Allocation of capital

[karthikpm]

Hello

 

I am looking for some input as to what I should do with some new capital. I sold some property and have a low 6 figure profit.

I have two young kids. I fully fund my 401k, have decent savings and have no other debt outside of mortgage

 

Should I

a) take the capital to fund my kids education fund -  I want to be able to fund 4 yrs of education and this money would cover it , however most 529 plans are limited and I feel the market is very overvalued. Not sure a lump sum in an Index is a right idea with a short time horizon ( 7 yrs for first kid to enter college)

b) buy Berkshire or Fairfax

c) Sit on cash for a better entry point into equities

d) or Splurge  ;)

[Guest longinvestor]

Hello

 

I am looking for some input as to what I should do with some new capital. I sold some property and have a low 6 figure profit.

I have two young kids. I fully fund my 401k, have decent savings and have no other debt outside of mortgage

 

Should I

a) take the capital to fund my kids education fund -  I want to be able to fund 4 yrs of education and this money would cover it , however most 529 plans are limited and I feel the market is very overvalued. Not sure a lump sum in an Index is a right idea with a short time horizon ( 7 yrs for first kid to enter college)

b) buy Berkshire or Fairfax

c) Sit on cash for a better entry point into equities

d) or Splurge  ;)

 

I'd let it compound given that there are at least 7 years to do so. So, b sounds good to me. Entry point is your preference.

 

e) Coverdell Ed IRA's are unrestricted as to investment choices but limited ($2000) in annual contributions. Still, no taxes on gains, so I would do that over taxable savings. And use this money for the out years of college to give it more of a compounding runway.

 

Also, I myself just took advantage of 529's without holding money in them for the long term. Depending on the state you live in, you may be able to put money into a 529 in the year your kid/s attend college and withdraw during the same year. In IL, there is no stipulation as to the holding period for the 529 account. IL has a state tax deduction for contributions up to $20K per year/family/child.

[tede02]

The 529 is an excellent tool for college education funding.  Starting a new one becomes less and less beneficial the older your kids get (there's simply less time for the tax-free compounding effect). 

 

One of the most flexible and low cost plans I've seen is the iShares product.  The majority of other plans are all traditional A and C share offerings which will surely bite into your returns. 

 

I would personally be very cautious about dumping a big chunk of cash in the market at these valuations.  Dollar cost averaging is a compromise from sitting in cash. 

[karthikpm]

The 529 is an excellent tool for college education funding.  Starting a new one becomes less and less beneficial the older your kids get (there's simply less time for the tax-free compounding effect). 

 

One of the most flexible and low cost plans I've seen is the iShares product.  The majority of other plans are all traditional A and C share offerings which will surely bite into your returns. 

 

I would personally be very cautious about dumping a big chunk of cash in the market at these valuations.  Dollar cost averaging is a compromise from sitting in cash.

 

Thanks longinvestor and tede02

 

I agree that this is a bad time to be dumping a chunk of cash into the market at these valuations. I have not heard of the iShares product. Is that the arkansas 529 plan?

[tede02]

Yes, I believe it is the Arkansas plan.