Author Topic: ScholarShare 529 investment question  (Read 378 times)

Ants

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ScholarShare 529 investment question
« on: August 31, 2020, 10:09:48 AM »
I just set up and funded a 529 with Scholar Share 529 for my infant son. I invested 100% in their Index U.S. Equity portfolio which is the TIAA-CREF Equity Index Fund (TIEIX). I checked it this morning and noticed that I had a share price of $32.51 instead of $25.56 for TIEIX. I called the help line and after talking to several people they said I didn’t own TIEIX but instead had an interest in the underlying fund. This is the language on the website.

“Please keep in mind that if you invest in the Index U.S. Equity Portfolio, you will own interests in the Index U.S. Equity Portfolio; you will not own shares in any of the following mutual funds.”

Can someone explain to me what this means? Is there any additional risk to this setup? Conversely is there any advantage? Is there any reason I shouldn’t just move this to Vanguard right now? (I actually didn’t set it up at Vanguard because they have a $3k minimum).

Thanks for all the help.

secondcor521

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Re: ScholarShare 529 investment question
« Reply #1 on: August 31, 2020, 12:25:47 PM »
I don't know about your particular 529, but I once had an investment like what you're describing.

My understanding is that you (and your fellow 529 investors) put money into a pile.  The 529 folks divide that pile of money into shares using some arbitrary share count.  The 529 folks use that pile of money to buy shares in the mutual fund itself (TIEIX in this case).

So while the share price at the "pile of money" level won't match the share price of TIEIX, you should find that it generally matches the performance of TIEIX less any 529 management expense fees that the 529 folks charge.

I don't think there's any advantage to you of them doing it this way.  There may be some bookkeeping simplifications for them.  I don't think there's any additional risk either.

seattlecyclone

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Re: ScholarShare 529 investment question
« Reply #2 on: September 03, 2020, 09:22:24 AM »
The Vanguard 529 has the same deal: you own shares in one of their many available "portfolios," some of which only invest in one index fund. I figured there was some regulatory reason they had to do it this way rather than letting you just pick some index funds directly, but I don't know that for sure.
« Last Edit: September 03, 2020, 09:23:58 AM by seattlecyclone »

Ants

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Re: ScholarShare 529 investment question
« Reply #3 on: September 03, 2020, 02:05:37 PM »
Thanks to both of you for all your help. If Vanguard is doing the same I probably shouldn't be worried.

Paul der Krake

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Re: ScholarShare 529 investment question
« Reply #4 on: September 03, 2020, 04:14:56 PM »
Isn’t it just because a lot a people start 529s with very modest amounts, and continue to contribute very modest amounts? They’re essentially doing partial shares so that the unit of investment is as small as possible.

robartsd

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Re: ScholarShare 529 investment question
« Reply #5 on: September 03, 2020, 04:59:07 PM »
Isn’t it just because a lot a people start 529s with very modest amounts, and continue to contribute very modest amounts? They’re essentially doing partial shares so that the unit of investment is as small as possible.
I expect that the regulatory explanation is correct. In my Vanguard IRAs I hold fractional shares of Vanguard mutual funds directly without the need for purchasing a share of a portfolio that holds the fund. I imagine that if they could Vanguard would structure the 529 more like the IRA.

seattlecyclone

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Re: ScholarShare 529 investment question
« Reply #6 on: September 03, 2020, 06:01:14 PM »
I do like that this structure isn't required to pay out and reinvest dividends. The value is just added in to the price of the shares. One less share count I need to update quarterly in my spreadsheets.

Morning Glory

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Re: ScholarShare 529 investment question
« Reply #7 on: September 03, 2020, 06:21:10 PM »
I have both Vanguard and scholar share 529s for my kids. I just picked the target date fund for both because it had the lowest fees. I had the vanguard already and then opened the scholar share for the bonus. The fees are very low (about the same as vanguard) so I haven't bothered to transfer the accounts.