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Personal finance

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.
4 minute read

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.

Asset mix

The way your account is divided among different asset classes, including stock, bond, and short-term or "cash" investments.

Contributions

The yearly, monthly, or weekly amounts you save in your account.

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

Many 529 plans offer enrollment-year options that rebalance automatically so that you don't have to.

Learn more about Target Enrollment Portfolios

Conservative

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.

Returns

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.

Don't forget: Change your mix as you get closer to enrollment

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 enrollment, 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 education saver

In addition to rebalancing automatically, Target Enrollment Portfolios also get more conservative automatically. They're only available through 529 savings plans. See if they might be right for you.

Find out which account is right for your education savings goals

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All investing is subject to risk, including the possible loss of the money you invest.

Please remember that all investments involve some risk. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.