CB529: Strategies for a bear market

Strategies for a bear market

Some clients get anxious during a bear market and when the financial winds whisper a recession. That’s why it’s important to reassure them that, while painful, bear markets and recessions are usually followed by a recovery and, in turn, a stock market rebound. Historically, the average return for stocks in the year following a recession was 16%, with markets positive 90% of the time.¹ Here are some ways to help clients with 529 plans.  

Know a client’s timeline and risk profile

It’s important that clients stay the course, even during turbulent economic times. Taking assets out of 529 plans, and not using them for qualified educational expenses, typically results in tax penalties. Clients may lose out on recovery gains too. To help avoid this, it’s important to choose the appropriate investment option for them.

• Age-based portfolios
  If market volatility makes your client nervous, these portfolios may make sense. As the child nears college age, assets shift from stocks to lower-risk investments — without your client having to make any changes themselves.
• Target risk portfoliosSome clients may be more comfortable matching an investment to their risk tolerance. They can choose a conservative, moderate, or growth portfolio. If their circumstances change and they want to switch their selection, they can do so.
• Individual portfolios
  These may make sense for clients who are more comfortable with risk and understand the opportunity that a market downturn may present. Market volatility may not make them nervous. Instead, they may choose to make specific allocation adjustments to try and take advantage of it.

All weather strategy for long-term 529 investors

You likely get this this question from clients: “Is adding to my 529 plan during a down market a good idea?” Let them know that if they have a few years before they need to access their money, it may actually be beneficial. Of course, investing is subject to risk, but the market typically recovers, and longer-term 529 savers may have an opportunity for growth.

Let them know that dollar-cost averaging, investing regularly over a long period of time, offers a key advantage: More shares are purchased when prices are down and fewer when prices are high. Over the long term, it has the potential to even out the average cost per share. In essence, they’re making the market’s ups and downs work for them — rather than against them. That’s why getting started when a child is young is important. If the child is close to starting college, however, doing nothing with their 529 plan during a market downturn may make sense.

Help clients with investments that fit their savings goals using our investment portfolio options.