The value of 529 college-savings accounts sank 21 percent last year, according to one report. That’s because many of these accounts were invested in stocks, which lost heavily in 2008. Going forward, how should invest 529 money?
With young children, emphasize stocks. They’ll have years to buy stocks at relatively low values, after the crash of 2008.
With children already in high school, stocks might be too risky. You don’t want to suffer a 21 percent loss just before it’s time to pay college bills. Instead, you should have most 529 money in bonds and other conservative investments by this point.
In any case, don’t accept an investment choice as “conservative” just because it’s described that way in the fund’s marketing materials. Look to see what you’re really getting. Recently, the state of Oregon sued Oppenheimer Funds because the Core Bond fund in its 529 plan described itself as conservative while holding credit default swaps and other risky instruments. That fund lost nearly 36 percent in 2008, far more than most other bond funds, and 529 investors lost $36 million there last year.
