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We have a 6 y/o and a 3 y/o and have been working so hard to be putting $500 a month into each account since they were 1 y/o. We chose the North Carolina aggressive track, which means 90% stocks and 10% bonds for the ages they are in. I think after 6 y/o, it changes more to bonds but of course, only slightly.
My 6 y/o account has now broken even, and the 3 y/o account is -$1500.
Just keep everything the same as is and keep putting in $500 every month, or should I change allocations for them to more bonds? I know they say not to touch anything, but asking on here might help me sleep at night at least!
No one can forecast how much this market will crash. But most probably the stock market will return more than cash under the mattress, or bonds, in 12 and 15 years when you start withdrawing that money. (Here is where mathjak jumps in to remark how long bonds have returned more recently in the last 1, 3, 5, 10 years... but surely not starting at 1%?)
Yes it's very painful to watch. I have been through the draw-downs of 2002 and 2008 and it was gut-wrenching. The 2020 one feels the same. But switching to bonds now will just lock in the losses. You don't know (and neither does any pundit) when the market will start coming up. There is no way to distinguish between a head-fake as we saw on Tuesday vs the start of the next sustained bull market.
We have a 6 y/o and a 3 y/o and have been working so hard to be putting $500 a month into each account since they were 1 y/o. We chose the North Carolina aggressive track, which means 90% stocks and 10% bonds for the ages they are in. I think after 6 y/o, it changes more to bonds but of course, only slightly.
My 6 y/o account has now broken even, and the 3 y/o account is -$1500.
Just keep everything the same as is and keep putting in $500 every month, or should I change allocations for them to more bonds? I know they say not to touch anything, but asking on here might help me sleep at night at least!
Nope. I'd leave the money invested exactly as it is and continue to invest the same amount every month.
Let's assume the 6-year-old will use the money for university, so say age 18. That gives you 12 years to make up for any short term "losses" now. If you stay the course I think that you will find that it works out just fine.
If it helps you sleep at night, you could stop the $500/month investments now so that you have more cash on hand for any short term emergencies. But with prices falling, that $500 is buying more shares than when the prices were inflated in December and January.
Over the period of record, there have been few 10-year periods that lost money over all. Check out these charts. Only a couple of blips went negative.
FWIW, I have also invested money for my grand daughters via the 529 accounts. I only put in $1,000/year per child however, so it isn't as big of a hit to my finances. My state allows me to deduct up to $3,000 in total for 529 gifts and I have a third one to start so that is why I keep it to $1,000 each.
Just keep everything the same as is and keep putting in $500 every month, or should I change allocations for them to more bonds?
Unless you suddenly need the $500 per month to put food on the table and/or keep a roof overhead, keep putting that same money in every month into the same funds. As someone else said, today's $500 deposit will buy a lot more shares than it did a month ago, so when the market recovers -- you have 12 years for that to happen -- those shares bought on the cheap (now) will more than make up for the on-paper losses you're seeing right now. It's the beauty of what's called "dollar cost averaging".
Unless you suddenly need the $500 per month to put food on the table and/or keep a roof overhead, keep putting that same money in every month into the same funds. As someone else said, today's $500 deposit will buy a lot more shares than it did a month ago, so when the market recovers -- you have 12 years for that to happen -- those shares bought on the cheap (now) will more than make up for the on-paper losses you're seeing right now. It's the beauty of what's called "dollar cost averaging".
At that horizon, leave it alone. Lots of people ate shirt in the last correction. They got spoked, pulled out near the bottom, and then missed the recovery. That's what most market timers do. The exception to that would be if the kids were older. Say 16 and 19. Just like retirement you should have already adopted a more conservative asset allocation a few years ago in that case. Maybe at 13 to 16 for college savings would be a good time to switch to a more conservative allocation.
At that horizon, leave it alone. Lots of people ate shirt in the last correction. They got spoked, pulled out near the bottom, and then missed the recovery. That's what most market timers do. The exception to that would be if the kids were older. Say 16 and 19. Just like retirement you should have already adopted a more conservative asset allocation a few years ago in that case. Maybe at 13 to 16 for college savings would be a good time to switch to a more conservative allocation.
We made ours conservative as he was entering college two years ago and it is taking a hit.
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