Choosing 529 plan investments: Can I be aggressive?
Key takeaways
Two things to consider when choosing investments
Potential choices for more aggressive investors
Potential choices for less aggressive investors
If you’re thinking about opening a 529 college savings plan — or already have one — it’s important to choose appropriate investments for it. Two key things to keep in mind are the child’s age and how you feel about risk.
The younger the child, the more risk you may be comfortable taking on. That’s because you have a longer timeframe to ride out any market volatility, making the higher growth potential worth it. If the child is a few years away from college, you wouldn’t want volatility to hit your portfolio balance right before you start taking withdrawals. A conservative portfolio may be a better option.
Investment choices
A 529 plan typically offers several investment choices with varying levels of risk. In general, if you’re less comfortable with risk and are more of a set-it-and-forget-it investor, an age-based portfolio can be a good choice. On the other hand, if you want to be aggressive (and you understand the risks), a static portfolio might be right for you.
An age-based portfolio automatically becomes more conservative as the student approaches high school graduation. Its asset mix shifts from a larger allocation to stocks to a focus on bonds and money market investments. You choose the portfolio that aligns with the year the child starts college, and the professional money managers running the fund do the rest.
A static portfolio doesn’t change, putting you in control of how much risk you start with and how you want to change that (or not) over time. There are two types of static portfolios:
- Target risk, which has a set risk profile such as conservative, moderate, growth, or aggressive. You choose the portfolio that matches your comfort with risk. The portfolio manager adjusts the asset mix of the portfolio periodically to stay within its risk profile.
- Individual. For the ultimate do-it-yourself investor, you can build your own portfolio from a menu of choices including stocks, bonds, and alternatives. This allows you the maximum level of control over your risk-and-return profile.
When choosing a static approach, it’s important to remember that being too conservative for too long may present its own type of risk. You may be miss out on growth potential and the ability to save enough for the rapidly rising cost of college.
Learn more about the investment portfolio options in Invesco’s CollegeBound529.
You aren’t locked into the investment you choose when you first open an account, although IRS regulations only allow exchanges from one investment option to a different one twice in a calendar year.
Talk to a financial professional
A financial professional can help you determine your risk tolerance and which investment makes sense for you. It’s an important decision and the sooner you begin, the greater the opportunity to grow and build your savings.