Investing for college: Three ideas for building 529 plan portfolios
Key takeaways
What are the primary types of 529 plans?
How are investments managed in CollegeBound 529 plans?
Which investment approach may be best for your clients?
Investing for college: Three ideas for building 529 plan portfolios
When it comes to saving for college, 529 plans offer your clients multiple features. In addition to the tax advantages, some 529 plans, such as CollegeBound 529, offer a wide degree of flexibility in terms of how the funds are invested. This flexibility gives your clients more tools to help them manage the rising costs of higher education.
We provide an overview of how traditional 529 plans, such as CollegeBound 529, differ from prepaid tuition plans. We then discuss the three primary investment approaches that your clients can use within CollegeBound 529 plans.
Education savings plans vs. prepaid tuition plans
Many of your clients may not understand that there are two primary types of 529 plans: education savings plans (traditional plans) and prepaid tuition plans. While both types are sponsored by states, agencies, or organizations, there are important differences that your clients should understand:
- Most prepaid tuition plans only cover tuition and fees (some cover room and board at an additional cost).
- Most state-run prepaid tuition plans are restricted to residents of that state.
- Traditional 529 plans are investment accounts in which the value of the plan is based on contributions plus the growth and earnings of those assets.
- Most traditional 529 plans that are state-sponsored allow non-residents to open an account.
CollegeBound529 investment options
There are three primary investment approaches that your clients can use when saving for college through a CollegeBound 529 plan.
- Age-based portfolios
Age-based portfolios can be a great option for investors who are looking for a hands-off approach to saving for college. The portfolios are designed to align with the child's expected year of college enrollment, and the investment allocation gradually becomes more conservative as the beneficiary nears college age. Other important characteristics of age-based portfolios include:
- Portfolio options are based on two-year increments.
- Investment allocations are adjusted quarterly to become more conservative and maintain appropriate risk levels, with monthly rebalancing.
- Portfolios are designed to outpace the rising costs of higher education.
- Target risk portfolios
Target risk portfolios give your clients the ability to choose how conservative or agressive they want to be in investing for college. CollegeBound 529 offers three levels of target risk portfolios — conservative, moderate, and growth — and as an financial professional, you can help your clients decide when it is time to move up or down the risk spectrum. Other important characteristics of target risk portfolios include:
- Portfolios use a combination of actively managed and passive funds; the blend of both investment styles is designed to achieve the desired risk-adjusted returns in a cost-efficient manner.
- Clients may use a target risk portfolio in conjunction with an age-based portfolio, providing additional flexibility in managing the portfolio’s level of risk.
- Portfolios are rebalanced monthly to help to stay on track with the targeted risk level.
- Individual portfolios
In addition to the more standardized age-based and target risk portfolios, your clients can also build portfolios with higher levels of customization in their CollegeBound 529 plans. You can help your clients construct a portfolio that is tailored to their specific objectives thanks to the following characteristics of the individual portfolio option:
- Individual portfolios provide access to equity, fixed income, and capital preservation options.
- Financial professionals work with clients to select investment strategies using Invesco’s portfolio options.
- Select investment portfolios provide a variety of portfolio building blocks across major asset classes for greater diversification.
- By helping your clients understand their college savings investment options through CollegeBound 529, you can help give them the clarity they need to choose the strategy that fits their needs. For more information on ways to build relationships with your clients along with their portfolios, visit our CollegeBound 529 resources page.
