Whether you own an age-based option or individual portfolios in your 529 account, your stock allocation is invested in mutual funds, which give you access to hundreds—even thousands—of stocks.
Investing in stock mutual funds spreads out risk much more than owning individual stocks. That's because the negative performance of one stock can be offset by the positive performance of other stocks in the fund. "Mutual" means the funds pool together money from many investors for a common investment goal, based on the fund's investment objectives.
Since stock funds aim to provide long-term growth, you'll likely experience more ups and downs in the value of your investment than you would with bonds or bond funds.
Active versus passive funds: How do they compare?
There are two main investment strategies—active management and passive management.
Active funds* aim to beat the returns of an index by attempting to invest in only the best stocks within the index. They're run by professional fund managers or investment research teams. Passively managed or index funds simply track a market by owning all, or a representative sample, of the stocks in an index. Their goal is to provide a return that closely reflects how the market is performing.
New York's 529 College Savings Program Direct Plan only includes portfolios based on Vanguard index funds, which avoid the risks of actively managed funds and also have lower costs. And they still offer the broad diversification and direct market exposure that many investors seek.
What if I want to invest in a particular sector or market?
Most of the age-based portfolios and individual options in your 529 plan hold stocks in a variety of sectors and across multiple markets.
While some investors might like to invest more heavily in certain high-performing sectors, like health care, energy, or telecommunications, their performance is extremely hard to predict. Sector funds can experience wide swings in value—and lead to potentially large losses—which could reduce your chances of reaching your savings goal. That's why most 529 plans don't offer portfolios that target just one area of the market.
What if I want to focus on a certain country or international region?
If you invest in an age-based portfolio that holds stock funds, you're already investing across a broad range of U.S. and international securities, including stocks from both emerging and developed markets. New York's 529 Direct Plan also offers the Developed Markets Index Portfolio, so you can get international exposure outside the age-based options.
Spreading your risk across global markets this way is something to consider because it lowers the overall risk in your portfolio. Markets outside the United States don't always rise and fall at the same time as the domestic market, so owning pieces of both can level out your portfolio's volatility.
How can I find out which stocks are in my 529 portfolios?
It's easy to see basic information about the underlying investments in your portfolios, including a listing of their top ten stock holdings. Simply log on to your 529 account and select the link for each portfolio you own. Then, under "Investment strategy," select each underlying fund and look for "Ten largest holdings."
If you decide to change your investment mix, remember that you have two allowable exchanges per calendar year. You can also make changes if you change your beneficiary.
*Some mutual funds are actively managed, which means the fund managers make their own decisions about what to buy and sell in an attempt to get the highest returns. They could make these decisions based on the fund manager's research about specific companies, computer analysis about the companies, or some other means. Because active funds don't mirror their benchmark index, their returns could be either higher or lower than those of the index.
All investing is subject to risk, including the possible loss of the money you invest. In a diversified portfolio, gains from some investments may help offset losses from others. However, diversification does not ensure a profit or protect against a loss.
Funds that concentrate on a relatively narrow market sector face the risk of higher share-price volatility. Investments in stocks issued by non-U.S. companies are subject to risks including country/regional risk— which is the chance that political upheaval, financial troubles, or natural disasters will adversely affect the value of securities issued by companies in foreign countries or regions—as well as currency risk, which is the chance that the value of a foreign investment, measured in U.S. dollars, will decrease because of unfavorable changes in currency exchange rates.
© 2017 State of New York. Vanguard Marketing Corporation, Distributor and Underwriter.
FAQs
Each Individual Portfolio is generally made up of one or more mutual funds that invest in stocks, bonds, short-term investments or a mix of asset classes. You can build a 529 plan account to complement your investing goals, time horizon and feelings about risk by investing in one or more individual portfolios.
What is my 529 invested in? ›
About underlying investments
Depending on which investment option you select for your account, my529 pools your investment in a combination of Vanguard Group and Dimensional Fund Advisors mutual funds, the PIMCO Interest Income Fund, or the FDIC-insured accounts held in trust at Sallie Mae Bank and U.S. Bank.
Do 529 plans invest in stocks? ›
When you invest money in your 529 account, the fund manager takes your money (along with that of everyone else who added money to the fund) and uses it to buy more stocks in the same proportions as in the index.
What happens to 529 if stock market crashes? ›
IRS rules for liquidating a 529 plan
To claim the loss, the 529 plan account had to be completely liquidated, and any non-qualified distributions would be subject to income tax and a 10% penalty on the earnings portion of the distribution.
What is the asset allocation of a 529 account? ›
What are 529 college savings plan asset allocations? An asset allocation is how and where the money you contribute to your plan in the future is allocated and invested (future asset allocations), and how and where your plan's existing assets are allocated and invested (current asset allocations).
What is the downside to a 529 account? ›
If you use distributions from your 529 account to cover anything other than education costs, you will face a penalty. You will be able to withdraw your money from the account but will be responsible for income taxes on the earnings – federal, state, and county if applicable – as well as a 10% penalty fee.
Can you pick stocks in a 529? ›
Can I pick the investments for my account? You can pick an investment portfolio but, due to IRS rules, you can't choose individual investments, mutual funds, or ETFs in a 529 plan. Your options include a variety of portfolios that hold a combination of mutual funds.
Should I keep investing in a 529 right now? ›
New 529 Contributions
Give yourself a break. If it's doable for you, even just setting aside $5 to $10 a week to invest in your 529 can add up over time. Though no one can guarantee exactly what the market will look like tomorrow, keeping your future goals in mind is important – just as it is with retirement.
Why am I losing money in my 529 plan? ›
It's important to note that your investments can fluctuate, and you can lose money in a 529 plan. Your purchasing power can also decrease due to inflation, which means your investments may not keep up with the cost of college.
How aggressive should my 529 be? ›
This will depend somewhat on your appetite for risk, as well as your family's individual situation. In general, however, investments should typically be more aggressive when your child is younger, in order to maximize returns and build up your funds.
As of January 1, 2024, owners of 529 plan accounts can make tax and penalty-free rollovers to Roth IRA retirement plan accounts, subject to certain limitations. This has been welcome news to many families who worried about having unused or leftover funds in a 529 plan account.
Who controls the assets in a 529 plan? ›
A 529 plan must have an owner (such as a parent or grandparent) and a beneficiary (the student). The owner controls the contribution level, investment allocation and how and when to disburse funds. The owner also can change the 529 beneficiary.
How often can I change 529 investments? ›
What is a 529 plan investment change?
| Type of Change | Limits |
|---|
| Investment Change | Twice per Calendar Year |
| Change of Beneficiary | Unlimited |
| Rollover to Another 529 Plan | Once per 12-month Period |
Feb 17, 2020
But have you ever wondered what happens to unused 529 funds? You have two options: Withdraw the money or save the unused 529 plan funds for future qualified education expenses. Don't worry; leftover 529 money is common, and you can still make the most of the funds after graduation.
How do I show 529 contributions on my tax return? ›
If you contributed to the 529 plan, you will be able to claim a subtraction from income. If you withdrew money from your 529 plan, you may have to add the withdrawal back to your income, if it was not used for educational purposes.
Which three expenses could money invested in a 529 plan? ›
Key Takeaways. 529 plans are tax-advantaged investment vehicles designed to help families save for education expenses. The funds in these plans can be used for qualified expenses such as tuition, school fees, textbooks and materials, equipment, and room and board.
What happens to 529 if child doesn't go to college? ›
Leave the account intact.
If your child is simply not sure about college or perhaps wants to delay applying, you can keep your 529 plan intact until the child does use it for qualified education expenses.
Whether you own an age-based option or individual portfolios in your 529 account, your stock allocation is invested in mutual funds, which give you access to hundreds—even thousands—of stocks.