I am a college professor. I have a PhD and everything. This means that I am a Very Smart Person.
Or so I've been told.
After all, if I appear on television as a Very Important Talking Head, my name on the screen is either preceded by "Dr." or postscripted with "PhD." The only other professionals routinely accorded that level of deference are doctoral-level healthcare practitioners like physicians and veterinarians.
Yes, veterinarians are healthcare practitioners. Fight me.
Alas, my salary is not as inflated as my ego. We net in the mid-five-figure range, which is more than enough for the very LCOL area we call home, but certainly less than I would like. Nonetheless, we've managed to save a tidy sum.
What's that?
Oh, yes.
"We."
I'm married with two kids. My wife and I are in our early 40s. Our kids are in grade school. I teach full-time at a public university. She works part-time. We have no debts save for a mortgage that's about to drop from six figures to five. I am mostly sober as I write this. The fall semester ended a little while back. Happy Thursday.
My adventures in market timing are thus:
Our retirement funds, held in a mix of Vanguard-administered Roth IRAs and accounts safeguarded by the good people at TIAA-CREF, are invested 100% in stocks. Index funds where we could get them, the closest available if they weren't. Some benighted souls at a previous job of mine limited their TIAA-CREF options to a bare handful that didn't include an index fund. A pox on their houses.
I am not attempting to time the market with our retirement money. I would do nothing so foolish. I am, remember, a Very Smart Person. Our retirement money is going to stay 100% in equities for at least the next 15 years, after which we will begin slowly shifting into bonds. Make regular contributions, stay the course, etc.
Our state's pension system, too, is relatively healthy, surprisingly so given the state of public pensions in general these days. Unlike many of you, I have no plans to FIRE unless I manage to follow in the footsteps of Doris Kearns Goodwin and write a book that Spielberg turns into a movie.
She now does corporate consulting on the side. Charges $40,000 an hour. Good work if you can get it.
I like my work, I like my students, and I like my library privileges. I expect to retire in 25-ish years with a mix of pension funds, my own healthy savings, and - dare I say it - Social Security. Even without Social Security, though, we'll be just fine.
However.
My adventures in market timing involve my kids' 529 money. With, of course, my wife's full knowledge and consent. Very Smart People do not anger those who sleep next to them and have access to power tools.
My kids' plans had been 100% in Vanguard's S&P 500 index from the beginning. The second decade of the millennium has been very kind to them. I left them alone, they left me alone. During that decade, they grew and grew.
In late 2017, however, I started thinking that the American economy was overdue for a correction. When coupled with our chief executive's wallet-rattling at China, I thought that correction was due very soon. So in January, 2018, when the S&P was cresting 2800, I shifted all of my kids' 529 money into Vanguard's Total Bond Market Index fund. Almost immediately, the S&P started dropping.
Most of you know the story of 2018 so I won't rehash it here. But I patted myself on the back for my foresight. I patted myself on the back so much I wrenched my shoulder and sprained my wrist, thus depriving me of two forms of self-gratification: patting myself on the back and patting myself on the front.
Yes, friends, I was indeed a Very Smart Person. Besides, I don't need my shoulder. My wife can pat me on the back. And do that other thing. Better than me, actually.
The S&P 500 didn't recover to its January, 2018 high for nearly 18 months. The bond fund, meanwhile, did well. I had no trouble sleeping at night. Smug as a bug in a self-satisfied rug. My kids hadn't lost a penny.
But then the S&P 500 started to recover. It continues to recover. It has, in fact, recovered spectacularly well. And my kids' 529 continues to sit in bonds. I've missed the last run-up. But I'm not as bothered as I thought I'd be.
The other part of this adventure was gauging my own emotional reactions to swings in the market. How would I react if the market started jumping up past the point where I'd sold? Would I feel remorse? Sorrow? Apathy? Would I want to jump back in because, oh my God, everyone's getting rich but me? Or would I hold firm? And would holding firm end up being a wise or a foolish decision?
So far, I've held firm and believe it's been the wise choice.
According to the 529 account page, the bond index fund's YTD growth has been roughly 8.5%, compared with the Total Stock Market Index Fund's growth rate of 15%. I am good with this. Why? Because our circumstances are somewhat different from the average American looking ahead to paying for college.
1. My older kid has over $100K in her 529 plan. My older kid is ten years old. My younger one is seven and has over $80,000. If the stock market continues to soar, I'll keep buying bonds low and locking in our savings. If the market falters, their value goes up. If the market does fine, there's still plenty in the account and it's reasonably secure. Either way, my risk of loss is very low.
2. My public university offers a 75% discount off the in-state tuition rate for full-time employees and their dependents. That's 75% off a tuition rate of some $8,000 a year. Moreover, our institution cannot raise in-state tuition above a certain rate each year without permission from the state legislature, a body that is as mercurial as it is tight-fisted. Answerable to the taxpayer and all that, and wisely so. Assuming then that we raise tuition at the maximum allowable rate each year for the next decade, and assuming my kids qualify for exactly zero scholarships, we're still looking at a discounted tuition of rate of no more $3,000 a year. We can cash-flow that with ease, even if books and fees double that figure.
3. On paper, we make little enough that if lightning strikes and my kids get into Harvard, Yale, or their ilk, we'll qualify for a tremendous amount of need-based aid. In fact, I sometimes wonder if having such a fat 529 plan might not be a liability in the financial aid game. It's not my field of expertise so I can't say for sure but the rules of collegiate financial aid are even more fluid than the direction of the stock market. Attempting to time the college financial aid market is perhaps the greatest folly of them all.
So my adventures in market timing are less about growth and more about preserving wealth and testing my own emotional mettle, predicated on the possibly-erroneous analysis that a significant correction is still coming. I see the growing income gap, the increase in the number of people holding multiple jobs just to get by, the increase in the homeless population, the increase in the under-employed population, the growth of student loan debt, the new growth in personal and consumer debt, and I can't help but think that something is going to give.
Do I wish I'd kept their money in stocks? In retrospect, sure. Do I regret that I didn't? Absolutely not. I was serious when I said I sleep fine at night. Their college money has multiple backstops. And 8.5% is a pretty damn good rate of return, even for the stock market. For bonds, it's well above the historic norm - the bond index's three-year average is 4.05% while the ten-year is 3.41% - so I'm not complaining.
I'm one of the lucky ones. I have a secure job teaching people how to get their own secure jobs in a field that, nationally, has more openings than qualified applicants as well as a graying workforce. I work at a well-regarded public university that can compete effectively on price and has a solid, well-earned reputation. I'd be perfectly happy sending my own children there.
Like I said, my circumstances are very different from those of the average American looking at sending a kid to college. I'm in the fortunate position of being able to take some risks with my kids' college money without too much risk of loss. Soon enough, it'll be our own retirement money that we'll be looking at preserving and the risks there are rather a bit higher.
Legend holds that at the Temple of Apollo at Delphi was an inscription bearing the words, "know thyself." My adventure in market timing is part of a quest to do exactly that. I'm watching the equities rise from the front row rather than being in the show myself. But I'm okay with that. I've locked in a healthy amount for my kids with time enough left to grow it a bit more. I don't envy the growing wealth of others in this market, which is a relief - I sincerely wondered if I would care about others' fortunes. It turns out I don't. My wife and I remain frugal and communicate constantly about money. We track every penny of our income and expenses. And since I'm keeping a cool head and sticking to the plan now, I'm fairly certain that when retirement looms, we'll be okay.
If you've made it this far, thank you. If you have any thoughts or reactions, I'm always happy to read them. One of the joys of browsing this forum is the wealth of experiences and backgrounds reflected in the posts. They are a constant reminder that I am never as smart as I think I am.
TL;DR I thought I'd be bummed about shifting my kids' college money from stock to bonds in early 2018, before the recent run-up in equities. Turns out I'm not.