Retirement & Financial Planning Report

When you invest in a 529 college savings plan for a young child, you probably should put most of the money into stocks. Starting from today’s low prices, stocks are likely to increase over the next 10-15 years. However, you probably should switch to a more conservative investment mix as your children near college, to avoid sharp stock market losses. Possible choices:

* Bond funds. Yields tend to be in the 3%-4% range now. Expenses can be high, though, and you might suffer a slight loss of principal if interest rates rise.

* Guaranteed options. Some 529 plans offer accounts that cannot lose money for the investor. Returns are reset each year; currently they range from 1%-3%. These may be appropriate when children are in college or about to enter college. Again, check to see that the fees don’t exceed the guaranteed return.

* Stable value funds. These funds generally invest in short-term, high-quality bonds that have low risk and low returns. Returns have been very low recently (1%-2%) and some have actually lost money. Some 529 plans offer a stable value fund with a guaranteed minimum return.

Altogether, these options may make sense for the short term, if you will be paying college bills soon. Longer-term, if you have young children you might want to include some well-managed bond funds but you shouldn’t overdo low-risk, low-return investment choices.