529 PLANS

Savingforcollege.com

Investing trends of 529 college savers
http://www.savingforcollege.com/articles/investing-trends-of-529-college-savers-854

Posted: 2015-10-08

by Dan Reyes

Vanguard Education Savings Group, Guest Contributor

Making wise investment selections for your 529 college savings plan savings plays a key role in helping the children you love have the higher education options of their—and your—dreams. But many college savers have questions about which investment options make sense for their situations.

To help answer those questions, Vanguard, a leading investment manager, analyzed the choices of nearly 1.3 million account owners across five 529 plans*. College savers can see how their investing choices match up to other savers, as well as the model asset allocations Vanguard research finds are prudent for investors in each savings stage.

Most choose age-based options

Commonly, 529 plans offer a range of investment options, including:

  • Individual portfolios that are invested in a single fund.
  • Individual portfolios that hold a mix of investments that cover all major asset classes and investment styles, with a variety of risk profiles.
  • Age-based options that gradually and automatically become more conservative (holding fewer stocks and more bonds and cash) as the student gets closer to college age.

The research found that most account owners gravitate to the last option. Almost 70% of college savers chose at least one of the age-based options.

One of the benefits of these options is that you don’t need to actively change how your investments are allocated in order to reduce risk as your children age. So if you have a busy lifestyle, want to choose investments already designed by experts for college savings, or simply prefer not to have to think about your allocation each year, an age-based option that's designed to provide you with an appropriate combination of assets year after year could work well.

RELATED: 31% of college savers are wrong about this rule

Savers with older children may have too much invested in stocks

The research uncovered a notable trend among 529 account owners saving for children ages 19 to 21.

Approximately 67% of those who manage their own investments with individual portfolios have more than 20% of their balances in stock investments. However, only 13% of those using age-based options (with or without additional investments) have more than 20% of their balances in stocks.

To better understand the risk for holding stock when you have a short time horizon, consider that, since 1928, annual stock returns have been negative 28% of the time.** That means there's a very real possibility that you could have to make account withdrawals in a year when returns are negative.

If you’re building your own portfolio for your 529 plan account, it's a good idea to follow the same principles as all well-balanced investment portfolios when making your choices. According to Vanguard research, the right strategy for you depends on whether your goal is to grow the portfolio to meet future college costs or to pay for near-term expenses, such as tuition for a child who’s already in college.

Although it can be hard to shift to more conservative investments right when tuition bills start coming in, that’s when you need to do it. Stocks offer a greater opportunity for returns, but that opportunity comes with greater risk. When your children are getting closer to college age, your focus should be on preserving principal so you have the money you need to start making withdrawals. If you’ve chosen an age-based option, that shift will be made automatically as each age threshold is crossed.

Learn more

Knowing more about how to invest, whether it’s for college or other financial goals, can help you make wiser choices that lead to more successful outcomes.

One way to learn about the basics: Check out Vanguard’s principles for investing success. You can also take Vanguard’s questionnaire to get help finding the right asset allocation for your 529 account.

RELATED: 8 common 529 plan mistakes to avoid


About the Author: Dan leads Vanguard Education Savings Group, which provides clients with college savings solutions, strategies, and investment options. Dan joined Vanguard in 2004 and has worked in Vanguard Human Resources, Vanguard Institutional Advisory Services®, and Vanguard Fixed Income Group. Dan also served as chief of staff of Vanguard Retail Division. Before joining Vanguard, Dan worked as a consultant with Towers Perrin (now Towers Watson). Dan earned a B.S. in economics from the Wharton School of the University of Pennsylvania and an M.B.A. from the Kellogg School of Management at Northwestern University. He is a CFA® charterholder.



*Including The Vanguard 529 College Savings Plan, CollegeInvest Direct Portfolio College Savings Plan [Colorado], College Savings Iowa 529 Plan, MOST—Missouri's 529 College Savings Plan, and New York’s 529 College Savings Program Direct Plan.

**”Annual returns risk premium 1928-2014,” Aswath Damodaran, The Stern School of Business, New York University.

Investment returns are not guaranteed, and you could lose money by investing in a 529 plan.

For more information about any 529 college savings plan, contact the plan provider to obtain a Program Description, which includes investment objectives, risks, charges, expenses, and other information; read and consider it carefully before investing. If you are not a taxpayer of the state offering the plan, consider before investing whether your or the designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state's qualified tuition program. Vanguard Marketing Corporation serves as distributor and underwriter for some 529 plans.

Vanguard Education Savings Group, Guest Contributor

Making wise investment selections for your 529 college savings plan savings plays a key role in helping the children you love have the higher education options of their—and your—dreams. But many college savers have questions about which investment options make sense for their situations.

To help answer those questions, Vanguard, a leading investment manager, analyzed the choices of nearly 1.3 million account owners across five 529 plans*. College savers can see how their investing choices match up to other savers, as well as the model asset allocations Vanguard research finds are prudent for investors in each savings stage.

Most choose age-based options

Commonly, 529 plans offer a range of investment options, including:

  • Individual portfolios that are invested in a single fund.
  • Individual portfolios that hold a mix of investments that cover all major asset classes and investment styles, with a variety of risk profiles.
  • Age-based options that gradually and automatically become more conservative (holding fewer stocks and more bonds and cash) as the student gets closer to college age.

The research found that most account owners gravitate to the last option. Almost 70% of college savers chose at least one of the age-based options.

One of the benefits of these options is that you don’t need to actively change how your investments are allocated in order to reduce risk as your children age. So if you have a busy lifestyle, want to choose investments already designed by experts for college savings, or simply prefer not to have to think about your allocation each year, an age-based option that's designed to provide you with an appropriate combination of assets year after year could work well.

RELATED: 31% of college savers are wrong about this rule

Savers with older children may have too much invested in stocks

The research uncovered a notable trend among 529 account owners saving for children ages 19 to 21.

Approximately 67% of those who manage their own investments with individual portfolios have more than 20% of their balances in stock investments. However, only 13% of those using age-based options (with or without additional investments) have more than 20% of their balances in stocks.

To better understand the risk for holding stock when you have a short time horizon, consider that, since 1928, annual stock returns have been negative 28% of the time.** That means there's a very real possibility that you could have to make account withdrawals in a year when returns are negative.

If you’re building your own portfolio for your 529 plan account, it's a good idea to follow the same principles as all well-balanced investment portfolios when making your choices. According to Vanguard research, the right strategy for you depends on whether your goal is to grow the portfolio to meet future college costs or to pay for near-term expenses, such as tuition for a child who’s already in college.

Although it can be hard to shift to more conservative investments right when tuition bills start coming in, that’s when you need to do it. Stocks offer a greater opportunity for returns, but that opportunity comes with greater risk. When your children are getting closer to college age, your focus should be on preserving principal so you have the money you need to start making withdrawals. If you’ve chosen an age-based option, that shift will be made automatically as each age threshold is crossed.

Learn more

Knowing more about how to invest, whether it’s for college or other financial goals, can help you make wiser choices that lead to more successful outcomes.

One way to learn about the basics: Check out Vanguard’s principles for investing success. You can also take Vanguard’s questionnaire to get help finding the right asset allocation for your 529 account.

RELATED: 8 common 529 plan mistakes to avoid


About the Author: Dan leads Vanguard Education Savings Group, which provides clients with college savings solutions, strategies, and investment options. Dan joined Vanguard in 2004 and has worked in Vanguard Human Resources, Vanguard Institutional Advisory Services®, and Vanguard Fixed Income Group. Dan also served as chief of staff of Vanguard Retail Division. Before joining Vanguard, Dan worked as a consultant with Towers Perrin (now Towers Watson). Dan earned a B.S. in economics from the Wharton School of the University of Pennsylvania and an M.B.A. from the Kellogg School of Management at Northwestern University. He is a CFA® charterholder.



*Including The Vanguard 529 College Savings Plan, CollegeInvest Direct Portfolio College Savings Plan [Colorado], College Savings Iowa 529 Plan, MOST—Missouri's 529 College Savings Plan, and New York’s 529 College Savings Program Direct Plan.

**”Annual returns risk premium 1928-2014,” Aswath Damodaran, The Stern School of Business, New York University.

Investment returns are not guaranteed, and you could lose money by investing in a 529 plan.

For more information about any 529 college savings plan, contact the plan provider to obtain a Program Description, which includes investment objectives, risks, charges, expenses, and other information; read and consider it carefully before investing. If you are not a taxpayer of the state offering the plan, consider before investing whether your or the designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state's qualified tuition program. Vanguard Marketing Corporation serves as distributor and underwriter for some 529 plans.

 

Reset email successfully sent.
Please check your inbox.

Close
page loadtime mark

Advertisement


close