Helping Reading 529 Performance

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Rex59
Posts: 1
Joined: Fri Jan 11, 2019 8:46 pm

Helping Reading 529 Performance

Post by Rex59 » Fri Jan 11, 2019 8:55 pm

Hi all - I'm surfing my way through 529 funds and researching various articles to find the right one. I'm from outside US so this is all a bit new to me. When I look at performance, many funds seem to have a minus for 2018. Does a minus indicate that the fund has lost money? Did 2018 end up being a bad year for most funds?

This is an example of a fund that has a minus for 2018 compared to previous years:
https://www.nextgenforme.com/wp-content ... 113018.pdf

Though this was rated well on savingforcollege
https://www.savingforcollege.com/529-pl ... ect-series

Side note: live in Texas so looking for best 529 nationwide since state deduction is n/a.

Another example was from recommendations:
https://www.morningstar.com/articles/88 ... s-pla.html
https://www.brightstart.com/performance ... tfolio=all

Trying to join up recommendations with fund performance metrics

Thank you for any insight!

Grt2bOutdoors
Posts: 19724
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Helping Reading 529 Performance

Post by Grt2bOutdoors » Fri Jan 11, 2019 9:54 pm

Rex59 wrote:
Fri Jan 11, 2019 8:55 pm
Hi all - I'm surfing my way through 529 funds and researching various articles to find the right one. I'm from outside US so this is all a bit new to me. When I look at performance, many funds seem to have a minus for 2018. Does a minus indicate that the fund has lost money? Did 2018 end up being a bad year for most funds?
Yes, a minus means a negative return. Yes, 2018 was a bad year for equity returns, particularly if a fund was heavily invested in international equities. While all classes of equity had losses, international equities fell the most percentage wise.
This is an example of a fund that has a minus for 2018 compared to previous years:
https://www.nextgenforme.com/wp-content ... 113018.pdf

Though this was rated well on savingforcollege
https://www.savingforcollege.com/529-pl ... ect-series

Side note: live in Texas so looking for best 529 nationwide since state deduction is n/a.

Another example was from recommendations:
https://www.morningstar.com/articles/88 ... s-pla.html
https://www.brightstart.com/performance ... tfolio=all

Trying to join up recommendations with fund performance metrics
529 plan recommendations are not solely based on performance metrics, they are based on portfolio construction, how the fund trustees have improved the plan, expense ratios, returns over the long haul - a 1 year period is not the long haul, it's a blip in terms of overall fund performance.
Thank you for any insight!
Here's some highly recommended choices for 529 plans:

My529Plan (Utah plan) - www.my529.org
NYS529Direct Plan (New York State) - www.nysaves.org
Vanguard Plan (Nevada) - www.vanguard.com
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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grabiner
Advisory Board
Posts: 23389
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: Helping Reading 529 Performance

Post by grabiner » Fri Jan 11, 2019 9:58 pm

Welcome to the forum!

A minus means that the fund lost money. In 2018, the US stock market was down about 5%, so any 529 fund which hold stocks is likely to have had losses. (Foreign markets were down even more; broad-based non-US stock funds lost about 14%.) The bond market was flat; some bonds funds gained, and some lost, depending on which type of bonds they had.

Whether a fund is good for you does not depend on what it did in 2018, but on what it is likely to do. Stocks go up and down; you may not have seen them go down much, as you probably didn't follow the market in 2008-2009 when most stocks lost half their value. In the long run, you expect high returns from stocks, because they go up more than they go down. But you have to be able to wait for that long run. Therefore, if you will be spending money within five years, you don't want it in the stock market. (Many 529 plans have age-based portfolios, which hold a lot of stock for children under 5, and much less for children in high school.)

What does make a plan good, in general, is low costs. I don't know what the stock market will do, but it is reasonable to assume that a fund which charges 1% expenses will do 1% per year worse than the stock market, and that compounds to a 14% loss if you hold the investment for 15 years. Cut the expenses to 0.2% and you will only underperform by 3% over 15 years.

And what makes it good for you is that it holds the appropriate mix of stocks and bonds for your needs. Almost all 529 plans have both stock (higher-risk, higher-return) and bond options. Once you have chosen a low-cost plan, either follow the plan's guidance with age-recommended funds, or hold stock and bond funds and reduce your stock holding over time.
Wiki David Grabiner

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