If you have money in a 529 plan to save for college, good for you. 529 plans represent one of the best vehicles for educational savings, and with the cost of tuition skyrocketing faster than anyone can keep up with, they also represent the middle class’ only hope of paying for even 1/2 of a college education in the future.
When 529 plans were created, lawmakers attempted to correct some of the perceived issues with 401(k) plans which are similar in nature, but with a different goal. One of those issues was that the majority of 401(k) plan participants were doing it wrong, that is, investing incorrectly. One such problem was changing their investments too often in response to news events or media hype.
The solution implemented in 529 plans was that they were restricted to just one reallocation per year. In other words, if you started 2009 with half your money in the S&P 500 fund and half your money in the International fund, you could change that to something else, but only once for all of 2009.
This restriction only applies to monies already in the account and exchanging that money between investments. You can change where NEW money goes at any time. Thus, in the example above, the account owner could switch to 25% S&P 500, 25% International, and 50% bonds on March 1st, but then they could not adjust that mix again until 2010. However, the investor could elect to have all future contributions to go 100% to the Money Market fund on March 20th, and could change that again on April 19th, and so on, at any time.
2 Re-Allocations Investment Exchanges in 2009
Congress passed a law changing the rules for 2009 only. In 2009, the account owner of a 529 plan may make TWO changes to the investment allocation of the existing funds. One could therefore make a change now, and another change in September, for example. The extra change cannot be rolled over and it does not apply to 2010, as of this writing.
Ironically, this action only proves the point. Congress knows that people will be freaked out about their investments this year. That means they will want to make the same kind of current events based investment decisions that were trying to be avoided by having the once a year rule in the first place. Doubly ironic, is the fact that if one were going to “go safe” it probably should have been done in 2008.
With the new twice this year feature, Congress allows people to go safe now (too late) and then go back to “normal” later this year (probably too late as well).
If you are sitting across the dinner table from a 15 year old, then you have a pretty tough call to make, especially if you have already rung up huge losses. You are still probably better off sitting on the investment strategy you calmly and carefully analyzed when you were not scared, assuming that is how you picked your investments in the first place. While there would only be 3 years until the account was started to be withdrawn, if you are looking to use the money over a full 4 or 5 years, then you are still looking at 7 or 8 years total. There will most likely be some kind of recovery during that period.
Bond prices can only go down from here because higher interest rates cause lower bond prices and interest rates are already at zero…
If you are looking at someone under 10, do NOT panic. Now is not the time to go 100% bonds, and it is most certainly NOT the time to go 100% money market. The 20% recovery the market has already had from its lows earlier this year was the best way to get some of your money back. You have 8+ years until the money is needed, let the markets do their work during that time.
You current contributions should be going into equities. Pick a market index fund, or one of the “growth” allocations available in your plan. Yes, there may be some more downside in this market, but you will be buying cheap if you are buying into stocks now.
The opposite is true of bonds. Never forget that bond prices go DOWN when interest rates go UP. Interest rates are currently set at 0% basically. That means it is GARAUNTEED that interest rates cannot go down, they can only go up. Do the math and that means that for anything but the short-term bond prices can only go down. Why would you buy an asset that is assured of losing value?
Once any sort of recovery begins, the Fed will have to start raising interest rates, and when they do, bond prices will fall. The only way to avoid this is to own individual bonds and hold them until they mature. For bond mutual funds, they can only lose money once the recovery begins.
A quick word about money market investment options: College costs are increasing at 7% per year on average. If you are earning 3% in a money market (fat chance) you are losing 4% of buying power each year. Yes, it is painful to watch the account value go down, but it will come back and over time, the market returns 9% to 11% depending on who you ask, and how you count. In other words, your only hope to keep up with the 7% inflation of college tuition is to get that 9% in the stock market. There is no other choice.
If you can’t or won’t listen, then that is too bad for your children, but AT LEAST make sure your current contributions are going into equities. They won’t go down much more, but they could go up a lot. Maybe that will be enough to make up for making the other decision.
Too harsh? Leave a comment or shoot me an email.
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Sell Banks Stocks or Buy Bank Stocks
CommentsOk, here it comes.
After the government released the results of its stress tests, banks are scrambling to come up with ways to raise huge amounts. It seems that the government money that was a much vaunted and absolutely necessary lifeline to banks has become tainted now that it comes with, horror of horror, strings on how the money can be spent. As if the banks ever handed out a huge loan to anyone without some sort of control on the collateral.
Be that as it may, banks want out of TARP and they want out now. Even banks that would be much better off holding on to their TARP dollars are looking to buy back the government shares of preferred stock that they had to put up in order to their money. Seems there is a feeling that the banks that do keep their TARP funds will be viewed as sickly or less stable than their counterparts who repay, regardless of the cost or wisdom of doing so.
The only way for these banks to raise the kinds of dollars being thrown around is by selling off assets, which is fine if they are not part of the core business (which begs the question why they were acquired in the first place), and by selling more stock to the public. The latter means undoing decades of stock buybacks in some cases, and flat-out printing new shares in other cases. Either way, that is a huge flood of bank stocks headed for the market.
Buy, Sell, or Short Bank Stocks?
What’s an investor to do?
Get out of the way.
Frankly, there are too many variables here for any bank stock investment to be anything other than an educated guess at this point. Trading on banking stocks based on whatever methodology or information you have analyzed can be nothing more than the equivalent of counting cards in blackjack and may be nothing better than picking red or black on a roulette wheel.
When you start using gambling analogies to discuss trading options, its time to step back.
At issue, is what will happen as the various banks strive to implement their business plans to both get out from under the government thumb and pay back their TARP money. What is about to occur is unprecedented.
Typically, large corporations carefully time any additional stock sales or new issues into markets viewed as particularly favorable to their goals. Nobody is saying that is the market we are looking at today, and yet, oodles of banks are looking to unleash the single largest infusion of bank stocks into the market in…well, forever.
Secondly, as banks focus on implementing their TARP pay backs and mending their image, they are more likely than ever to take their eye off the ball when it comes to actually running their businesses. Already, companies have made consumer relations missteps that have become front page news, and Congress is talking about making credit card issuers make money fairly, instead of with fine print and contract double-talk, something most of them haven’t done in years, and may not be able to do anymore at all.
In other words, it is completely possible that thanks to a recovering economy, the largest government intervention in recent history will be a huge success and the Feds will get back all of their investment dollars and get to claim credit for saving the economy. Along the way, bank stocks may absorb the huge infusion of supply and continue upward.
It is also completely possible that more than one bank will bungle throwing off the government shackles, or in doing so weaken itself too much to stay competitive, resulting in the credit crunch failing to unwind, a short-lived dead cat bounce in the economy and the onset of a second recession or banking crisis, this time that may cause the banks to stay in government hands for good, or that will leave investors holding the bag…and their shiny brand-new shares of common stock that are now worthless.
Go buy Wal-mart or GE, or company that’s upside during a recovery is not tied solely to how it plays the game during the next 10 months.
The economy is a little shaky, but you still have needs and wants. Everyone else is in the same boat, including businesses who still have to sell products if they want to make a profit. If you have a good cash reserve and the opportunity arises, now could be a good time to get a great deal on things like electronics, washers and dryers, televisions, kitchen appliances and so on.
Not long ago, big box electronics shops like Circuit City began competing against the lower prices and better deals found online by offering just as good of prices. However, that meant they didn’t make very much profit because of the overhead of running a store. They countered that by aggressively selling extended warranties to their customers. Soon, virtually all of the profit from an electronics chain was from warranties.
Unfortunately for them, but fortunately for everyone else, customers soon caught on and came prepared for the warranty hard sell and more importantly, came prepared to say know. In the process they saved themselves from wasting a fortune, and at the same time put Circuit City and others out of business.
That doesn’t mean that retailers have stopped trying to sell extended warranties, far from it. Particularly on electronic goods, appliances, and televisions, most purchases come with at least a quick offer to purchase a warranty, if not a much harder sale. Either way, extended warranties are almost always a bad deal for consumers, not because a warranty is a bad idea, but rather because they are almost always overpriced.
The ones that are not outrageously expensive generally have “features” that make them unattractive as well such as getting a percentage of the cost based on how long you’ve used it, or worse, getting an “equivalent” replacement that usually isn’t.
But, thanks to a company called Square Trade, you no longer have to choose between worrying about what happens if your new purchase breaks, or overpaying for some 50/50 shot on an extended warranty.
The premise behind SquareTrade is that it is possible to make money on warranties by aggregating failures and spreading out risk like insurance companies. Then, selling the warranty at a fair and reasonable price assures that more warranties will be sold. Since nothing happens to most items, there is plenty of money to be made without treating anyone like a sucker.
The best part is that instead of having to keep receipts and paperwork and hope you can find them if something goes wrong, you setup an account at Square Trade and use it to manage all of your warranties in one place.
Chances are a Square Trade warranty will cost you half of what the retailer is offering you and unlike the retailer warranty, there is no high pressure to buy now. Sleep on it and buy the warranty in the morning if you think it is still a good idea.
Now, you can be covered, and not get robbed.
Don’t forget to see if you credit card offers some form of protection for your purchases as well. Generally, this will be for a much shorter term than an extended warranty, but it never hurts to know what savings you could be getting there as well.
It was with much fanfare last month that Congress and the Obama administration passed laws putting into effect government programs to help American homeowners with their mortgages. Both The Emergency Economic Stabilization Act, and The American Recovery and Reinvestment Act were front page news all over the country. A lot of this publicity was due to the fact that Americans have started to perceive the government as helping out Wall Street and big banks more than they are helping ordinary taxpayers and homeowners who did nothing wrong during the housing bubble and subsequent market collapse and banking collapse.
However, the same publicity also made it easier for scammers and dishonest marketers to take advantage of people’s hopes by pretending to have something to do with the government programs when, in fact, they are either outright scams to steal your money or steal your identity, or they are mortgage brokers or mortgage companies that have nothing to do with the government mortgage aid programs trying to insinuate that they are part of those programs. Unfortunately, many people are falling victim to these con artists and their tricks.
How To Protect Yourself From Scams, Thieves, and Con Artists Using Government Mortgage Aid Lies
First, understand the facts about how people take advantage of these government mortgage aid programs. There ARE NO EMAILS of any kind being sent to homeowners by any government agency or banking institution associated with the programs. None, zero, zip, nadda. Any email that you get of any kind, from anyone, no matter how official sounding or looking is a scam. Delete it immediately.
Second, there are no checks being issued to homeowners. Some mailings include checks that ask you to call a toll-free number for some official sounding reason. When you do, they will ask you to deposit the check, but wire some money to another account for some reason. This is a scam. The check will bounce and your wire transfer money will disappear. NO CHECKS ARE BEING SENT TO HOMEOWNERS by the government or banks. Any and all help you might be eligible for will come in the form of a refinanced loan or a load modification. Either way, there is no check involved.
Third, is junk mail designed to look like it has something to do with the government’s mortgage aid programs, but carefully worded to actually just mislead you into thinking this without actually saying it. These come from banks and mortgage brokers and mortgage companies. They are nothing more than junk mail hoping to get you to refinance with them, most likely at a higher interest rate and with higher closing costs than you could get elsewhere. There is no proactive attempt of any kind going on to contact homeowners in this way. Anything that is sent via 3rd class mail, or bulk mail of any kind is clearly not from the government or banks. It is junk mail, throw it away (actually, shred it). Even mail sent first class is most likely fake junk mail.
Use these guidelines to see if the offer you have received MIGHT be legitimate. You will still have to follow up with your mortgage company, but if any of these apply, don’t even bother, what you have gotten is phony.
- Only Mortgages backed by Fannie Mae and Freddie Mac are eligible. If yours isn’t, there is no aid program for you.
- The official title of the Government Refinancing program is “The Home Affordable Refinance” program. Scammers will carefully avoid using those exact words to avoid fraud liability.The overall program name (both loan modification and refinance) is “Making Home Affordable”, again, scammer will avoid the exact wording. If those exact words are not used, then you are holding onto a scam.
- There is no charge, no fee, and no up front payment of any kind. Anything asking you to send money is a scam.
- There is no need for you to send your personal information to anyone. The government and the banks already have your name, address, and social security number. There is no need to “verify” this information for any reason. Anyone calling on the phone, or any mailing asking you to reveal your social security number for any reason including verifying your identity is a scam.
The best way to avoid scams is to look-up your lender’s phone number independently (do not use the number provided which obviously rings where the scammers want it to ring) and call them to ask if you qualify.
Remember, there are no government mailings, government phone calls, or government emails of any kind. Anyone saying differently is a con artist, fraud, and liar. Hang up, shred, or delete immediately and save your money and your identity.
Here is the latest OCC Tips for Avoiding Mortgage Modification Scams and Foreclosure Rescue Scams
Copyright 2009 – Exclusively Published at FinanceGourmet.com – ArcticLlama, LLC
