College Savings Plans
and Attention to Investments

Similar to any other financial investment, it is important that the consumer focus on the underlying investments in a 529 College Savings Plan portfolio. During the economic down turn of the past few years many investors saw their stock portfolios shrink by 10% or more. Many of these investors changed their 529 Plan investments from stock portfolios to portfolios rich in bonds.

Now that the economy has started to turn, bonds are starting to lose value as the stock market and interest rates rise. The consumer can only change investments in a 529 College Savings Plan once per year, and so it is important that when the opportunity arises, the consumer should consider reallocating portfolios that are heavily invested in bonds into equity positions.

For those who are invested in age-based portfolios, the 529 Plan Manager has a systematic method of shifting portfolios for you. The portfolios are heavily invested in equities during a child's younger years and are shifted to almost exclusively a bond portfolio as the child approaches college age. Pressure will now be brought upon these Plan Managers to be certain that appropriate bonds are in the portfolio as bond prices sink and equities rise.

Historically, having a large portion of the portfolio invested in bonds in the years just prior to attending college was a safe and appropriate step to take. This theory needs to be reconsidered in light of the decrease in value of bonds and the increase in stock equity markets. As a result of this, we may see an increasing number of Plan Managers utilizing a stable value fund or a money market fund for the years just prior to attending college.

< Return to Articles