529 Plan and College Savings

Posts Tagged ‘529 agebased portfolio’

Choosing an Investment Strategy for a 529 Plan

Like all portfolios, 529 plans offer various investment choices. Below are two common concepts of the investment strategies of 529 plans.

1. Aged-Based Portfolio of 529 plans

An “age-based” investment strategy takes into account the length of time before the beneficiary is expected to withdraw funds for qualified higher education expenses.

When you first enroll in a 529 Plan, you may choose the number of years until you expect to begin making distributions to pay qualified higher education expenses. You will also choose from among different investment styles such as:

• Aggressive,
• Moderate
• Balanced and
• Conservative

Based upon the account owner’s choices (years to withdrawal, investment style and management style), their account will be assigned to a 529 portfolio that invests in accordance with their choices.

Using sophisticated investment models, your accounts will be allocated to portfolios with different asset allocations as their beneficiaries get closer to the year in which they expect to begin distributions.

The financial manager that manages the plan monitor the performance of each 529 portfolio and may change the asset allocation or the underlying mutual funds used when they determine it is appropriate to do so.

You will be informed of these changes, but may not have the opportunity to change their investment strategy.

Why change portfolios as the beneficiary gets closer to starting college or graduate school?

When the beneficiary is still relatively young, he or she can wait out the inevitable price fluctuations associated with investing in funds that invest primarily in stocks and other equity investments in the hopes of capturing the larger long-term returns that these assets have historically produced.

As a beneficiary gets closer to college age, however, a larger percentage of the investment assets are moved into mutual funds that invest primarily in fixed-income securities, including money market instruments.

Also, even with a young beneficiary, you can prefer assets allocations that are more likely to preserve capital by choosing an investment strategy that emphasizes mutual funds investing primarily in fixed-income securities and money market instruments.

The investment needs for each family or investor are based upon their financial circumstances tax status and their investment time horizons.