The research looks at the saving and investing behavior of the owners of 1.9 million 529 plan accounts over the 12-month period ended December 31, 2022. In aggregate, the accounts held $59 billion in assets, of which 53% were in glide-path options and 31% were self-directed. The rest either held a mixture of glide-path and other options or had 100% of their assets in short-term investments.

The self-directed investors in the study sample tended to be more concentrated in equities, potentially leaving them more vulnerable to market volatility around the time the plan beneficiary approaches college age. Glide-path investors, by contrast, shift to an allocation of mostly short-term fixed income and cash as tuition-paying time approaches.

“The difference is most striking as beneficiaries get older, perhaps suggesting that self-directed investors are overly confident about future market returns, or that they feel taking more market risk is needed to account for the rising costs of college,” the authors say. In a market downturn, they add, such investors might have little time to recover.

“Plan sponsors may want to consider encouraging owners of accounts with older beneficiaries to review their asset allocations to ensure that they align with their risk tolerance,” the authors conclude.

You can read more in the paper, Saving and investing in 529 plans.

• Diving deeper into attitudes around college savings (article, issued June 2023)
• Kicking the tires of a 529 glide path (article, issued May 2023)
• The early bird gets the advantage, and other tips for college savings (article, issued May 2022)