Should I Use an Age-Based Portfolio For My 529 Plan Investments?

Tags: 529 Tampa, 529 Plan Tampa, 529 Tampa Advisor

When it comes to the popular 529 Plans, many offer age-based investment allocations. A pre-determined approach, it allows for allocations to become more conservative as the child approaches college age.

While everything depends on the client’s circumstances, we do not recommend using the age-based investment allocations.

Our thought process is that we believe the age-based allocations get too conservative as the college start date approaches.

In this model, the asset mix is stock-heavy in the early savings years. The stock/bond mix is automatically moved toward a higher weighting of bonds as the child approaches college. The philosophy is as the child approaches college, the investment portfolio will have less time to make up potential stock losses if they were to occur.

There is a good argument for a static plan.

First of all, 529 Plans (or any means to finance the behemoth that is college tuition) is one of the many considerations new parents take seriously. 

In a March 2017, Princeton Review press release:

According to The Princeton Review's 2017 College Hopes & Worries Survey – the company's 15th annual survey of college applicants and their parents, anxiety levels about the admission process are up this year. 76% of the over 10,000 respondents reported high levels of stress—4% more than last year's survey respondents, and 20% more than in the survey's initial year, 2003.

The rising cost of college may well have contributed to parents' and students' college application stress: 98% of the respondents this year said financial aid would be necessary to pay for college. Among that cohort, 65% deemed it "Extremely Necessary."

With the heavy weight of this worry, parents tend to spring into action rather early. This can translate to a long, 16- to 18-year investment arc where all combinations of markets and investment opportunities present themselves. That span offers more time for fund growth, and in the static model, the prospect for reallocation.

While stock market losses can occur (like they did in 2008), we believe that our clients are better off by taking slightly more risk than the age-based investment portfolios offer in most 529 Plans.

It may sound redundant, but your investment equation must include your personal variables: your objectives + the number of investment years + your risk tolerance = your financial success. 

If you would like help choosing and investing in a 529 or College PrePaid Plan, please contact me at derek.pilecki@gatorcapital.com or (813) 282-7870. While we believe a college education is important, we also understand it is expensive, and the process is daunting.

We do not charge fees for helping with 529 Plan accounts. We get two benefits from helping you: 1) as parents ourselves, we feel good about setting you and your child on the correct path to pay for college and 2) it enables us the opportunity to begin a discussion about your other investment needs. 

If you have a question beyond the scope of this article, feel free to visit our “Ask Us a Question” page or leave a comment below so we may assist you with your specific situation.

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