05 May Should I change college savings because of market volatility?

Q. My children are 13 and 15, and I have their college savings in a 529 that’s an age based allocation. With all the volatility, I am thinking of moving to something even more conservative. Should I?
— Mom

A. The unpredictable stock market has investors questioning what they should do with their savings.

College savers are no different.

College is very expensive and 529 savings plans are a great way to save tax free if the funds are used for qualified expenses such as tuition, books, computers and more, said Jeanne Kane, a certified financial planner with OneDigital in Boonton.

She said the 529 age-based allocation portfolios are designed to rebalance over time.

“These types of investments are good options for people who want to actively save in the 529 but don’t want to have to actively manage it,” she said. “The age-based allocation investment does that for you through rebalancing.”

The closer your children are to enrolling in college, the more conservative their portfolios will become, she said.

For example, when you children were babies, the portfolios would have been all or almost all stock with little to none in bonds.

“Over time, the portfolios rebalance so the percentage of the account invested in stocks decreases and the percentage invested in bonds increases,” Kane said. “Bonds tend to be less volatile than stock. They can be viewed as more conservative.”

Most 529 investment providers offer some sort of age-based allocation, Kane said.

As an example, If we look at Vanguard’s age-based portfolio for a child entering college in 2030/2031 which should be close to when your 13-year-old enters college, the breakdown of stocks to bonds and short-term reserves such as cash is as follows: 40.12% stock, 54.78% bond, 5.10% short term reserves.

If your 15-year-old enters college in 2028, and is invested in the target-enrollment fund, their account would have the following breakdown: 26.79% stock, 54.87% bonds, 18.34% short term reserves.

Notice that the 2028/2029 target enrollment fund has less in stock, Kane said. Because bonds can potentially provide more stability in a portfolio, the 2028/2029 target enrollment fund will likely be less volatile, she said.

Kane said generally, you want conservative investments and investments that are less subject to volatility the closer to college. You want to be able to count on the money being available for college bills, she said, noting that 80% stock or higher considered growth oriented, 60% is considered moderate, and 40% or lower is considered conservative.

As we’ve all seen, markets can go up and markets can go down.

“It’s unsettling and uncomfortable when the markets go down, but it is part of the process,” Kane said. “Dimensional Funds data shows that historically, 3 out of every 4 years the stock market has positive returns, one out of every 4 years the market has a negative year.”

She said it’s important to stay invested in both the up and down years since it is hard to time the market.

Kane, citing Dimensional Funds data, said if you invested $1 in 1970 in a broad index like the MSCI World Index, your $1 would have grown to $117 in 2024.

Importantly, remember that growth isn’t a straight line but the line tends to go up over time, she said.

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This story was originally published in May 2025.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.