Morningstar Names Best 529 College-Savings Plans

For those of you looking at 529 College Savings plans, Morningstar has released it’s list of top ranked plans.  I utilize Morningstar as third party research in managing portfolios and screening for investment ideas.

For those of you new to the world of 529 plans they are used as a college savings vehicle in which contributions are made on an after tax basis in which assets grow tax free and withdrawals are made tax free for qualifying expenses such as tuition and books.  I personally own and manage several plans and like them for the following reasons:

  1. Anyone can setup an account for a child, friend, family member, etc. (Great for grandparents)
  2. Although each plan varies, there is usually a high contribution amount vs. other savings plans which only allow you to contribute $2000 annually
  3. You can transfer accounts between children if necessary
  4. Most plans offer a variety of investment options.  If you don’t like your own state plan you can always choose another. 

Another good college savings vehicle is actually an IRA.  Either a Traditional or Roth offers qualifying college expenses as a withdrawal option.  This gives you more control in case your child or person you are saving for does not attend college.


What’s Your Kid Getting From College?

Being the father of new born triplets college is a little ways away for me.  However I manage 529 plans for clients and have discussions with people about how to save for college.  My wife and I have been having this discussion posted in the WSJ about weather college should be an option for our kids.  Many people would think that is ludicrous but when you start to break down college as a value proposition you can begin to see the merit of such an analysis.

A blogger that I follow James Altucher, has a few posts about how college does not work or alternatives to college (Why parents should not send their kids to college8-alternatives-to-college).  For example if you plan on raising an entrepreneur then college may not be the best option or value.  Both my wife and I went to college and as I see it our diplomas were an entry ticket for us to get into the game.  I don’t think that it necessarily works that way any longer.  Even though employment is higher for those with college degrees what was the cost of that degree and what kind of earnings power does it create?  You can’t just simply get rid of your college debt as you can with a credit card or mortgage debt even if you file for bankruptcy.


ECRI Recession Watch: Growth Index Virtually Unchanged

Here is some additional information on the ECRI recession call provide by Doug Short.  As noted the ECRI does not provide the analytical detail behind it’s recession call and neither does is specify a recession date.  Even though the revised GDP at 2.5% was better than expected that number is rear view looking.

Again I believe we are suffering from a lack of confidence due to lack of government leadership and the  continued issues with the European financial crisis where one day you have a possible solution and the next day you do not.  It makes investing extremely difficult no matter what side of the trade you are on long or short.

ECRI Weekly Leading Index


Investing in Rocky Markets

Full disclosure although I didn’t go to Notre Dame I am a huge Notre Dame fan.  I’ve been going there since age 7 and have season football tickets.  The Chief Investment Officer, David Malpass of the Notre Dame endowment fund and Jay Jordan were both on CNBC this past week discussing how they were able to grow the fund through the great recession.


Notre Dame has been one of the top performers among the large endowments of the past 15 years with a return rate of 12.1%, it is the 14 largest educational endowment in the country.  Here are some items to point our regarding their fund and strategy:

  • Take a long-term horizon
  • Asset Allocation – 30% hedge funds/30% private equity/25% Equities/15% Other
  • 40% invested overseas
  • Attempt to avoid leverage
  • Corporate distress market (again long-term view)

A key take away as the managers point out is that most people can’t invest in opportunities that an endowment invests in.  You can somewhat mirror their asset allocation strategy and take a long-term focus but getting into a hedge fund or private equity position is very difficult without a significant amount of capital.


Here is additional information on the Notre Dame endowment fund


Beating Goliath in an Unconventional Way

You’ll notice that not every article I post on the site is specifically finance related.  I like to find ideas, concepts, and theories in all forms and places.  This article I pulled from the Big Picture site which comes from The New Yorker written by Malcom Gladwell who most of you may know from his books The Tipping Point or Blink.  His article “How David Beats Goliath” documents how underdogs win when they break the rules.  He cites a statistic that Goliath beats David 71.5% of all wars fought in the past 200 years.  However when David “acknowledge there weakness and choose an unconventional strategy there winning percentage increases from 28.5% to 63.6%.
Being the smallest of small firms I can totally relate to David going up against the Wall Street behemoths.  The one outstanding point that I take away from this article for both DWCM and for all of you individual investors out there is “we tell ourselves that skill is the precious resource and effort is the commodity.  It’s the other way around.  Effort can trump ability – because relentless effort is in fact something rarer than the ability to engage in some finely tuned act of motor coordination.”
Understanding what your opponents’ strengths and weaknesses are and pitting your strengths against their weaknesses no matter how unconventional can lead to extraordinary results.

Disclaimer
PAUL FENNER IS PRESIDENT OF TAMMA CAPITAL, LLC A REGISTERED INVESTMENT ADVISOR IN THE STATE OF MICHIGAN. THE OPINIONS EXPRESSED IN THIS BLOG ARE THE OPINIONS OF THE AUTHOR AND READERS SHOULD NOT ASSUME THEY REFLECT THE OPINIONS OR RECOMMENDATIONS OF TAMMA CAPITAL, LLC. ANY INFORMATION PRESENTED HEREIN IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT A SOLICITATION TO BUY OR SELL SECURITIES.