Question: How Do I Invest My Kid’s 529 College Savings Plan?

Photo (cc) by laffy4k

If you’ve got a kid heading for college, hopefully you’ve got a 529 college savings plan to help. These plans, operated by states or educational institutions, are designed to help you set aside money for college. They offer income tax benefits (the name “529” comes from that section of the Internal Revenue Code) and great flexibility with the investments you choose within the plan.

Which brings us to this recent reader question:

I have a Junior in high school and have invested his money in the Aggressive Growth option in the Wisconsin 529 Plan. I am regaining some of the money (last two months) that was invested over the past few years. When do you think is a good time to move the allocation from the Aggressive to the Moderate or Fixed ? We will need to start withdrawing in two years.

Thank you,
Todd

Here’s your answer Todd: right now is a good time to move from aggressive to moderate or fixed.

On July 6, 2010, I wrote a column called Why You Should Buy Stocks and Houses Now. At the time the Dow Jones Industrial Average was 9,686, and I predicted it would hit 12,000 within two years, for a gain of more than 20%. Well, here it is just three months later and the Dow is just over 11,000 – 13% higher.

I mention this because Todd also apparently read that column and agreed with it. In a subsequent email exchange regarding his question, he added “I, like you, believe the market will rise 20 % in the next two years.” That’s obviously why he’s chosen to invest aggressively.

But here’s a rule that overrides all others in investing: when you’re investing money for one specific purpose – say, for retirement, a new house, or in Todd’s case, college – you don’t want to take too many chances as your target date approaches. There’s a simple reason for this rule – because the stock loves to wait until you’re just about to need your money, then go down about 50% so you can’t have it.

Stock market risk is inversely proportional to the amount of time you can leave your money invested: the longer you have, the lower the risk. But as the date approaches when you’ll need your money, you’ve got to put the brakes on risk – period. It doesn’t matter if safer alternatives are paying squat. It doesn’t matter if you, me and fencepost is convinced the market’s going higher. Anybody who advises investing aggressively with money that absolutely, positively must be available 24 months from now is a fool.

Granted, Todd’s son isn’t going to need all of the money on day one of college – some of that money might not be needed for five years or more. So here’s what I’d do – and I consider this relatively aggressive: depending on the rate in the fixed plan, I’d put half of Todd’s 529 money in that right now. Then I’d put the other half in the moderate fund. If I felt I could make up the balance if I’m wrong, I might try half in fixed, 1/4 in moderate, 1/4 in aggressive, but that’s definitely as much as I’d be willing to gamble.

Whether you’re investing for retirement, college, or just for fun, the way to succeed is not to over-reach. You’ve heard the expression: bulls make money, bears make money and pigs get slaughtered.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
5 Home Improvements That Help You ‘Age in Place’
5 Home Improvements That Help You ‘Age in Place’

These safety-conscious home upgrades can help retirees stay in their home.

15 of the Most Outrageously Overpriced Products
15 of the Most Outrageously Overpriced Products

Retailers mark up products by hundreds of times their cost — but you don’t have to pay the premium.

This Is the Best Online Savings Account for 2021
This Is the Best Online Savings Account for 2021

The rate of return is just one of several reasons this account stands out.

13 Streaming TV Services That Cost $20 a Month — or Less
13 Streaming TV Services That Cost $20 a Month — or Less

Before shelling out for more expensive options, check out this diverse list.

7 Common Online Shopping Mistakes That Will Cost You
7 Common Online Shopping Mistakes That Will Cost You

How many of these costly online shopping missteps are you making without realizing it?

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

How to Buy Gas At Costco Without a Membership
How to Buy Gas At Costco Without a Membership

The warehouse club often has some of the cheapest gas in town. Here’s how you can get it as a nonmember.

10 Things to Stop Buying If You Want a Clutter-Free Home
10 Things to Stop Buying If You Want a Clutter-Free Home

If you like to keep things simple, avoid these purchases.

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

Vacuums from this brand can last a half-century, if not longer — and they’re hot on the resale market.

A Simple Way to Silence Robocalls Today
A Simple Way to Silence Robocalls Today

A few steps can keep your phone from ringing when a spammer calls.

This Company Makes the Best Tires in America
This Company Makes the Best Tires in America

Driver satisfaction with tires is at an all-time high, but one brand stands out.

This Health Issue Can Hint at Dementia Years in Advance
This Health Issue Can Hint at Dementia Years in Advance

One type of pain is especially associated with cognitive decline.

Can I Switch to Spousal Social Security Benefits When My Ex Dies?
Can I Switch to Spousal Social Security Benefits When My Ex Dies?

Knowing when to claim can help you maximize benefits.

36 Things That Will Be Obsolete Soon
36 Things That Will Be Obsolete Soon

The writing is on the wall for dozens of things we have grown up with.

Medicare Will Not Cover These 6 Medical Costs
Medicare Will Not Cover These 6 Medical Costs

Don’t let these health care expenses catch you off guard in retirement.

8 Things You Should Always Buy on Amazon
8 Things You Should Always Buy on Amazon

The giant retailer shines when it comes to these things, from basics to hard-to-find specialty goods.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

8 Federal Income Tax Breaks for Homeowners
8 Federal Income Tax Breaks for Homeowners

Some of these deductions and credits are available to a wide swath of homeowners.

5 Ways to Fill Your Pantry With Free Food
5 Ways to Fill Your Pantry With Free Food

Anyone can take advantage of these resources.

12 Deep Discounts Available on Amazon This Friday
12 Deep Discounts Available on Amazon This Friday

These items are steeply discounted — but the deals won’t last long.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

6 Reasons You Should Stop Hiding Cash at Home
6 Reasons You Should Stop Hiding Cash at Home

Stashing money around the house is anything but harmless.

5 States With the Worst Health Care for Retirees
5 States With the Worst Health Care for Retirees

All of these states are located in the same region of the nation.

5 Products You Should Never Buy Generic
5 Products You Should Never Buy Generic

Sometimes the brand-name version is clearly superior.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.