How to change your asset mix
Even if you've found the perfect asset mix, you'll need to check in occasionally to see whether you need to make changes. Here's how.
Tax updates coming soon
We're working on updates that will reflect the new U.S. tax law. In the meantime, this page may not address this development.
In summary, the law expands 529 plans to include tax-free distributions of up to $10,000 per year per student to pay for K-12 expenses. Currently, 529 plans offer tax-free withdrawals only for college expenses.
We recommend that you consult a qualified tax advisor about your personal situation.
The key to keeping your balance
Imagine you open an account today and put your money in the asset mix that's best for you—let's say 50% stocks and 50% bonds.
Now imagine 4 years go by. During that time, the stock market returns an average of 8% a year, while the bond market returns 2%.
Great news, right? Except … your account portfolio now looks different: Your asset mix is now 44% bonds and 56% stocks.
If you find yourself in this situation, you'll have to rebalance back to your original asset mix. There are a couple of ways to do this:
- Direct your new contributions to the underweighted asset (in this case, bonds) until you're back where you should be.
- Sell some of your stock investments to buy bond investments.
As a rule of thumb, check in annually and rebalance only if your investments are 5% or more away from your target—you don't want to tinker with your investments too much.
Make it easy
529 plans offer age-based options that rebalance automatically so that you don't have to.
Don't forget: Change your mix as you get closer to college
Your asset mix should get more conservative as time goes by. Why?
Bonds typically have lower returns over time but are also more stable than stocks. Cash investments are the lowest-yielding and least volatile of all.
As you get closer to withdrawing money for college, you'll want to start trading off some of your potential return in favor of more stability. (You don't want to take a chance on your account losing money when you don't have time to wait for markets to recover.)
An easy solution for any college saver
In addition to rebalancing automatically, age-based options also get more conservative automatically. They're only available through 529 college savings plans. See if they might be right for you.
We're here to help
Talk with one of our education savings specialists.
Monday to Friday
8 a.m. to 9 p.m., Eastern time
Get the basics on college saving
WHERE DOES COLLEGE FIT INTO YOUR PRIORITIES?
The way your account is divided among different asset classes, including stock, bond, and short-term or "cash" investments.
The yearly, monthly, or weekly amounts you save in your account.
A conservative portfolio is relatively safe from investment risk (although there's no guarantee it won't lose money). Because risk and reward are related, a conservative investor can also expect returns that are, on average and over time, lower than those of someone with a moderate or aggressive portfolio.
The profit you get from investing money. Over time, this profit is based mainly on the amount of risk associated with the investment. So, for example, less-risky investments like certificates of deposit (CDs) or savings accounts generally earn a low rate of return, and higher-risk investments like stocks generally earn a higher rate of return.