Investment methods of the 529 plan

Fund managers of the 529 plan will use the funds raised by the plan to invest in securities. In addition to direct investment in mutual funds, most state 529 plans also provide a variety of investment options to match investors' different expected capital needs and risk tolerance, which includes portfolio selection based on age and fixed allocation.

Based on different ages, there are multiple levels of portfolio selection, and the portfolio selection of each age is further subdivided into conservative, robust and aggressive asset allocation.

The basic principle is that when investors’ children are still very young, the investment is mainly concentrated in stocks and other high-risk and low-liquidity assets, which is an aggressive investment strategy. As the beneficiaries grow older, they are gradually approaching the time to cash in the funds. At this time, the portfolio will gradually tend to be conservative and focus on some stable assets such as treasury bonds or money market instruments to ensure the safety of funds. The advantage of this method is that the portfolio selection can automatically change according to the age of the beneficiary.

The fixed-allocation portfolio selection types are similar to the classification of mutual funds, which includes stock type, hybrid type, bond type and money market type. These portfolio selections can be used with age-based portfolios so as to meet the overall allocation needs of investors’ accounts.