What Are Age-Based 529 Investment Options?
Ohio’s 529 Plan, CollegeAdvantage, offers different investment options to appeal to different types of savers — from conservative to more aggressive risk options, to set-it-and-forget-it portfolios, to build-your-own portfolio, to fixed-income options to cash preservation — and help families in 2021 who want to save for their children’s higher education.
The available investment options include ready-made, age-based portfolios, ready-made risk-based portfolios, individual investment options, and FDIC-insured banking options. Ohio’s 529 Plan teamed up with trusted industry partners such as Vanguard, Dimensional, and Fifth Third Bank to offer these investment choices.
Some of CollegeAdvantage’s most popular investments are ready-made age-based portfolios — the “set-it-and-forget-it” college savings plans. These ready-made age-based portfolios align with college savings industry’s best practice of smoother glide paths. A glide path determines the asset allocation mix within an investment option. For an age-based 529 portfolio, the asset allocation mix is managed through age bands. The asset allocations within the bands will automatically adjust to reduce the amount of riskier investments to more conservative ones as your child grows closer to needing the funds to cover their qualified higher education expenses. This smooth glide path is similar in concept to retirement target-date funds.
Advantage Age-Based Portfolios (AABP)
The AABP funds are determined by the college date enrollment for your child. You select the fund in which your child’s date of birth falls. This approach allows the 529 account to stay in a single fund the entire time as your child grows. As your student grows older, the asset allocation mix shifts from mostly equity investments to more conservative bond and money market investments. The asset allocation will rebalance quarterly, which will reduce risk regularly and allow the portfolio to better weather any market fluctuations.
AABP portfolios are a blend of passive and active fund management from multiple fund managers. The asset allocation of each underlying portfolio is actively managed by Ohio’s 529 Plan. Actively managed funds seek to outperform the market through the buying and selling strategies of the professional investment managers. Passively managed funds are included to add diversification and help lower fees.
There are currently 11 different AABP funds. Every two years, a new fund will be open for the next birth date range. On Aug. 1, 2020, the 2040 fund was introduced with a birth date range of Aug. 1, 2020 – July 31, 2022. If you have a newborn child, congratulations! If your child is (or was) born during this date range and you’re interested in saving in the AABP, you would select the 2038 fund. For a chart of the available AABP funds and their current asset allocation mix, please review the Investment Option Choices.
Vanguard Ready-Made Age-Based Portfolios
The Vanguard Ready-Made Age-Based Portfolios are passive index-based investment options that aim to match market performance while keeping fees low. These funds follow three risk tracks — aggressive, moderate, and conservative.
These investments have nine age bands, which will rebalance the asset allocation mix more often to create a smoother step-down glide path. As with the AABP funds, there is greater amount of equity in the younger age bands that methodically moves towards being more conservative as your child nears college. However, each of the three risk tracks — aggressive, moderate, and conservative — 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 as compared to the conservative track.
For a chart of the three Vanguard Ready-Made Age-Based Portfolios and the asset allocation mix within each age band, please review the Investment Option Choices chart.
Top 10 investments options in Ohio’s Direct 529 Plan
Are you curious what investment options Ohio’s 529 Direct Plan account owners have selected to put their college savings? If you check out the top 10 list, the first three investment options are ready-made, age-based portfolios. The top 10 investment options with the highest value of assets under management (fund balances in millions, as of March 31, 2021) are:
- Vanguard Aggressive Age-Based Portfolio (ready-made age-based portfolio), $1,927.98
- Vanguard Moderate Age-Based Portfolio (ready-made age-based portfolio), $1,093.57
- Advantage Age-Based Portfolio (ready-made age-based portfolio), $965.76
- Vanguard 500 Index Option (individual investment option), $936.43
- Vanguard Aggressive Growth Index Portfolio (ready-made risk-based portfolio), $661.40
- Vanguard Extended Market Index Option (individual investment option), $343.32
- Vanguard Growth Index Portfolio (ready-made risk-based portfolio), $343.05
- Vanguard Wellington Option (individual investment option), $304.33
- Vanguard U.S. Growth Option (individual investment portfolio), $258.49
- Vanguard Interest Accumulation Portfolio (individual investment option), $250.55
Tools and calculators
If you’re considering a Vanguard Ready-Made Risk-Based portfolio but aren’t sure what level to select, Ohio’s 529 Plan offers a tool that can help: the Risk Tolerance Questionnaire. Answer a few questions to determine what level of risk you would be comfortable with in your college savings plan. Then select a portfolio that best reflects your investment style — aggressive, moderate, or conservative.
Ohio’s 529 Plan also offers other useful calculators to shape your 529 plan. Work with the College Savings Planner to set your saving goals and see how the account grows if you increase your contributions. The Tax Benefit Tool shows how much you can save with the tax-free growth in a 529 account when compared to a taxable savings account. The Cost of Waiting Tool shows the power of compound interest and how it grows your college savings.
What if you change your mind?
Your investment strategy or risk tolerance may change during the lifetime of your 529 account. It’s good to know that your 529 account does not have to stay in the same investment option the entire time. You can exchange the asset within your 529 account twice a calendar year for the same beneficiary.
If you’re ready to start saving for your child’s future higher education expenses, it’s simple to go online to open an account in minutes. A 529 account can be used for whatever comes after high school, whether vocational or trade programs, community or traditional four-year college or university programs. lf you already have a 529 plan, it might be time to review your new life-stage account strategy or perform account maintenance. And remember: A 529 college savings plan is an excellent alternative to student loan debt.
Learn, plan and start an Ohio 529 Plan today at CollegeAdvantage.com.
This article was originally posted in August 2018 and has been updated to reflect new information for 2021.
Posted on June 10, 2021