today on the perception split between red & blue political leanings of investors. I couldn't care less who you voted for or why ... and that's not pertinent to this series.

BUT the point of the article really does matter ... and that is it really doesn't matter who is in charge, you're better off buying and holding for the long term:

Investing $1,000 upon President Dwight Eisenhower’s inauguration in 1953, and holding only when a Republican was president, would produce about $29,000 today, according to Paul Hickey at Bespoke Investment Group. The same sum held only during subsequent Democratic administrations would be worth more than double that. Simply buying and holding would have yielded around $1.9 million.

If that's not motivation to leave your politics (worries, glee, gloom, or giddiness) at home when you decide how you're going to invest, I don't know what is.

 

[PA Tide Fan]

WSJ had an interesting article today on the perception split between red & blue political leanings of investors. I couldn't care less who you voted for or why ... and that's not pertinent to this series.

BUT the point of the article really does matter ... and that is it really doesn't matter who is in charge, you're better off buying and holding for the long term:



If that's not motivation to leave your politics (worries, glee, gloom, or giddiness) at home when you decide how you're going to invest, I don't know what is.

I agree. CEO's of companies are usually able to adjust to whatever policy changes occur when the balance of power shifts in D.C. and are able to make profits regardless, thus pushing the stock market higher over time. I think bad decisions by the federal reserve have probably cause more recessions and stock market declines than politicians have. Typical mistakes by the federal reserve are to either raise interest rates too much or wait too long to start cutting them.

 

[BamaNation]

The Roth IRA effect ...
Mrs. BN and I were talking about things we "didn't" do early on. One thing we would change is to make sure we contributed the max to Roths in those first years it was available.

This table (produced by chatgpt for me) shows the year, total stock market return for the year, the individual "pre-age-50" Roth contribution limit and the 2025 market value of that contribution for that year. (I'm using total market return because, in most scenarios, you should have your highest expected return asset in your Roth. For us it is a total stock market fund.) You can see that if one had contributed the max to Roth each year since Roth began in 1997, one would have nearly $500k today having only contributed $130k in total over nearly 30 years. I told her we weren't going to fret over what we didn't do early on but use this as a motivating factor for our kids !

We started our older daughter - who is nearly 19 now - in a Roth account when she earned a few hundred bucks in a school internship 3 summers ago. She worked as a lifeguard last summer and earned a couple of thousand. She has done some behind the scenes work for TideFans, as well. The Bank of Daddy matched her earnings into her checking/savings account and she then contributed all of her earnings each of those years into a Roth and now has a sizeable jump on saving for retirement and can see tangible results of saving/investing for retirement that she will hopefully continue herself as she matriculates toward graduation and a career. Also, she's currently on a full tuition scholarship at a Top 20 university so all of the excess $ (up to $35K) we will have saved for her college costs in a 529 plan can be converted into her Roth after graduation in a few years. But it all starts with saving early and often - something we didn't do early and now have to do often

Sure, you have to earn to save and you have to save to earn the result. The lesson for me is very clear... at a minimum we should have (and all need to) max contribute to our 401k up to at least the amount matched by employers and to max contribute to Roth (directly or via backdoor, or mega backdoor) and let that Roth grow without being taxed after the contribution and never be taxed upon withdrawal. (other caveats like don't max out credit cards, don't buy bling-bling, don't buy unneeded cars, don't buy too much house, etc. etc. etc. are also hard lessons learned).

Anyway, thought this was insightful and wanted to share with the group.

Year	Total Market Return (%)	Roth IRA Limit ($)	2025 Value of Contribution ($)
1997​	31​	$ 2,000.00	$ 16,411.00
1998​	24​	$ 2,000.00	$ 13,234.68
1999​	20.9​	$ 2,000.00	$ 10,946.80
2000​	-10.6​	$ 2,000.00	$ 12,244.74
2001​	-13​	$ 2,000.00	$ 14,074.41
2002​	-22.1​	$ 3,000.00	$ 27,100.93
2003​	28.7​	$ 3,000.00	$ 21,057.44
2004​	10.9​	$ 3,000.00	$ 18,987.77
2005​	4.9​	$ 4,000.00	$ 24,134.44
2006​	15.8​	$ 4,000.00	$ 20,841.49
2007​	5.5​	$ 4,000.00	$ 19,754.97
2008​	-37​	$ 5,000.00	$ 39,196.36
2009​	28.7​	$ 5,000.00	$ 30,455.60
2010​	17.1​	$ 5,000.00	$ 26,008.20
2011​	1​	$ 5,000.00	$ 25,750.69
2012​	16​	$ 5,000.00	$ 22,198.87
2013​	32.4​	$ 5,500.00	$ 18,443.17
2014​	13.7​	$ 5,500.00	$ 16,220.91
2015​	1.4​	$ 5,500.00	$ 15,996.95
2016​	11.9​	$ 5,500.00	$ 14,295.76
2017​	21​	$ 6,000.00	$ 12,888.74
2018​	-5.2​	$ 6,000.00	$ 13,595.71
2019​	18.4​	$ 6,000.00	$ 11,482.87
2020​	28.7​	$ 6,500.00	$ 9,665.71
2021​	-18.1​	$ 7,000.00	$ 12,709.68
2022​	16.3​	$ 7,000.00	$ 10,928.36
2023​	25.7​	$ 7,000.00	$ 8,694.00
2024​	24.2​	$ 7,000.00	$ 7,000.00
Total		$ 130,500.00	$ 494,320.25

 

[oskie]

The Roth IRA effect ...
... <snip>
We started our older daughter - who is nearly 19 now - in a Roth account when she earned a few hundred bucks in a school internship 3 summers ago. She worked as a lifeguard last summer and earned a couple of thousand. She has done some behind the scenes work for TideFans, as well. The Bank of Daddy matched her earnings into her checking/savings account and she then contributed all of her earnings each of those years into a Roth and now has a sizeable jump on saving for retirement and can see tangible results of saving/investing for retirement that she will hopefully continue herself as she matriculates toward graduation and a career. Also, she's currently on a full tuition scholarship at a Top 20 university so all of the excess $ (up to $35K) we will have saved for her college costs in a 529 plan can be converted into her Roth after graduation in a few years. But it all starts with saving early and often - something we didn't do early and now have to do often
... <snip>

Did the exact same thing for our daughter several years ago. I have matched her earnings every year and plan to do so until she is out of school and drawing a full paycheck.
My hope is the same as yours; give her a solid foundation, plus teach her how to build on that foundation, to produce a comfortable cushion on which she can retire to.

She spent her first year at university at one of their European campuses, before a couple years in the States. Now she is finishing her senior year back on the European campus.
The cost of her schooling has been somewhat like a mortgage (front loaded), but second and third year was in-state tuition, which was the deal for going abroad her first year - would have been out-of-state, otherwise.
Her senior year, however, has cost us Zero, because she has been on staff with the school this whole year. They paid all of her expenses, including travel to and fro. That was a bonus we had not planned for. Very grateful!

Because we had a prepaid tuition plan, and we did not need to use all of it, hopefully, our plan will also be eligible to be converted into her Roth IRA. Thank you for mentioning that. I was not aware of that possibility.

 

[BamaNation]

Did the exact same thing for our daughter several years ago. I have matched her earnings every year and plan to do so until she is out of school and drawing a full paycheck.
My hope is the same as yours; give her a solid foundation, plus teach her how to build on that foundation, to produce a comfortable cushion on which she can retire to.

She spent her first year at university at one of their European campuses, before a couple years in the States. Now she is finishing her senior year back on the European campus.
The cost of her schooling has been somewhat like a mortgage (front loaded), but second and third year was in-state tuition, which was the deal for going abroad her first year - would have been out-of-state, otherwise.
Her senior year, however, has cost us Zero, because she has been on staff with the school this whole year. They paid all of her expenses, including travel to and fro. That was a bonus we had not planned for. Very grateful!

Because we had a prepaid tuition plan, and we did not need to use all of it, hopefully, our plan will also be eligible to be converted into her Roth IRA. Thank you for mentioning that. I was not aware of that possibility.

529 to ROTH IRA
There are some caveats on that conversion of 529 to Roth... whitecoatinvestor.com probably has the best actionable details I've seen on this but here's a summary below. Point #3 may be a key limitation for many folks in doing this after the kid graduates college. My suggestion to new-ish parents is to open the account immediately upon child's birth (if not before) and contribute now so that you have that 15 years in by the time they're finishing HS and don't use contributions for anything (i.e. private school tuition, etc) before college. Contribute and let it grow.

Here's what Grok says:
Converting funds from a 529 plan to a Roth IRA is allowed under the SECURE 2.0 Act, effective January 1, 2024, but comes with specific rules and limitations. Here's a concise breakdown:

1. Lifetime Limit: Up to $35,000 per beneficiary can be rolled over from a 529 plan to a Roth IRA, tax- and penalty-free.
2. Annual Contribution Limits: The rollover amount in any given year cannot exceed the annual Roth IRA contribution limit ($7,000 for 2025, or $8,000 for beneficiaries aged 50 or older). This counts toward the beneficiary’s total IRA contributions for the year. For example, if they contribute $2,000 to an IRA, only $5,000 can be rolled over from the 529.
3. 15-Year Rule: The 529 account must have been open for at least 15 years with the same beneficiary. Changing the beneficiary may reset this clock, though IRS guidance is unclear.
4. 5-Year Rule: Funds being rolled over (contributions and associated earnings) must have been in the 529 account for at least 5 years. Contributions made within the last 5 years, and their earnings, are ineligible.
5. Beneficiary Ownership: The Roth IRA must be in the name of the 529 plan’s beneficiary, not the account owner.
6. Earned Income Requirement: The beneficiary must have earned income at least equal to the rollover amount in the year of the transfer. For example, to roll over $7,000, they need at least $7,000 in earned income.
7. No Income Limits: Unlike regular Roth IRA contributions, 529-to-Roth rollovers are not subject to modified adjusted gross income (MAGI) limits, allowing high earners to participate.
8. Trustee-to-Trustee Transfer: The rollover must be a direct transfer from the 529 plan to the Roth IRA, not an indirect withdrawal. Some plans require specific forms, like Form 310 for the 529.
9. State Tax Considerations: Not all states recognize 529-to-Roth rollovers as qualified distributions, which may result in state income tax or recapture of prior tax benefits. Check with your state’s 529 plan or a tax advisor.
10. Process and Paperwork: Verify eligibility, confirm the Roth IRA account exists, and contact the 529 plan provider for their rollover process. Some providers, like Edvest 529, require a Direct Rollover Out to Roth IRA Form. Processing times vary.

Additional Notes:

• Rollovers take multiple years due to annual limits (e.g., $35,000 would take at least 5 years at $7,000 per year).
• IRS guidance is still pending on certain details, such as the impact of beneficiary changes or account transfers on the 15-year rule.
• Consult a tax professional to ensure compliance and understand state-specific tax implications.
• This provision offers flexibility for unused 529 funds, but it’s not a loophole for unlimited Roth contributions due to the strict limits and requirements.

 

[BamaNation]

TRUMP ACCOUNTS ... AKA "Baby Bonus Accounts"
Some valuable insight from WhiteCoatInvestor.com on the new "Trump Account" (TA) that was part of the recently past budget bill. Don't want any political discussion of this or the name, just providing details for your kids or grandkids that could benefit if they're born in 2025-2028 (or later if it is extended) ...

In summary:

• Every kid born in the U.S. between 1/1/2025, and 12/31/2028 gets $1K put into a TA opened by the parents (or the Fed gov't if a Federal tax return with the child on it gets filed and there is no account yet) with the child as a named beneficiary.
• Must be invested in a broadly diversified, US stock index fund with an expense ratio of less than 10 basis points (0.10%).
• Cannot be withdrawn prior to the beginning of the year the kid turns 18.
• Additional money can be contributed to the account by taxpayers and their employers, up to $5K per year (indexed to inflation).
• Tax deduction for employers who contribute up to $2500. No tax deduction for individual taxpayers who contribute - but still a good idea to do so if able.
• Again, they key is to instead of buying bling-bling, here's a way to invest in a kid's future so they don't have to take out debt to fund college, cars, home down payments, etc.
• The downside (to some), is that those who actually should take advantage of this, will not do so. However, there are plenty of ways to earn the additional $5K per year to contribute - through side hustles, etc., making a kid contribute from their part-time job earnings until s/he is 18, etc. Regardless, there's lots of upside opportunity that probably won't fully be taken advantage of, unfortunately.

If you put in $5,000 a year for the first 18 years of the child's life and it grows at 7% real, that account will be worth $170,000 in today's dollars at age 18 and, if left alone, over $4 million in today's dollars at age 65. The fees on this account are dramatically lower than an annuity, which would be taxed similarly. You can pay for your kids' retirement for only $90,000.

Mrs. BN & I most likely won't have any more kids in this period (or grandkids!). However, if it is extended, when & if the time comes, this is likely something we would contribute to for any grandkids.

Seems like a no-brainer to me for any kids born over the next 3.5 years!

 

[Bamaro]

Forecasts predict a dismal decade for stocks. Here's what to do.
Over the past several decades, the U.S. stock market has yielded average annual returns around 10%.
In recent forecasts, Vanguard projects the stock market will rise by only 3.3% to 5.3% a year over the next decade. Morningstar sees U.S. stocks gaining 5.2% a year. Goldman Sachs forecasts the broad S&P 500 index will gain only 3% a year. Those numbers aren’t outliers. A roundup of market prognostications, charted by Morningstar, finds no one projecting annual returns higher than 6.7% for the domestic stock market in the next 10 years.

The simple reason forecasters don’t expect much from the U.S. stock market over the next decade: stock prices are already very high.
Just how overpriced is the stock market? Economists have a yardstick to measure that. It’s called the cyclically adjusted price-to-earnings ratio, or CAPE ratio. It measures a stock’s price against corporate earnings. It tells you, in effect, whether the stock is overvalued or undervalued.

Right now, the CAPE ratio for the S&P 500 stands at 38.7. That means stock prices are very expensive, relative to earnings.
There are two prior moments over the past century when the CAPE Ratio was really high. One was in 1929. The other was in 1999. In the decades that followed those peaks, the stock market sank like a stone: The Great Depression of the 1930s, and the dot-com bust and Great Recession of the 2000s.

Here’s another reason many forecasters are down on U.S. stocks, and especially the monster stocks known as the Magnificent Seven: Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta and Tesla.
Together, the Seven represent 34% of the overall value of the S&P 500, up from 12% in 2015, Motley Fool reports. That’s called market concentration, and it can be a bad thing.

Forecasts predict a dismal decade for stocks. Here's what to do.

 

[BamaNation]

@Bamaro - I'm going to be brutally honest: I trust MSN / USA Today / MarketWatch, talking heads, etc. as much as I trust Hugh Freeze with a burner phone. However, in this article, they do quote Vanguard & Morningstar predictions - both of whom I do trust much more.

Mrs BN & I plan for 4% returns and save accordingly. Over the last 10 years, we have earned 11.4% avg. So, with nearly triple outsized returns compared to our plan, it's been like a turbo boost on our portfolio. The key is to not expect 10% (or 11.4%) forever or to make decisions about wealth, future purchases, etc. based on that.

Here are the S&P500 historical annual returns going back to 1927:



and the S&P500 index over the same period:



It's also important to take a peek at the Callan Periodic Table of Returns and see how different indices perform year to year...each color is a different type of investment (Large cap, small cap, HY Savings, cash, emerging, int'l, fixed income, etc) in order of highest to lowest return in that year over the last 20 years. but rarely is the same one at the top in consecutive years. This is the impetus for us holding a Boglehead's friendly 3-fund portfolio - a passive, low cost, broad based equity index (total market), fixed income (bonds), and total international. We aren't smart enough to figure out which of the indices below is going to be the winner each year so we hold it all.



If we do have a 10-yr period of low returns, keep investing, maybe even increase our amounts at the "lower" prices so that when the market gets back to its ~10% historic average, we are on turbo.

For those of us in or near retirement, we don't have as much runway, which means we have to evaluate our asset allocation and ensure it matches what we can be comfortable with a.k.a. our "sleep number."

In our own portfolio (i.e. effectively: 35% VTI / 30% BND / 25% VEU / 10% VBR ), this is how the annual returns would look doing a backtest over the last 40 years. The CAGR is about 8.4% with a stddev of ~11% and maximum drawdown of 38%. "Past results are no guarantee of future performance" ... but I'll take it.



With this allocation, assuming we had had $10K invested in 1987... not investing a single penny more, we would have $220K today. Even with those drops along the way. and high inflation in the 80's and recently. BUT, contributing $10K per year, each year would take that to nearly $3.5MM today. So, the key is stay the course - regardless of politics, international chaos, inflation, whatever.

I'm going to try and find some info from 10 years ago and find what they were predicting then. I've got a few books that had these same types of predictions. The truth is nobody knows anything about anything (particularly the future) but we can make some plans based on an expected return based on market history and what happens after a period of high returns. Ultimately, buy (a lot) low, sell (some) high still works.

 

[Bamaro]

@Bamaro - I'm going to be brutally honest: I trust MSN / USA Today / MarketWatch, talking heads, etc. as much as I trust Hugh Freeze with a burner phone. However, in this article, they do quote Vanguard & Morningstar predictions - both of whom I do trust much more.

Precisely. Its food for thought.

 

[BamaNation]

This week, I listened to the Bogleheads podcast with Rick Ferri interviewing Vanguard's Jeff Clark on "How America Saves." In the context of @Bamaro's post got me thinking about how >70% of new hires at companies with 401k plans are now automatically enrolled and a big number have contribution auto-increase built in, as well... how this might affect markets? It is SO much easier to invest now than ever before that there may be a new valuation standard that is higher than previously because of that "demand." Don't know if that's the case here, but might make sense as to why valuations are higher than historically.

Haven't found specific year-by-year predictions vs actuals but overall, studies that I've found show equity risk premium [ how much investors expect to earn on equities over risk-free investments (bonds) ] predictions tend to be more pessimistic than what actually happens. Regardless, I'm still going to be staying the course, incorporating the 4% expected return in my planning horizon, and hoping for the 11.4% actual return

 

[BamaFanatJSU]

529 to ROTH IRA

15-Year Rule: The 529 account must have been open for at least 15 years with the same beneficiary. Changing the beneficiary may reset this clock, though IRS guidance is unclear.

BN, do you happen to know if the clock on the 15-year rule is reset if you roll from one 529 account to another?

My situation: the kids are 14 and 11, and I started funds for both at birth with the NY529 program (it was considered one of the best at the time). However, after some advice from an FA friend - who said that the Alabama CollegeCounts 529 plan was now led by a far better group of strategists than it had been previously - I did a full direct rollover of those funds for both kids to corresponding accounts with the ALCC529 in 2023.

I don't regret making the switch, as the ALCC529 fund's performance has so vastly outstripped the NY529 over the last two years, but I do have to admit that I will be bummed if that means we won't be able to roll the max allowable into IRAs for both kids after graduation (fortunately, we're calculating that we'll likely have more than the kids will need to cover 4-5 years at UA).

Any insight you might be able to provide would be sincerely appreciated!

 

[BamaNation]

BN, do you happen to know if the clock on the 15-year rule is reset if you roll from one 529 account to another?

My situation: the kids are 14 and 11, and I started funds for both at birth with the NY529 program (it was considered one of the best at the time). However, after some advice from an FA friend - who said that the Alabama CollegeCounts 529 plan was now led by a far better group of strategists than it had been previously - I did a full direct rollover of those funds for both kids to corresponding accounts with the ALCC529 in 2023.

I don't regret making the switch, as the ALCC529 fund's performance has so vastly outstripped the NY529 over the last two years, but I do have to admit that I will be bummed if that means we won't be able to roll the max allowable into IRAs for both kids after graduation (fortunately, we're calculating that we'll likely have more than the kids will need to cover 4-5 years at UA).

Any insight you might be able to provide would be sincerely appreciated!

Unfortunately, appears there is currently no clear IRS guidance on this. Below in blue is what my529.com has to say about it.

for context: my529 is UT's plan ... we opened both kids an acct here several years after doing a LOT of research ... a couple years before we moved here b/c it was one of the highest rated, lowest costs, and uses vanguard funds. We actively contribute to my 14yo. daughter's my529 acct now.

We use my college daughter's GA acct as the one we're w/d from for her current expenses that are covered by 529 and not paid for by scholarships. Her my529 acct will probably be used for her final couple of years as needed. We also have one with Fidelity that we've used to contribute cash back from various credit cards to fund it and opened just after her birth because we really didn't know much about what we were doing re: 529's (nearly 20 years ago) ! Seems it was prescient, now ... we expect this one to be the one that is rolled over to the Roth. Any extra remaining will become legacy / multi-generational for any grandkids.

Our philosophy on saving was we said we would pay out of state cost of attendance for Bama and adjusted our savings with that as the target. That was our philosophy for wherever she might end up. She's at a private, top 20 college that is ridiculously expensive. But she's doing AFROTC on a full tuition/fees/books merit scholarship and us paying only room/board so we're of the opinion we're getting a great deal and as long as she keeps working hard and stays in AFROTC (which she loves), we'll have significantly overfunded allowing for 529-to-Roth and multi-generational funding. We're totally ok with this. We have a pretty detailed planning spreadsheet that tracked the cost of attendance for Bama (at various scholarship levels) and other schools for which she was interested as she got older. Probably overkill but gave us comfort and confidence that wherever she went, we had a plan. Younger daughter told me this weekend "I am only interested in Alabama. I will not be applying to any other school." We'll see.

"Section 529 requires that the 529 account be open for at least 15 years before a qualified rollover may be made to a Roth IRA. If a my529 account was opened with a rollover from another plan, does that reset my 15-year clock? my529 does not have any guidance from the IRS on whether a rollover from another 529 plan resets the 15-year requirement. The 529 industry submitted a letter to the IRS in September 2023 seeking guidance on this issue. It is unclear if or when the IRS will provide the requested guidance."

Here's another similar interpretation at JHInvestments.com:

Does the clock for the 15-year requirement start over if a 529 account owner rolls over funds to another state’s 529 plan run by a different plan manager? It’s unclear. Circumstances under which a 529 account owner may wish to consider such a rollover include dissatisfaction with the plan’s fees, investment performance, or services or instances in which an owner consolidates multiple 529 accounts into a single 529 plan rather than keeping them spread across different plans.


Kitces has a good summary of the 529-to-Roth Rollover details but doesn't address this specific question.

Here's some other opinions/insight/FAQs on the 529-to-Roth rollover. Given it's been 2 years and IRS still hasn't issued guidance, they probably won't or they'll stick their finger in the air to see which way the winds are blowing. My gut says if they ever do comment, transferring from one state's 529 plan to another state's will be allowed and not reset the clock, but again, there's no guidance that I can find about that at this point in time.

• Legal aspects & details on which states qualify... and which don't ... and a detailed personal experience in how CO & UT have responded to the author's questions about the process: https://www.advisorperspectives.com/articles/2024/02/15/law-strategies-convert-college-529-roth
• State 529 conference insight: https://www.529conference.com/status-board-secure-2-0-529-state-updates/
• https://www.jhinvestments.com/viewp...Roth-IRA-helping-clients-navigate-the-details
• ($$$) Morningstar's 529 coverage and 529-to-Roth rollover advice ... Pro tip: If you have a college student / teacher / vet in the family, have them signup for Morningstar and get a DEEP discount (ie. only $25-100 vs $250+ )

As an aside, here is Morningstar's ratings for top 529s:

Top rated Gold-Rated 529 Plans

• Alaska
• Illinois
• Massachusetts
• Pennsylvania
• Utah

Hope this helps to at least guide your thinking!