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Check out Morningstar's best 529 plans, but don’t stop there
http://www.savingforcollege.com/articles/check-out-morningstars-best-529-plans-but-dont-stop-there

Posted: 2017-10-27

by Kathryn Flynn

Whether you're looking to open your first 529 plan or just checking up on a current investment, you want to make sure you're using the most reliable source of information. Families looking to compare college savings plans generally turn to Savingforcollege.com or Morningstar for the most accurate data regarding 529 plan investment performance, fees and tax benefits. However, because their rankings are based on quantitative and/or subjective analysis, it's important to consider both sources when conducting your research. Here is an overview of how each firm evaluates 529 plans to determine the "best".

Morningstar Analyst Ratings

Morningstar, a leading provider of investment research, publishes an annual list of what their analysts deem to be the "best" 529 plans. Plans are evaluated based on five pillars: Process - the plan's investment options, People –the reputation of the underlying money managers, Parent – the states and program and asset manager, Price - the cost of the underlying investment options, and Performance – the plan's risk adjusted track record and expected future performance, to determine a Morningstar Analyst Rating. Ratings are assigned on a five-tiered scale: Gold, Silver, Bronze, Neutral and Negative.

This rating should not be confused with Morningstar's star ratings, which have drawn sharp criticism from investors and financial advisors, as reported by the Wall Street Journal. Star ratings are based on past performance relative to category peers, but Analyst Ratings use a forward-looking approach to determine a 529 plan's ability to boost a family's college savings over the long term.

This year, 34 plans were awarded one of the top three ratings and only two plans were rated "Negative". 2017's highest rated 529 college savings plans included direct-sold options from Illinois, Virginia, Nevada and Utah.

Savingforcollege.com 529 Plan Composite Rankings

529 Plan Composite Rankings are published on a quarterly basis, based on the underlying historical performance of portfolios in seven asset allocation categories. These include separate ranking lists based on distribution – direct-sold plans, advisor-sold plans and plans offered through RIA channels – in order to provide an accurate comparison for our readers, depending on how they will purchase their plan.

The Rankings also include separate lists based on 1-, 3-, 5- and 10-year periods to give families a better idea of how plans have been performing over different time periods since inception. Direct-sold rankings are available to the general public, and advisor-sold and RIA channel 529 plan rankings are available with a premium subscription.

Savingforcollege.com 5-Cap Ratings

5-Cap Ratings are calculated using a combination of quantitative and subjective analysis. Since some states offer additional benefits for residents who invest in their home state's plan, there is a Non-Resident Score and a Resident Score. The Rating is based on four categories: Performance, Costs, Features and Reliability, each scored on a scale of 1 to 5 (with an additional Resident Upgrade score for residents).

The 5-Cap Ratings represent Savingforcollege.com's opinion of the attractiveness of each plan, based on the factors we feel are important. While we do employ a mathematical formula to calculate the scores, a significant portion of our analysis is subjective, and the Rating does not assess every aspect of a 529 plan, its management or future investment performance.

A closer look at the "Best" plans

Plan Name State Morningstar Analyst Rating SFC Performance Rankings for the
1-,3-,5- and 10-year periods, respectively, as of 6/30/17
Latest SFC 5-Cap Rating
Bright Start College Savings (Direct) IL GOLD N/A* N/A
Virginia529 inVest VA GOLD 23rd, 24th, 19th, 21st Resident: 5 Caps
Non-Resident: 4.5 Caps
The Vanguard 529 College Savings Plan NV GOLD 10th, 14th, 12th, 11th Resident: 4.5 Caps
Non-Resident: 4.5 Caps
Utah Education Savings Plan UT GOLD 19th, 21st, 11th, 1st Resident: 5 Caps
Non-Resident: 4.5 Caps

*Illinois replaced the plan's investment manager in July 2017; historical performance data from Savingforcollege.com is not available.

RELATED: Which is the best 529 plan available?

Whether you're looking to open your first 529 plan or just checking up on a current investment, you want to make sure you're using the most reliable source of information. Families looking to compare college savings plans generally turn to Savingforcollege.com or Morningstar for the most accurate data regarding 529 plan investment performance, fees and tax benefits. However, because their rankings are based on quantitative and/or subjective analysis, it's important to consider both sources when conducting your research. Here is an overview of how each firm evaluates 529 plans to determine the "best".

Morningstar Analyst Ratings

Morningstar, a leading provider of investment research, publishes an annual list of what their analysts deem to be the "best" 529 plans. Plans are evaluated based on five pillars: Process - the plan's investment options, People –the reputation of the underlying money managers, Parent – the states and program and asset manager, Price - the cost of the underlying investment options, and Performance – the plan's risk adjusted track record and expected future performance, to determine a Morningstar Analyst Rating. Ratings are assigned on a five-tiered scale: Gold, Silver, Bronze, Neutral and Negative.

This rating should not be confused with Morningstar's star ratings, which have drawn sharp criticism from investors and financial advisors, as reported by the Wall Street Journal. Star ratings are based on past performance relative to category peers, but Analyst Ratings use a forward-looking approach to determine a 529 plan's ability to boost a family's college savings over the long term.

This year, 34 plans were awarded one of the top three ratings and only two plans were rated "Negative". 2017's highest rated 529 college savings plans included direct-sold options from Illinois, Virginia, Nevada and Utah.

Savingforcollege.com 529 Plan Composite Rankings

529 Plan Composite Rankings are published on a quarterly basis, based on the underlying historical performance of portfolios in seven asset allocation categories. These include separate ranking lists based on distribution – direct-sold plans, advisor-sold plans and plans offered through RIA channels – in order to provide an accurate comparison for our readers, depending on how they will purchase their plan.

The Rankings also include separate lists based on 1-, 3-, 5- and 10-year periods to give families a better idea of how plans have been performing over different time periods since inception. Direct-sold rankings are available to the general public, and advisor-sold and RIA channel 529 plan rankings are available with a premium subscription.

Savingforcollege.com 5-Cap Ratings

5-Cap Ratings are calculated using a combination of quantitative and subjective analysis. Since some states offer additional benefits for residents who invest in their home state's plan, there is a Non-Resident Score and a Resident Score. The Rating is based on four categories: Performance, Costs, Features and Reliability, each scored on a scale of 1 to 5 (with an additional Resident Upgrade score for residents).

The 5-Cap Ratings represent Savingforcollege.com's opinion of the attractiveness of each plan, based on the factors we feel are important. While we do employ a mathematical formula to calculate the scores, a significant portion of our analysis is subjective, and the Rating does not assess every aspect of a 529 plan, its management or future investment performance.

A closer look at the "Best" plans

Plan Name State Morningstar Analyst Rating SFC Performance Rankings for the
1-,3-,5- and 10-year periods, respectively, as of 6/30/17
Latest SFC 5-Cap Rating
Bright Start College Savings (Direct) IL GOLD N/A* N/A
Virginia529 inVest VA GOLD 23rd, 24th, 19th, 21st Resident: 5 Caps
Non-Resident: 4.5 Caps
The Vanguard 529 College Savings Plan NV GOLD 10th, 14th, 12th, 11th Resident: 4.5 Caps
Non-Resident: 4.5 Caps
Utah Education Savings Plan UT GOLD 19th, 21st, 11th, 1st Resident: 5 Caps
Non-Resident: 4.5 Caps

*Illinois replaced the plan's investment manager in July 2017; historical performance data from Savingforcollege.com is not available.

RELATED: Which is the best 529 plan available?

 

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