Reevaluate Annually

Reevaluate your savings portfolio annually, and change your asset allocation as your child grows

When your child is young, you can afford to pursue investment options that involve a little more risk but which offer a potentially greater return, since you have time to change strategies and weather market downturns. When college approaches, however, you should consider moving the money into safer, more liquid form.

You don’t want to be forced to withdraw your funds at a loss, should the market drop, just because you need the money to pay for tuition. The choice of when to sell should be based on your evaluation of the performance of the investments, not on external factors.

College savers trying to beat tuition inflation need to earn an average of at least 7% to 8% over the life of the investment in order to keep up with increases in college costs. So an annual review of your portfolio is necessary to make sure you are achieving your investment goals on a consistent basis, while preserving value as your child approaches college age.

One feature of 529 plans is the ability to reallocate, or exchange, your investment option assets on a limited basis each calendar year. If you find that the assumptions behind your investment strategy have changed, or your risk tolerance has changed, you may want to change your investment option allocations.

Another way to gradually change asset allocation is to direct new investments to different investment options.

Increase the amount you save annually

It’s also a good idea to make it a point to reevaluate the amount you save each year, and increase it, even if only by a small amount. For example, if you save $25 per paycheck, increase it to $35. If you automatically have $50 taken out of your bank account each month, increase it to $60 or $75. You probably won’t miss the extra money, and it can really increase your account balance with compounding over time.

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