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Indeed, the only reason we have a right to expect a higher rate of return on any given investment is that we’re willing to endure greater risk, and, in all likelihood, higher volatility. But just how much volatility?

Let’s look at some of the scariest market moments of the past 50 years, specifically how far the market—in this case, the S&P 500—dropped over a handful of notable time periods:

What you might find interesting, however, is just how quickly the market historically has recovered ground. It came roaring back so quickly that most of us have already forgotten our most recent crisis. After the oil embargo drawdown, it only took the market nine months to make investors whole. The Black Monday crash only required 14 months of patience, while the tech bubble recovery was slower at 40 months. Even in the worst of these recent market crises, the 2008 financial crisis, in which the market pulled back more than 50%, you only had to wait 26 months to get your money back.

But let’s be sure to put the word “only” in quotes—because if you saw your retirement nest egg of $1 million come crashing down to $447,000, my guess is that you were more than a little stressed out. In fact, I think it’s fair to suggest that most investors with “real money” on the line simply couldn’t handle that type of drawdown. Most would bail out. Maybe you did.

That’s why the most successful investors recognize that the best portfolio isn’t the one that has the potential to make the most money, but the one they can stick with for the long term. The goal isn’t squeaking out another percentage point or two of return over your lifetime while white-knuckling your smartphone, sweating over your investing app of choice, every time the reality of investing returns to claim its risk toll.

Instead, consider acknowledging this reality—and your own personal willingness to endure risk. Then offset the growth engine of your portfolio—your exposure to stock—with the stabilizing agent of the most conservative, boring fixed income or bonds. Consider the following gut check test, the goal being to match your maximum tolerable loss with an appropriate maximum equity exposure:

To use this simple guide most effectively, don’t try to imagine what a particular percentage loss would feel like; multiply the value of your investment portfolio today by the number on the left and use actual dollars. Even then, hypotheticals can be challenging, rarely drawing out the actual feelings we’re likely to endure in real life. So if you were invested in any of the crises listed above, ask yourself the question, “How did it feel to lose ___% of my portfolio back then?”

And when in doubt, err on the side of conservatism, because we tend to feel the pain of loss twice as strongly as the joy of gain—and because it feels better to miss out on a little upside than to bail out on an overly aggressive portfolio after losing a lot.

This article originally appeared May 16 on Forbes.com.

The opinions expressed by featured authors are their own and may not accurately reflect those of Buckingham Strategic Wealth®. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice. Individuals should speak with qualified professionals based upon their individual circumstances. The analysis contained in this article may be based upon third-party information and may become outdated or otherwise superseded without notice. Third-party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio nor do they represent the results of actual trading.

By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-party websites. We are not responsible for the content, availability or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products or services available on or through them. IRN-21-2181

© 2021 Buckingham Strategic Wealth®

Many investors with the benefit of hindsight understand what they missed out on by not getting started earlier, which often leads them to want to give their kids or grandkids a head start. Beyond providing for a child’s everyday expenses, this may translate into a desire to begin saving for their future and to afford them a sense of financial security. If you already know that you want to start building savings to someday support a child or grandchild in their chosen endeavors, the next question is how to go about doing it.

Before we dive into the options, you must first think through the why behind your decision. It is important to get a good handle on what you hope to accomplish with these savings, and the better you can define your goal for the funds, the easier it is to determine which type of account is the best fit. Here are a few questions to prime the pump:

What is the goal? Do you want to set aside some money so the child has a rainy-day fund when they are older? Is the idea to just get them started? Or to expand the next generations range of choices? To teach the child about money and investing? To get them engaged and interested in finance? Or just to have somewhere to deposit birthday checks from relatives? Perhaps you want to leave a legacy or something for the child to remember you by. Define your goals before you and your advisor identify the most appropriate tool to pursue them.

How would you like the money to be spent? After determining what you want the funds to accomplish, think about whether you would like the money to be used for a more specific purpose or at a particular time in the child’s life. A common example is to stipulate that the funds be used strictly for education expenses or only once the child reaches adulthood. On the flip side, you may what the child to always have access to the funds.

How much control would you like to retain? Would you like to retain control of how the funds are invested and spent from the account to ensure your wishes are carried out?

Now that you have had the opportunity to examine your deeper motivations, it’s time to decide the best type of account to accomplish your wishes. There is some flexibility here; for example, down the road you can transfer a savings account or UTMA into a 529 account or a trust. The following is a high-level overview of options that are available to parents and grandparents who want to start saving:

Bank Account or Savings/Money Market Account

This can be a great place to start accumulating dollars for your kids. The pro is that these accounts are easy to set up and are accessible. In most cases, you can simply set up an account where you bank. The downside is that interest rates are very low and you won’t be earning much on dollars saved today. Many parents will use this type of account to encourage children to learn financial discipline by matching contributions. Depending on the funds accumulated and the runway for their use, you may consider investing them for the longer term.

Custodial Brokerage Account or UTMA (Universal Transfer to Minors Act Account)

The next option is a custodial brokerage account or UTMA, which can help the money work for the kid a bit more. Like the bank or savings account, this is a great option if you’re looking for simplicity and accessibility. You set up an account in your name for the benefit of the minor child. The child will have access to the account and gain full control once they reach the age of majority, which varies by state. At that time, the beneficiary (in this case, the child) can use the funds however they would like. They could buy a car or make a down payment on a new house; there is no restriction on utilizing these funds. A drawback to this type of account is that there’s no tax benefit from saving in this way.

529 Education Savings Plan

529 plan accounts are a popular choice if your objective is to provide for the child’s education. You are limited to using this money for qualified education expenses or you pay taxes and a penalty, but a 529 plan may cover K-12 education as well as college. They usually provide a state tax deduction when you make the contribution and the earnings or growth in the account comes out tax free.

Set up a trust

The most complex and costly of these options is to set up a trust fund for your child or grandchild. Given that it at least involves working with an attorney to draft the trust document, this route isn’t as common unless you plan to gift larger amounts of money over the years or if you want to retain more control over the use of the funds. Depending on how it is written, a trust can offer you flexibility in directing how the funds are used, as well as help protect that money in the future if creditor or divorce concerns arise.

Passing down wealth to the next generation or even to your grandchildren can be a powerful expression of your values. As such, it helps to know the rules around any gift you choose to make. With the current annual gifting exclusion amount, you can give any individual up to $15,000 a year ($30,000 total as a married couple) without the need to file a gift tax return. If you’re considering a large gift, it’s a good idea to consult with your advisor or accountant.

In conjunction with, or in lieu of, financial support, reflect on what you can give the next generation in the way of knowledge. How can you pass on good financial life skills and habits? Talking about money and providing opportunities to learn can be just as important, if not more important, than the dollars you put aside over the years.

The opinions expressed by featured authors are their own and may not accurately reflect those of Buckingham Strategic Wealth®. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice. Individuals should speak with qualified professionals based upon their individual circumstances. The analysis contained in this article may be based upon third-party information and may become outdated or otherwise superseded without notice. Third-party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed.

By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-party websites. We are not responsible for the content, availability or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products or services available on or through them. IRN-21-2204

© 2021 Buckingham Strategic Wealth®

Coupled with the fact that the latest economic stimulus package included major changes to the federal student aid process, the path toward a college education may look very different for the class of 2025 and their families. Critics of the legislation argue that replacing the Expected Family Contribution (EFC) with the Student Aid Index (SAI) will significantly reduce the amount of financial aid for middle- and high-income families who have multiple students enrolled in college at the same time.

Considering the unexpected and sudden change in aid qualifications, many families will likely need to seek additional sources of funding to foot the bill for higher education. For anyone with dependents who are approaching college age, now is definitely a good time to consider a crash course on Parent Plus Loans.

You’ll want to study up on the ins and outs of Parent Plus Loans, as you would with any major financial decision, as well as understand how they could impact your other financial priorities and goals. But to get you started, here’s a look at some of the fundamentals.

Parent PLUS Loans

The office of Federal Student Aid offers Parent PLUS Loans to parents borrowing on behalf of their student. Parents can borrow up to the full cost of attendance of their child’s school minus any financial aid their child has already received. Parent PLUS Loans require the borrower to pass a credit check, which must be free of any adverse credit history.

Unlike other federal student loans, Parent PLUS Loans carry the added expense of an origination fee. As of Oct. 1, 2020, all Parent PLUS Loans come with an origination fee of 4.228%. For example, if a parent borrowed $50,000, they would pay an origination fee of $2,114.00. The additional fee is built into the principal of the loan.

Last, but certainly not least, unlike student-borrower loans, which do not require payments until six months after graduation, the repayment of Parent PLUS Loans commences immediately. While it’s possible to apply for loan deferment while a student attends school, interest continues to accrue on Parent PLUS Loans even if formal payments are paused.

Understanding interest rates

Borrowers who took out new Parent PLUS Loans after July 1, 2020, received the historically low interest rate of 5.3%, a staunch drop from the interest rate of 7.08% offered the previous year. While these interest rates come as a welcome opportunity for new borrowers, they do not apply to private student loans or any existing federal student loans.

Federal student loan interest rates for the upcoming school year are determined by the government. The rate is calculated using the 10-year Treasury note auction, plus an additional varying percentage subject to the type of loan and if the loan is made to an undergraduate or graduate student. The low 5.3% rate applies to new federal student loans made between July 1, 2020, and June 30, 2021.

Importantly, federal student loan interest rates are fixed for the life of the loan at the time and rate at which you take them out. Unlike traditional loans, such as a mortgage or car loan, which are eligible for refinancing to a lower interest rate with (relative) ease, this is not the case with Parent Plus Loans.

Without a federal option to refinance, Parent PLUS Loan holders might be tempted to turn to a private loan to refinance, the carrot being the possibility of getting a lower interest rate. But consider a cost-benefit analysis before pursuing this option. The trade-offs with private loans involve lost protections, like payment suspension during the pandemic and income-based repayment plans. Including Parent PLUS Loans in proposed plans to cancel student loan debt is an issue still up for debate.

Federal Parent PLUS Loans cannot be transferred to the student

Federal Parent PLUS Loans cannot be transferred to the student. A parent borrowing for the benefit of a child’s education is solely and legally responsible to repay the loan. That being said, parents do have the option to consolidate Parent PLUS Loans into a direct federal loan or to refinance the Parent PLUS Loan into a private loan in the child’s name once they can meet the qualifications. (If the student does not qualify, co-signing a private refinancing loan is also an option to meet the lender’s co-signer release requirements.) Refinancing federal loans to private loans in the student’s name will eliminate the ability to use income-driven repayment plans and loan forgiveness programs.

Consolidated federal Parent PLUS Loans are limited to certain types of repayment plans and forgiveness

While borrowers are assigned a plan at the start of the repayment term (immediately), they can change repayment plans at any time for no additional cost.

Income-Contingent Repayment is the only income-driven repayment plan that Parent PLUS Loan borrowers can use. To be eligible, borrowers must first consolidate their PLUS Loans into a Direct Consolidation LoanIncome-Contingent Repayment reduces the monthly federal student loan payment to either 20% of discretionary income or the amount you’d pay on a fixed 12-year payment plan, adjusted according to income. The remaining loan balance is forgiven after 25 years if you’re still making payments at that time.

Strict requirements need to be met for Parent PLUS Loan forgiveness

Similar to direct federal student loans, a Parent PLUS Loan may be discharged if the borrower or student dies, if the borrower (not the student for whom the funds were borrowed) becomes totally and permanently disabled, or, in rare cases, if it’s included in bankruptcy. All or a portion of a Parent PLUS Loan may be discharged in a variety of other circumstances.

Parent PLUS Loans qualify for PSLF if they are consolidated

Parent PLUS Loans are eligible for forgiveness under the Public Service Loan Forgiveness (PSLF) program if they are first consolidated with the Federal Direct Consolidation Loan program, meet PSLF program requirements, and borrowers then apply for the forgiveness program. Here’s the catch: Qualification is based on the loan holder’s employment (and a variety of additional requirements), not the student’s employment. Parent PLUS Loan holders employed by a nonprofit, public hospital system, the government, or any of the additional 14 qualifying employer types are eligible based on their own employment regardless of their student’s academic major or post-graduate employment.

Let’s say, for example, that Jane took out Parent PLUS Loans to pay for her child’s undergraduate education. Jane is a social worker and a full-time (30 hours a week) employee at a 501(c)3. Jane, as the borrower, could enroll in and pursue PSLF for her direct Parent PLUS Loan, even if her child, Billy, were to eventually find employment in the private sector or at a small business.

That being said, the rule still applies even if we were to flip Jane and Billy’s employers. For this example, let’s say Jane is still the loan holder but works as the Chief Investment Officer at a private hedge fund company. If Billy pursued a degree in social work and is hired by the same 501(c)3 from the previous example, Jane’s Parent PLUS Loan would not qualify because her employer does not qualify for PSLF.

It’s critically important that households consider federal loan forgiveness programs such as PSLF when determining the owner of a loan. The Consumer Financial Protection Bureau estimates that over one-fourth of employed U.S. citizens qualify for PSLF based on their employer, so it’s worth thinking about if you currently own, or are considering acquiring, Parent PLUS Loans. Still, if a student has a very strong desire to pursue public service, it might be worthwhile for the student to own the loan (and the eventual forgiveness).

Alternative options

Parent PLUS Loans are commonly used to fill a gap between the total annual cost of attending college and a student’s financial aid package. While it’s an enticing quick fix to fully funding the cost of college, also explore other supplements, like work study programs, grants or scholarships.

If your dependent is currently pursuing higher education, call your chosen school’s financial aid office to talk about your financial aid package for next year, especially if a student’s financial situation has recently changed.

Higher education is an investment that requires student and parents alike to be smart about borrowing and to understand all their options. While Parent Plus Loans can be part of a successful strategy, as with all financial decisions, they must be considered on an individual basis in light of what is best for the entire family.

This article originally appeared May 4 on thestreet.com.

The opinions expressed by featured authors are their own and may not accurately reflect those of Buckingham Strategic Wealth®. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice. Individuals should speak with qualified professionals based upon their individual circumstances. The analysis contained in this article may be based upon third-party information and may become outdated or otherwise superseded without notice. Third-party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed.

By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-party websites. We are not responsible for the content, availability or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products or services available on or through them. IRN-21-1986

© 2021 Buckingham Strategic Wealth®