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Your Investment Options with the 529 College Plan
It’s time to research your investment options with the 529-college plan. It doesn’t matter how old or young your
child is, its never too early or late to invest in their future. You just need to know your options to make the
best choices for your money.
The first option is age-based. This seems to be the simplest way to save for college. Age based frees you from
adjusting your allocations over time. Your assets will be managed according to the age of your child. Younger
children will have portfolios with a higher stock concentration. As your child ages, the assets are automatically
shifted to a higher ratio of short-term investments and bonds that are more stable and will reduce your market
risk.
You have three choices of age-based investment options- conservative, moderate and aggressive. For most age groups,
the conservative investment has a higher concentration of assets in short term investments or bonds than the
moderate. Following suit, the moderate investment has more short-term investments and bonds than the aggressive.
For example, conservative 529 portfolios for a 5 year old typically would be 50% stocks and 50% bonds. A moderate
portfolio for the same age would be 35% stocks and 65% bonds while an aggressive age based investment would be 100%
stocks. Bond investments are safer as they do not decline as stocks do when the market sinks. But, keep in mind
that they will not grow in value as much when the market rises.
You may find that the age-based funds are either too mild or too wild for your investment tastes. If this is the
case you may want to set up an individual portfolio made of equity funds. In 529 savings plans there are so many
different options. It depends upon the plan provider and your state. They tend to offer the same type of options as
mutual funds.
Some of the investment options offered for 529 plans are growth funds, value funds, small-cap funds and mid-cap
funds. Let’s just briefly look at these options. A growth fund tends to buy companies in the consumer staples,
technology and health care. They typically sell at higher price to book value ratios. A value fund tends to buy
companies in industrial, energy and financial arenas. They typically sell at a lower price to book value ratios.
They tend to outperform growth stocks over longer time periods. Small-cap funds own companies with market
capitalizations of less than $1 billion while the mid-cap funds own companies with $1-$5 billion in market
capitalization.
What does this mean for your plan? Individual portfolios offer many, many choices of stock funds, bond funds,
balanced funds and money market options. Unlike the age-based investment options, the asset allocation of your
portfolio will remain fixed over time. Regardless of your child’s age, your investment choice will not be
altered.
If you decide to go the route of individual portfolio investments when starting your child’s 529 plans, take a look
at the age-based plans. Use them simply as a guide for concentration of stock, bond, short and long term investment
allocation. Then, if you opt to go the individual portfolio route, they can help guide your future investments into
the account as well as help you move your existing funds into more conservative investments, as your child gets
closer to college age.
Your child is not getting any younger. Today is a great day to make some plans for college funding. Your investment
options with the 529-college plan are so vast. It’s time to do your homework and pick an investment option that
works for you.
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