Before the market opened on April 8, 2024, I published an article in which I talked about how I had just sold nearly $160,000 of stock, the largest single sale I'd ever authorized. Not only that, I declared that I'd happily do it again.
Over the two market weeks since that piece was published, the S&P 500 has fallen more than 4.5%. If I had still been holding the investments that the account previously held, I would have lost more than $7,000 of value from that account over those past two weeks.
Instead, as it's sitting safely in FDIC-insured certificates of deposit (CDs), the money in that account is actually gaining value through the interest it accrues. Of course, that timing raises a key question: How exactly did I know to sell nearly $160,000 of stocks before they fell?
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Fortunately, the answer to that question is fairly simple: I had no idea the market would drop like that over the subsequent two weeks. Instead, it was an asset allocation decision driven by my daughter being ready to pick her college.
Based on the schools she was choosing from and the scholarships she had received, the balance in her 529 college savings plan seemed enough to cover 90% of the price tag of her highest-cost option. Between interest on the CDs and contributions to her 529 plan over the next four years, there even looked like a reasonable path to cover potentially 100% of her qualifying costs from that plan.
With the key costs the account was designed to cover looking like they were reasonably covered, there was no longer a need to take stock market risks for that money. So it made sense to sell. The fact that higher-than-expected inflation and escalating Middle East tensions would soon cause the market to drop? I had no special foresight that those events would happen, nor did I know they would happen so soon after my sale.
What I did know was that from time to time, the stock market goes down. As a result, the risk of a potential drop was no longer worth the higher potential rewards from owning stocks, given that the 529 account looked capable of serving its purpose.
In other words, the move was strategic, but the timing was lucky.
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Of course, the nearly $160,000 in my daughter's 529 account didn't just magically appear out of thin air. That money was there because I started contributing to that account for her future education shortly after she was born.
When she had more time before college, that money was invested entirely in stock-based mutual funds. Over the years, the growth from those investments ultimately drove the vast majority of the account's total value.
In the long haul, stocks generally have the potential to deliver higher total returns than CDs. It's just that as the time to spend the money approaches, the much higher certainty of FDIC-insured CDs makes those CDs a better place to keep that cash.
The more time you have until you need to spend a major chunk of money, the more appropriate it is to use a similar asset allocation plan for yourself. So, take a look at the major expenses you're expecting and put together a plan for yourself. You'll never again have more time before those expenses approach than you do today, making today the best day to get yourself started on this journey.
