A new investment strategy for 529 plans?

Many families saving for college in 529 plans use age-based asset allocation, a strategy that invests more aggressively early in your child’s life and later changes to a more conservative strategy as the student gets closer to college. If you’ve got young kids and you’re saving in a 529 plan, you might be interested in Mark Kantrowitz’s recent white paper, “Improvements in Age‐Based Asset Allocation: Strategies for College Savings and Retirement Plans.”

As the summary describes in part:

“This paper presents a systematic way of improving the performance of age-based asset allocation strategies by delaying the onset of the shift to a more conservative mix of investments by up to 10 years. This increases the return on investment by increasing the duration of the initial investment in high-risk, high-return asset classes, but without significantly increasing the overall risk of investment loss. The age-based asset allocation is then compressed to fit the remaining investment horizon.”

The summary is here, and the paper itself is here.