COLLEGE SAVINGS 101

Savingforcollege.com

75% of college savers don't know how to invest their 529 savings
http://www.savingforcollege.com/articles/75-of-college-savers-dont-know-how-to-invest-their-529-savings-834

Posted: 2015-09-01

by Kathryn Flynn

Financial Professional Content

Just about anyone can open a 529 plan without consulting a professional, but a recent Savingforcollege.com survey found that when it comes to selecting investment options, many clients would benefit from the guidance of a financial advisor. There are hundreds of investment options available, and many overwhelmed families end up making decisions without giving it too much thought. In fact, our survey of over 300 college savers, including those who currently use 529 plans, revealed that many are unsure about how to invest their 529 plan savings, and are woefully ignorant of some of the basic rules governing 529 investments.

Financial professionals have a unique opportunity to stand out and provide a valuable service to clients in this area. Here's how you can help make sure your clients' accounts are set up to maximize savings and help families reach their goals

RELATED: Is it a mistake not to hire a financial planner?

Selecting investment options

When a family enrolls in a 529 plan, they typically select an investment option from a list of static or age-based options. While a client's investment selection in a 529 plan can have a huge impact on future savings, our survey shows that some families might not realize this. In fact, 21 percent of respondents who currently use a 529 plan said that they weren't sure which investment option they selected when they enrolled in the plan. What's more, 75 percent of college savers who were not enrolled in a 529 plan said they weren't sure which option they would select if they were to open one.

To see the investment options offered by a specific 529 plan, visit the plan detail pages on Savingforcollege.com

RELATED: Shortcut to comparing 529 investment options

Reviewing investment performance

In addition to selecting the right investment options, monitoring investment performance is also necessary. The plan may have been performing relatively well when a parent enrolled, but how does it look today? To review a client's 529 plan, you can look at the performance figures published by the administrator or simply look at the growth of the account over certain time periods. You can also compare the plan's performance with their retirement accounts, other investments or market indices, or see how it stacks up against the competition in Savingforcollege.com's quarterly performance rankings.

But, as you know, past performance doesn't always predict what will happen in the future. And if the plan's performance drops but is still in line with the market, it might be a good idea to suggest they keep making regular contributions to advantage of the Dollar-Cost Averaging strategy.

According to our survey, most families who use 529 plans review their investment performance annually (33%) or semi-annually (33%). 17 percent review performance monthly and 12 percent say they never review investment performance.

RELATED: Benchmarking the 529 plan industry

Changing investment options

There are a couple of different reasons why you might recommend changing investment options. Maybe you've been keeping an eye on the plan's quarterly performance and noticed a downward trend. Or perhaps they initially selected the static option when they enrolled and it's time to make adjustments. For example, if the child was a baby or very young when they began saving in the 529 plan, you likely recommended an option that was heavily weighted toward equities. While equities offer greater return potential, they are also more risky investments. As the child gets closer to college, you'll want to make sure the client switches to a more conservative option.

529 plan owners can change investment options twice in any calendar year, but the majority of families saving for college aren't aware of this rule. In fact, 31 percent of families who have 529 plans believe they can change their investment options whenever they want, 12 percent think they can switch investments once a year and 45 percent admit that they don't know. What's more, 34 percent of families who have 529 plans (and 66% of families who don't have 529 plans) have no idea which type of investment is most appropriate for a student who is starting college soon. For these families, you may want to suggest an age-based investment option that will be programmed to change investments automatically over time.

RELATED: 5 ways to tell if you're using the wrong 529 plan

Financial Professional Content

Just about anyone can open a 529 plan without consulting a professional, but a recent Savingforcollege.com survey found that when it comes to selecting investment options, many clients would benefit from the guidance of a financial advisor. There are hundreds of investment options available, and many overwhelmed families end up making decisions without giving it too much thought. In fact, our survey of over 300 college savers, including those who currently use 529 plans, revealed that many are unsure about how to invest their 529 plan savings, and are woefully ignorant of some of the basic rules governing 529 investments.

Financial professionals have a unique opportunity to stand out and provide a valuable service to clients in this area. Here's how you can help make sure your clients' accounts are set up to maximize savings and help families reach their goals

RELATED: Is it a mistake not to hire a financial planner?

Selecting investment options

When a family enrolls in a 529 plan, they typically select an investment option from a list of static or age-based options. While a client's investment selection in a 529 plan can have a huge impact on future savings, our survey shows that some families might not realize this. In fact, 21 percent of respondents who currently use a 529 plan said that they weren't sure which investment option they selected when they enrolled in the plan. What's more, 75 percent of college savers who were not enrolled in a 529 plan said they weren't sure which option they would select if they were to open one.

To see the investment options offered by a specific 529 plan, visit the plan detail pages on Savingforcollege.com

RELATED: Shortcut to comparing 529 investment options

Reviewing investment performance

In addition to selecting the right investment options, monitoring investment performance is also necessary. The plan may have been performing relatively well when a parent enrolled, but how does it look today? To review a client's 529 plan, you can look at the performance figures published by the administrator or simply look at the growth of the account over certain time periods. You can also compare the plan's performance with their retirement accounts, other investments or market indices, or see how it stacks up against the competition in Savingforcollege.com's quarterly performance rankings.

But, as you know, past performance doesn't always predict what will happen in the future. And if the plan's performance drops but is still in line with the market, it might be a good idea to suggest they keep making regular contributions to advantage of the Dollar-Cost Averaging strategy.

According to our survey, most families who use 529 plans review their investment performance annually (33%) or semi-annually (33%). 17 percent review performance monthly and 12 percent say they never review investment performance.

RELATED: Benchmarking the 529 plan industry

Changing investment options

There are a couple of different reasons why you might recommend changing investment options. Maybe you've been keeping an eye on the plan's quarterly performance and noticed a downward trend. Or perhaps they initially selected the static option when they enrolled and it's time to make adjustments. For example, if the child was a baby or very young when they began saving in the 529 plan, you likely recommended an option that was heavily weighted toward equities. While equities offer greater return potential, they are also more risky investments. As the child gets closer to college, you'll want to make sure the client switches to a more conservative option.

529 plan owners can change investment options twice in any calendar year, but the majority of families saving for college aren't aware of this rule. In fact, 31 percent of families who have 529 plans believe they can change their investment options whenever they want, 12 percent think they can switch investments once a year and 45 percent admit that they don't know. What's more, 34 percent of families who have 529 plans (and 66% of families who don't have 529 plans) have no idea which type of investment is most appropriate for a student who is starting college soon. For these families, you may want to suggest an age-based investment option that will be programmed to change investments automatically over time.

RELATED: 5 ways to tell if you're using the wrong 529 plan

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