Managing investment risk for 529 plan investors

Our research shows that using a glide-path approach, which takes into account a child’s age, can help manage the risks of investing in a 529 plan that may be faced when choosing investments yourself. Investors taking the glide-path approach shift to lower-risk short-term fixed income investments and cash when the time to pay for college draws near. Meanwhile, self-directed investors may be more vulnerable to market volatility, particularly if they have opened themselves to increased market risk in an effort to offset the rising cost of college. Before the first tuition bill arrives, it’s key to assess the plan’s asset allocation against the investor’s risk tolerance.

Kicking the tires of a 529 glide path

Vanguard researchers tested the durability of the glide path as a hands-off way to invest in a 529 plan. Their findings? Even when taking into account variations in factors such as a child’s age, how much is saved over time, and how much college costs increase, the glide path helps meet the diverse needs and goals of various investors saving for future education. 

Diving deeper into attitudes around college savings

Most investors view higher education as crucial for financial success. However, our survey found that many people are unsure about how to pay for college and are not confident that they will be able to afford it. Notably, millennial and Gen Z investors have the lowest levels of awareness of 529 plans despite their potential in helping to manage college costs.

Principles for investing success in four figures

Ideally, education savings should start early. Our four principles—goals, balance, cost, and discipline —should be part of the map investors create for their 529 investing strategy. Having clear goals, a mix of low-cost investments, and a focus on the long term are all things investors can do to help reach their financial goals, including saving for future tuition costs.

For more on 529 plan research, visit our Education & College Savings hub.