OUR LIFE IN 3D

Tight-Wad Wednesdays – Picking a Winner

I know what you are thinking. You are looking for an image of some toddler with her finger up her nose. It was tempting! While the opportunities do present them self, I did not want to teach my girls to go for gold whenever a camera was presented. How could we live that down?

I hope to make this quick today as I have a need to get to the gym. We have a reservoir  of cookies, brownies, chocolate,my favorite chips (that do not have a Frito Lay logo on them!) and ice cream left over. Then my brother arrives last night with two more containers of cookies. OMG! You have to try them all! Their has to be a simpler solution!

So far on Tight-Wad Wednesdays we have talked about how you can send your prodigy to college for FREE. We also discussed the importance and benefits of starting early and making consistent, steady investments over time. Today I would like to offer some tips on how to pick some winning investments to grow your 529 plan over time.

First, I have to mention, these are some easy, non-time consuming tips. They are by far not the only method for picking winners. If you have a reliable, non-greedy Financial Advisor that has you in a 529 plan already, they would be an excellent resource as well. ~they don’t need to make $ off your kid’s college fund though!

Second, these tips are for someone investing over a long-term, meaning 10 years or more. Things happen in the stock market that make for 2 or 3 years down turns in the market (or longer). If the need to access your college saving plan is under 10 years a more conservative plan may be in order.

Going back to the playground days, when it was time to pick my team in soccer or football, I chose the best, the fastest, the strongest, the ones that had history performing their best to help MY team win. Because I like to win. I want to win when it comes to setting up my stock portfolios as well. Here are a list of the winners:

The grid and colors above represents the performance of different asset classes over time, from the top performers each year to the worst. You know which ones I want, right? The most consistent winners each year.

Look across the top line. They are the top performing asset classes each year. These are the classes you look for in picking mutual funds in your 529 portfolio. You, want the best of the best, right? You want the studs! What are the colors that stand out to you and their associated class?

Small Stocks, Large Stocks, and International Stocks. Better defined for mutual funds these are: the Small-cap or small company funds, Large-cap or large companies, and International funds, investing in great international companies. These are the monsters you want working for you!

For some clarity, Small cap stocks are small companies with new, great ideas. In a normal economy the sky is the limit as far as their growth. International funds are funds with great companies across the globe. (although less great today) The world is full of great companies, outside the US. You should be apart of their growth, right? The Large cap sign in this example is misleading as Large caps usually fall into 2 or more classes. The best two are Large-cap Value (Huge companies that are currently under priced) and Large Cap Growth (The 800 pound gorillas with more resources than their competition).

So pick a winning team! It would be smart to allocate funds equally to Small Cap stocks, Large Cap Stocks, and International funds. A little more diversification, while still having all the winners on your team would be using the two different US Large Cap segments, Value and Growth.

I also weight the Small Cap and International a tad heavier in my portfolio since there are two purchases in US Large Cap. It may look something like this: 30% Sm. Cap., Lg. Cap-Value = 20%, Lg. Cap Growth = 20%, and International or Global funds at 30%. To me choosing anything other than these proven winners over time is like picking and ‘average team’. Who wants to do average with your investments?

So you see what you want in your portfolio? You want to win and your kids should go to a great school because you want the best for them. You naturally want the most assets available in your 529 plan  (and less out of your retirement savings). You go to pick a great performing mutual fund in your preferred asset class and you see your 529 has 3-5 funds to choose from its asset class. Now what? How can you pick the best from the best? How can you tell a Dog from a Star?

I’ll try to make some sense of that next week in Tight-Wad. …because I have inhaled my daily ration of cookies during this post. I need to get to the gym! If only my family knew the only thing that my girls need to eat is a few tasty flavors of lip gloss! I could still get these pants snapped then!