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Tuition Doesn’t Grow on Christmas Trees

My son was just accepted early to college, so I have been giving 529 Plans a deep thought these days. Talk about a gift that keeps on giving! What a benefit it has been for so many who have had parents or grandparents accumulate savings for college in the form of tax-free compounding in 529 plans. Let’s face it, one dollar saved in a 529 plan five, ten or 15 years ago is almost certainly worth considerably more today, given market returns; but will this performance continue similar to past performance? Should you make changes to how your 529 is invested if you are close to spending it? We don’t mean to be sending out warning flags, but this is a saving program that many fortunate investors take for granted, and are ill prepared for the effects of a long-term decline. With the S&P Index now up about 15.5% this year, most investors in 529 plans are fortunate for having the long term goal and discipline for saving money in this wrapper. But this money has a specific targeted goal, so keep track of where you stand, relative to that goal. Depending upon your circumstances, you don’t want to be scolded by your kids when you come up short due to the timing of a pullback.

Financial advisors who are knowledgeable in this space can highlight that not all the 529 programs are managed the same way; but for those who have saved the direct route, we provide some easy links to review on your own.

True story – In 2008, I was involved in creating an educational 529 strategy for a client who was an ultra-high Net worth family, distributed across 24 children and grandchildren. In total it was funded by about $1 million. Yes, that is real generosity on the part of the grandmother! I am thrilled that I was able to help impact so many lives. Much of the money was targeted for the benefit of the children and designed so the program could be passed down to great-grandchildren. I would expect that a good portion of the money remains fully invested. According to the Federal Reserve, back then the total 529 platform program had assets worth about $105 billion; Today it is probably worth close to $400 billion, assuming the trajectory follows the trend. As of 2019 the value was $371 billion, so this seems reasonable. See Link to Federal Reserve for details.

Here is the problem. Not everyone has a great-grandmother or mother who can provide such a plan for funding education, and runaway inflation in education is frightening and putting people’s dreams at risk. Shocking as it sounds, even with Covid-19, 30 out of 50 of the richest schools have pressed forward with previously announced tuition hikes. Yes, in the face of providing a lesser experience, tuition is going higher. In October, Hank Tucker wrote an article in Forbes titled “Charging More While Providing Less During Covid” . As the chart below shows, many of these institutions have Endowments per student in the millions, and we define “online” classes as being a lesser experience.

We all know that money does not grow on Christmas trees! Last week, we had a discussion during our Thursday Get Think Tanked Happy Hour with Jeff Booth about how deflation is taking inevitable shape in the global economy. Jeff recently released the book The Price of Tomorrow, which was dedicated to his children. This week we have Marc Faber and we expect the discussion to continue to be equally as robust. Back on May 7th during our Happy Hour, Mr. Faber projected precisely how 2020 would play out. He was surprisingly optimistic about the markets and basically highlighted that the Fed could have a real problem if stock markets hit all time highs and economies don’t follow. Now with Janet Yellen as the next Treasury Secretary, it will be interesting to hear if his views have changed and what the implications are for all this printing on taxes. Just remember, sometimes it is the things that we don’t want to hear that are most helpful in planning for the future!

Circling back to the initial issue of 529 rebalancing and the risk of complacency. Regardless of whether you are in the camp of deflation or inflation, we think it is important that 529 investments be evaluated relative to the risks inherent in the new environment. It is likely that the Fed, and global central banks in general, will continue to be a backstop for a while, but at some multiple of earnings, money stops growing on trees and people’s plans could be put in jeopardy. The warning flags are all there, so the question is only whether a plan B is in place for what to do when market volatility picks up. Sophisticated investors can all point to their favorite red flags, but it is the actions that are taken that matter. What can we say: “Structure Matters!”

On a lighter note, from Toroso and the ETF Think Tank, we wish all of you a Happy Holiday. Most of us remain in lock down and the Zoom experience seems to be defining our lives and family memories. Hope you can find some laughter and happy masks. We can all spend too much time worrying about what we cannot control rather than enjoying the good cheer and reasons to be grateful!

Be safe!  

P.S. Do check your Christmas tree and your 529 plan! This piece was inspired when our Christmas tree fell down this year. Bitcoin should not be your sole solution to pay for your child’s education!


The information provided here is for financial professionals only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

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The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Toroso nor any of its affiliates guarantees any rate of return or the return of capital invested. This commentary material is available for informational purposes only and nothing herein constitutes an offer to sell or a solicitation of an offer to buy any security and nothing herein should be construed as such. All investment strategies and investments involve risk of loss, including the possible loss of all amounts invested, and nothing herein should be construed as a guarantee of any specific outcome or profit.  While we have gathered the information presented herein from sources that we believe to be reliable, we cannot guarantee the accuracy or completeness of the information presented and the information presented should not be relied upon as such. Any opinions expressed herein are our opinions and are current only as of the date of distribution, and are subject to change without notice. We disclaim any obligation to provide revised opinions in the event of changed circumstances.

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ETF Industry KPIs – 7/14/2020

ETF Industry KPIs – 7/14/2020

Week of December 7, 2020 KPI Summary Based on our ETF Think Tank Security

ETF Industry KPIs – 12/21/2020

ETF Industry KPIs – 12/21/2020

Week of December 14, 2020 KPI Summary This week, the industry experienced 4 new

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