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Never Lose Money
Should you Ignore the Advice of the World's Wealthiest Man?
Simple:  If your investment time horizon is 30 years, perhaps the time until one retires for instance, an investing mistake (or a few bear markets) can be overcome.  If your investment time horizon, however, is the two years you have until your child begins college, you'd better follow Buffett Rule Number 1. 

Another piece of sage advice: "I am more concerned with the return OF my money than I am the return ON my money."  While the source of this quote is disputed - it was either Mark Twain or Will Rogers - its wisdom is not.  If your child's 529 Plan loses 35% the year before college starts, it may not have been the best "College Savings Plan" choice. 

Wall Street salespeople always want to talk about "average annual return" because such focus hides the fact that Wall Street's products don't always live up to their hype.  This is particularly true of 529 Plans, many of which have NEGATIVE rates of return over the last five years.
Buffett Rule Number 1:  NEVER Lose Money.

Buffett Rule Number 2:  Never forget Rule Number 1.

How does this apply to college savings?
Let's discuss rates of return and money in a general way and then examine a popular 529 Plan.

Concept One: "Getting Back to Even"

Assume you have $100,000 in a mutual fund/managed money account/529 Plan and that it loses 38% this year (like a lot of equity investments actually did in 2008).  If your money manager (or the market) manages to rise 38% next year, you're all even right?  -38% then +38% equals Zero, right.  Yes but dollars are a bit more complicated than averages.
Please see the two tables below.  The one at left illustrates the actual monetary
Start
Performance
End
$100,000
-38%
$62,000

+61.29%
$100,000
Start
Performance
End
$100,000
-38%
$62,000

+38%
$85,560
Next:  Concept Two:  "The Flaw of Averages"


value of the "down 38, up 38" premise (investment value = $85,560).  The second table shows the performance required in Year 2 to get back to even (a 61% gain), after a 38% Year 1 Loss (like the loss that actually happened in 2008 for 529 Plans).
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