Summary
Be sure to adjust your college savings strategy as college bills get closer.
How to change your asset mix
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.
Many 529 plans offer enrollment-year options that rebalance automatically so that you don't have to.
Learn more about Target Enrollment Portfolios
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 may be 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.
For more information about any 529 college savings plan, contact the plan provider to obtain a Program Description, which includes investment objectives, risks, charges, expenses, and other information; read and consider it carefully before investing. If you are not a taxpayer of the state offering the plan, consider before investing whether your or the designated beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's qualified tuition program. Vanguard Marketing Corporation serves as distributor for some 529 plans.
Bond funds are subject to the risk that an issuer will fail to make payments on time, and that bond prices will decline because of rising interest rates or negative perceptions of an issuer's ability to make payments.