For 529 savers, investment outcomes depend largely on decisions about risk tolerance and contribution amounts. Some savers who are looking to improve their outcomes, might consider taking on more risk. Depending on the investments you choose, your account could take on a little bit of risk or a lot. Ultimately, what matters most is what you're comfortable with.
You should also keep in mind the difference between investing for college and investing for K–12 tuition expenses. College goals have a longer time horizon, so you may be able to take on more risk.
How much risk are you comfortable with?
If you're invested in one of your plan's age-based options, you've already decided how comfortable you are with taking on risk and chosen the track that's appropriate for you.
If you aren't sure where you fall on the risk/reward continuum, you may want to learn more about risk tolerance and how it relates to the type of investor you are.
See how comfortable you are with risk
More risk or more contributions?
Vanguard considers the important role contribution levels play when constructing its age-based options. For the study, simulations representing various financial scenarios were run for each of Vanguard’s 3 age-based options (Conservative, Moderate, and Aggressive).**
For a saver who contributes $1,000 a year, switching to an aggressive option only increases the amount they’ll cover for 4 years of college to 17%. If the contribution is increased to $5,000 (conservative/moderate return) the amount they’ll cover increases to 50%.1
|
Simulation |
Annual contribution amount |
Age-based option (risk level) |
Amount you'll cover for 4 years of college |
|
Increased risk level |
$1,000 |
Conservative/Moderate |
11% |
|
Aggressive |
17% |
||
|
Increased contribution amount |
$5,000 |
Any |
50% |
Based on average tuition, plus room and board, totaling $103,572 for 4 years at a public, in-state institution. Source: The College Board, “Trends in College Pricing,” 2023-2024. All amounts adjusted 5% annually for inflation.2
1https://research.collegeboard.org/media/pdf/Trends%20Report%202023%20Updated.pdf
2https://vanguardcollege.ssnc.cloud/csp.php#
As these scenarios indicate, you can achieve a better outcome if you increase your contribution amount rather than your risk level.
Reaching your college savings goals
If you're unsure about what your future college costs will be, you may want to use our college planning tools to estimate them. You can calculate the projected cost of college and also make a savings plan for covering that cost.
Once you've reviewed the projected costs and figured out where you are in terms of your savings plan, you may find that the probability of reaching your college savings goals isn't that high. In that case, you may want to increase your contribution amount rather than your risk exposure.
Even if you're not able to contribute at the levels represented in these scenarios, know that every bit you're able to save may get you closer to paying more of those college bills.
