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“What is the best fund to use for my child’s 529 college savings account?”

Today’s question covers how to invest a 529, or really any other investment account that will be used for college savings.

The question is:

“What is the best fund to use for my child’s 529 college savings account?”

Today’s question covers how to invest a 529, or really any other investment account that will be used for college savings.

The question is:

“What is the best fund to use for my child’s 529 college savings account?”

 

Every state’s 529 plan has different funds, so I can’t recommend a specific fund in general. But most will offer a variety of funds containing stocks and bonds. The state’s 529 website should list all the funds available.

If you are saving very early on, say when the child is 5 years old or younger. I think allocating the money within a 529 to all or mostly stocks is appropriate. Its aggressive, but you have more than a decade to let the investments grow.

As your child gets closer to entering college, say 5 to 7 years out, you want to start thinking about moving your savings into safer investment such as bonds.

This is because over short periods of time, the stock market is very volatile. It is not a surprise if the stock market drops 15 or 20 percent in a single year. If that drop were to happen right before you need to withdrawal the money from your 529, you could be left short on money for tuition.

To help with the management of a 529, many state plans offer funds known as target date funds. These funds are intended for money that will be used at a target date. So, say your child will be entering college in 2030. Invest in your state’s 2030 target date fund, and your investments will automatically slowly go from stocks to bonds over time. You won’t have to worry about anything.

Just note that sometimes these funds come with higher fees.

This advice can obviously differ depending on your risk tolerance, your household income, how much you can afford to save each year, and your general household personal finances. So contact a fee-only, fiduciary financial advisor such as Hylland Capital if you need help.

Matt Hylland