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In keeping with current industry standards, Ohio’s 529 Plan, CollegeAdvantage, will update our ready-made age-based portfolios next month. The Ohio Tuition Trust Authority (OTTA) Investment Board approved these changes and they will be implemented May 18-20, 2018.
These updates will smooth out the larger age steps currently found in the glide paths of our ready-made age-based portfolios. A glide path determines the asset allocation mix within an investment option. In an age-based 529 portfolio, the mix is achieved through step-down age bands. When the beneficiary is younger, the asset allocation mix includes more stocks. Equity is more heavily used in the beneficiary’s younger years as stocks are more readily affected by market volatility and if there is an economic downturn, there will be more time to recover. As the beneficiary grows older, the asset allocation mix adjusts with each new age band, reducing the amount of equity and increasing the amount of more conservative investing vehicles such as fixed-income and cash preservation options. A large age band keeps the portfolio in one asset allocation mix for a long period to weather any fluctuations in the market. This smooth glide path is similar in concept to retirement target-date funds.
Beginning in May, CollegeAdvantage ready-made age-based portfolios will offer two variations on smoother glide paths.
First, Advantage Age-Based Portfolios (AABP), a blend of active management and passive-index based portfolios, will adopt an enrollment date-based progressive glide path based on the beneficiary’s year of college enrollment. This approach allows the 529 account owner to stay in a single fund over the entire time horizon before the beneficiary heads to college. This enrollment date-based investment option will automatically reduce risk in the portfolio in small increments as the beneficiary ages. When the beneficiary is younger, there is a greater amount of equity in the AABP’s asset allocation mix. The closer the time comes for the beneficiary to head off to college; the asset allocation mix becomes more conservative with a greater focus on cash preservation. Within the portfolio, the asset allocation will be rebalanced quarterly, smoothing out this progressive glide path. The CollegeAdvantage customer will not see changes in their AABP option as they will stay in the same year-to-fund enrollment.
For your additional information, we have included the birth date ranges for each of the year of enrollment options. Please examine these Ready-Made College-Enrollment-Date Portfolios on the Investment Option Choices chart. These ranges are predefined and the beneficiary’s date of birth automatically determines the year of enrollment fund.
Second, Ohio’s 529 Plans also offers Vanguard ready-made age-based portfolios, which are passive index-based investment options. These portfolios will adopt a smoother glide path by increasing the number of age bands within each of the three risk tracks — aggressive, moderate, and conservative.
The current Vanguard glide path includes five age bands that range in length from three to four years. With the new stepped-down approach, there are nine age bands, which reduce the larger allocation shifts between equities, fixed income and cash options in the larger age buckets. By adding these new age bands, the new glide path allows for smaller changes in the asset allocation mix as the beneficiary moves towards college. As with the AABP, there is greater amount of equity in the younger age bands that methodically moves towards being more conservative as the beneficiary draws closer to needing the funds for college. Each of the three risk tracks will decrease the amount of equity in the portfolio differently. For example, the aggressive age-based portfolio will retain more equity in the older age bands. Please review Investment Options Choices chart to see the new age bands in the Vanguard Ready-Made Age-Based Portfolios.
These changes will be made for all account owners currently invested in an age-based portfolio. If your current investment portfolio includes a ready-made age-based portfolio, you will automatically be mapped into the corresponding new option. If you are invested in an AABP, you will be moved into a new fund based on the targeted year of college enrollment of your beneficiary. If you are currently in a Vanguard age-based product, you will be shifted into the correct age band, based on the beneficiary’s age, in your current risk track.
This exchange is initiated by Ohio’s 529 Plan so it will not count towards your twice-per-calendar year limit on exchanges.
As part of the update, there will be no secure system access to accounts from 4 p.m. ET on Thursday, May 17, to 8 a.m. ET Monday, May 21, 2018.
To further review the new ready-made age-based portfolios, please go here. To read the 30-Day Notice letter sent to affected account owners, please visit here. If you, as the account owner, are currently invested in an age-based portfolio, you will receive further information from Ohio’s 529 Plan regarding these upcoming changes in the mail. A new Offering Statement reflecting these updates will be available on our website, CollegeAdvantage.com, on Friday, May 18, 2018.
Posted on April 13, 2018