There’s only one financial goal you have to hit the bullseye on.
Everything else has buffers baked in…
When you live off your passive income, you have 15 years of living expenses set aside to ride out market volatility…
You’re diversified so you don’t have to get it “right” on any one investment…
You have a 6-month emergency fund for liquidity.
But with college, you need a certain amount of money on a certain date and have 18 years to get there (which makes it even harder).
That’s why it’s the hardest goal in all of financial planning.
While we know historical S&P 500 returns are ~10% and inflation runs at 3% normally, you don’t know what you’ll get over 18 years.
Throw in the penalties if you don’t use a 529 Plan for higher education, and you have quite the puzzle.
So what’s a young family to do?
Create a Stanford Fund.
First, you fill up your 529 Plan with enough money to fund an average-sized state school college education. (Roughly $80k for a newborn.)
Then you create a buffer account that we call the Stanford Fund.
You fill that bucket with another $80k, but keep it in a regular brokerage account.
The Stanford Fund then serves a dual purpose. You can use it for college if Junior goes to Stanford instead of UC Berkeley or…
You can use it for retirement if he doesn’t.
For the first 12 years, it should be invested the same.
Then when he hits Junior High, you should know what kind of school he’s destined for and can adjust the portfolio accordingly.
Hitting the college bullseye is nearly impossible, but a Stanford Fund means you can just hit the target instead of the red dot in the middle.
