Tuesday, March 24, 2009

My Sad Story

I learned a tough lesson - the hard way - during this economic blowout.

In September 2007, a year before my older son would start college, I called up my financial planner to ask about some money we had squirreled away in a mutual fund to be used for college costs and/or emergency needs.

A basic financial principle says you should extract money from stocks or mutual funds a year before they'll be needed and sequester them in CDs or savings accounts, thereby reducing the risk of loss that can't be recouped over time.

My (now ex-) planner, however, talked me out of selling the funds. Since we had enough money in 529 college funds to cover the first year or two of college, and we didn't know where the boys would attend, he said, we should leave the mutual fund alone. "We don't want to miss out on the upside returns of the market for the next year or two," he said.

Well, you know the rest of the story by now. By the time I did sell the funds in question early this year, they had lost more than half their 2007 value. Which means at least a years' tuition per kid had evaporated.

What did I learn from this tale of woe? 1) Sometimes you have to trust your gut, no matter what the "experts" say. 2) Even certified, educated, professionals got caught up in the bubble and believed the hype. 3) Those basic principles of finance may err on the side of caution, but they're worth following.


  1. Noooooo! Say it isn't so!
    I'd also heard that we need to be doing that sooner--in other words as the event gets closer start rebalancing--needless to say we hadn't either. My daughter heads off in a little over a year. I can't bear to look at our balances--

  2. Afraid 'tis true, Desiree. I've spent a few nights laying awake thinking about that one!

    People invested in tax-advantaged "529 college plans" (California's is called Scholarshare, www.scholarshare.com) can choose an age-appropriate allocation, which is what we did back when our kids were in elementary school.

    It automatically adjusts from riskier to more conservative investments as your kids' college enrollment gets closer.

    That worked really well for us, and we chose automatic deposit which is nice. We did wind up shifting those funds into a money-market account before they lost any substantial money, however, because even the "conservative" funds started going down last year!