Obviously, parents can invest far more aggressively if their child is still watching Sesame Street rather than borrowing the family car. However, parents who feel paralyzed by an abundance of choices aren’t going to find generalities too helpful.
Perhaps the best way to find the answer is to turn to cheat sheets. I’d suggest that you take a look at how some of the major 529 college saving plan providers invest assets for children at different ages. In this chapter, I’ve included model 529 portfolios that T. Rowe Price and the Vanguard Group offer their college saving clients.
Vanguard and T. Rowe Price, as well as many 529 plan providers,offer age-based investment options that contain a mix of stock and
bond mutual funds that grow more conservative as a child ages. You
can look at how these sample age-based portfolios invest in stock and
bond funds at different stages of a child’s life. Perhaps, for example,
your child is 14 and you’re agonizing over whether you’ve got too
much money allocated to stock in his college fund. If you’ve got
doubts, examine how professional managers are investing for kids that age.
You can use these age-based portfolios, or other ones, as a guide
regardless of what type of accounts you own. The breakdown of investment
categories can be useful whether you invest in 529 plans,
Coverdell Education Savings Accounts, custodial accounts, taxable accounts,
or some other way.
The T. Rowe Price portfolios are based on how many years remain
before a child enters college. In the Vanguard examples, the model
portfolios are based on a range of ages. Naturally, T. Rowe Price uses
its own mutual funds in its 529 portfolios, while Vanguard relies on its
index mutual funds. The investment breakdowns of 529 plans are contained
in their respective program descriptions, which you can obtain
by calling the firms or by downloading documents online.
As you’ll see there are considerable differences between the portfolios
of the two mutual fund giants. What’s critical is that you find an
investment mix that you will feel comfortable owning.
T. Rowe Price Model Portfolios
College bound students
Bonds 40%
Short-term bonds 40%
Large-cap stocks 20%
Two years until college
Bonds 46%
Short-term bonds 27%
Large-cap stocks 26%
Small-cap stocks 1%
Five years until college
Bonds 50%
Short-term bonds 6%
Large-cap stocks 33%
Mid cap stocks 4%
International stocks 3%
Eight years until college
Bonds 38%
Large-cap stocks 42%
Small-cap stocks 6%
Mid-cap stocks 6%
International stocks 8%
Eleven years until college
Bonds 21%
Large-cap stocks 53%
Small-cap stocks 7%
International stocks 12%
Mid-cap stocks 7%
Fourteen years until college
Bonds 6%
Large-cap stocks 61%
Small-cap stocks 9%
International stocks 15%
Mid-cap stocks 9%
Seventeen years until college
Large-cap stocks 65%
Small-cap stocks 10%
International stocks 15%
Mid-cap stocks 10%
Vanguard’s Model Portfolios
Vanguard developed its age-based options for conservative, moderate,
and aggressive investors. The moderate age-based portfolio is
used in this chapter. All of Vanguard’s age-based portfolios use some
combination of Vanguard’s Total Stock Market Index Fund, Total
International Stock Index Fund, Total Bond Market Index Fund,
Inflation-Protected Securities Fund, and its Short-Term Reserves Account.
Newborn through age five
Domestic stocks 60%
International stocks 15%
Bonds 25%
Ages six through 10
Domestic stocks 40%
International stocks 10%
Bonds 50%
Ages 11 through 15
Domestic stocks 20%
International stocks 5%
Bonds 75%
Ages 16 and older
Bonds 50%
Inflation-protected securities 25%
Cash 25%
Action Plan
If you’re not sure how to divide your college accounts among stock
and bond mutual funds, consider using the investment percentages
that major mutual fund companies rely on.
Source: The College Solution: A Guide for Everyone Looking for the Right School at the Right Price
