De-risking 529 account as child approaches the start of college

In terms of investment portfolio composition, how have you de-risked your 529 account as your child approaches the start of college? I have chosen a static 529 investment portfolio (rather than an age-based glide path) for D22 and was wondering how best to de-risk it.

I realize that it is highly context-specific (including one’s risk appetite, availability of other sources of funds to pay for college, etc.) but just wanted to get a sense of how others have approached it. Many thanks.

In three years, all three of our children will be in college. With the recent market highs, we decided it was a good time to switch our 529s from 80/20 stocks/bonds to 30/70 stocks/bonds. We will keep that allocation for the remaining time the children are in college - as we are looking for capital preservation first and foremost at this point. New contributions are going in at that allocation.

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Took the conservative approach where 1/2 years out from start of draw dates, I went to all cash.

With their UGMA accounts, I did it even earlier switching from equities to a laddered muni bond portfolio.

Got burned with some individual investments that blew up in 2008-2009, so I didn’t want that to happen again.

We were fairly conservative with the 529 all along. It had some great growth anyway. Overall we are pretty risk adverse, especially as we are getting older.

Like HazeGrey, I went to all cash shortly before the students entered college (the accounts had been in a moderate risk age-based fund previously). The cash account is guaranteed to earn no less than 1% and no greater than 3%, with the rate resetting on the first day of each year. The rate for 2021 is 1.2%.

Ours was automatically balanced/rebalanced based on age I believe.

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Many thanks, @beebee3 @HazeGrey @momofboiler1 @BelknapPoint @MrRobot2018! Really helpful.

My takeaway from your responses is that I need to focus more on capital preservation. I’ve already had a couple of scares with the 529 account - within a year of opening D22’s 529 with a one-off deposit, the 2008-2009 crisis hit and then there was last March.

One further question - given that interest rates are ultra low, are bonds still a sensible or safe option for a 529 account that’s 18 months from first withdrawal? Or is a money market fund/cash a more prudent option?

The bond question is a personal choice, our 529 bond offerings include a Vanguard fund that made a bit under 5% last year and we have been happy with it. You could also look at inflation protected securities (usually treasury bonds) which are another option if you are looking for capital preservation.

With as flat as the yield curve is, there won’t be a meaningful difference in rate between a money market fund and a short duration bond fund.

Thanks, @beebee3 @HazeGrey. I need to read the fine print of the bond fund offered by my 529 plan.

For my S21, I switched to an age based approach this summer in the 529 account.
This was probably way later than most, but we are pretty risk tolerant.

The other half of college savings is still in a Coverdell account. This is mostly stocks, still. But realistically I think the balance will be used for D25. I may convert it to a 529 and shift it a bit to capture recent growth.

We went with the age-based 529 investment plan, so that the plan managers automatically de-risks the portfolio as your child approaches university.

If I had a static investment plan, and if I were planning to use the money within the next four years, then I would switch to a rather conservative investment plan right now (like this week).

I do not think that bonds are going to be much different from money markets in terms of returns over the next two or three years. We have both for the money that we will need to use soon.

Thanks, @Zinnia203 @DadTwoGirls. I am on the case!

Done - at least with phase 1 of my de-risking plan. Feel a bit better now.

Thanks again, everyone!

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I managed both 529s as part of an overall portfolio, rebalancing annually. I made all the adjustments in accounts that were easier/cheaper to trade, so the 529s have stayed in Fidelity’s “moderate growth” portfolio for 15 years.

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