When it Comes to 529 Plans, “Target” Enrollment Portfolios Can Miss the “Mark”


While 529 college savings plans continue to grow in popularity due to the various tax benefits afforded to most investors, discussions around selecting investments within these plans can often slide under the radar. One of the most frequently used investment strategies involves selecting a glide path option, commonly referred to as an age-based or target enrollment portfolio, where the portfolio de-risks as the year of enrollment approaches.

There are considerable differences in glide paths among 529 college savings plan providers that have resulted in materially different returns, which is not surprising given how equity, fixed income, and cash allocations within these portfolios can vary widely. However, when looking at portfolio choices that may be more appropriate for those who have children or beneficiaries who will be enrolling in school this fall or may already be enrolled, many generated negative returns. For example, in the Age 19+ age-based portfolios, target enrollment-2024 portfolios, and target enrollment-college portfolios, 42%, 29%, and 41% of portfolios had negative returns YTD (as of 03/31/2024), respectively, and 39%, 51%, and 48% of portfolios had negative returns on a 3-year annualized basis, respectively.

Therefore, while investing 529 college savings plan funds in a glide path strategy can be the appropriate decision from a portfolio construction standpoint, it becomes less attractive when interest rates are high and the primary goal for these funds shifts from growth to capital preservation.