How Should You Invest in 529 College Savings Plans During Market Swings?

Navigating through volatile markets, especially with an unpredictable leader in charge, can be unsettling. This feeling is amplified when your investments are earmarked for something as significant as your child’s college education, and the need for these funds is imminent.

Many busy parents were recently reminded of this reality as the market took a plunge, signaling that college enrollment deadlines were approaching. Some may have failed to adjust their investment strategies to a more conservative approach.

However, this serves as a valuable lesson: Market fluctuations are inevitable, and yet crucial for securing our future financial needs and desires. Market downturns can occur due to various reasons such as global economic crises, pandemics, tech bubbles, and even decisions made by the President of the United States, as seen when President Trump’s tariff announcement triggered a trade war.

When President Trump noticed the impact of his tariff plan on the U.S. bond markets, he decided to halt some of the proposed tariffs, easing market tensions.

The market reacted positively to this move, with the S&P 500 surging by 9.5 percent, only to experience fluctuations in the following days. This rollercoaster ride in the market, coupled with high levels of volatility, can create uncertainty for investors. As the S&P 500 faces a 12.9 percent decline since its peak in February, the future remains uncertain.

For those with investments in a 529 college savings plan or other investment accounts, now is the time to review your asset allocation and risk tolerance.

If you have a short time frame and cannot afford to bear losses, it’s essential to devise an exit strategy. However, for those with a longer investment horizon, there is an opportunity to develop a more robust long-term plan.

Need immediate funds? Here’s what to do:

If you require funds within a year, it’s advisable to avoid investing in stocks entirely. Financial experts recommend considering alternative sources of funding while waiting for the market to stabilize.

Daniel Milks, a financial planner, suggests exploring other avenues such as cash flow, gifts, or student aid to cover immediate expenses while allowing your investments time to recover.

If you find yourself needing additional funds to avoid tapping into your investments, remember that you can utilize up to $10,000 from a 529 plan to repay student loans early. Additionally, consider pausing or reducing savings temporarily to allocate more funds towards tuition payments.

Planning for the future:

Simplicity can often be the best approach when it comes to investing. Target-date funds offer a hands-off strategy that gradually adjusts your asset allocation as the college enrollment date nears.

These funds are designed to become more conservative over time, making them suitable for individuals who prefer a passive investment approach. Analyzing the available funds or seeking assistance from a financial advisor can help you choose the right target-date fund for your needs.

When evaluating target-date funds, consider factors such as the mix of investments, evolution of the fund over time, and associated costs. Opt for low-cost index funds that track market performance without attempting to outperform it.

It’s crucial to assess the bond and cash investments within the fund, as bonds can provide stability during market downturns. Understanding how the fund adjusts its asset allocation as the enrollment date approaches is essential for informed decision-making.

CJ Stermetz, a financial planner, emphasizes the benefits of target-date funds during uncertain times, as they automatically shift investments to safer options as the enrollment date draws closer.

Target-date funds, tailored to specific enrollment dates, gradually reduce stock exposure and increase bond allocation as college approaches. By selecting a suitable fund aligned with your child’s enrollment date, you can mitigate investment risks.

As college nears, it’s essential to shift focus from growth to preservation of funds. Ensuring that your investment is readily available when needed becomes the primary goal.

For personalized advice, reach out to tsbernard@nytimes.com and our team will address your queries in upcoming articles.

As the time for college enrollment approaches, consider adjusting your investment strategy accordingly. Target-date funds offer a convenient solution that aligns with your child’s academic timeline, gradually shifting towards more conservative investments.

If you prefer a more hands-on approach, Eric Maldonado, a financial planner, recommends allocating the equivalent college tuition for each year into cash or money market funds during high school years. This strategy ensures that funds are easily accessible when needed.

Regardless of your chosen investment strategy, the primary objective should be to safeguard your funds as college approaches. Shifting your mindset from growth to preservation is key to securing your child’s educational future.