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 That is just one of the drawbacks of trying to choose a college
savings plan by performance alone.
529 plans are sponsored by states and run by investment management
companies. Withdrawals from the accounts can be used tax-free to pay
for qualified education expenses at any college or university in the
country, such as tuition, fees and books.
SavingForCollege.com, a plan comparison website that publishes
rankings each quarter, said the District of Columbia's direct-sold
DC 529 College Savings Program topped the lists for one-, three- and
five-year performance as of March 31.
Louisiana's START Savings Program ranked first for 10-year
performance
Those two plans, however, are among the few that restrict
participation to state residents only. An adviser-sold version of
D.C.'s plan was not included in the rankings, which were limited to
plans available for direct purchase by investors.
Plan shoppers still have plenty of good choices, though, since most
529s welcome out-of-state contributors and 17 other plans made
SavingForCollege.com's performance rankings.
Alaska, Florida, Maine and Michigan ranked in the top 10 for three
of the four ranking periods, while New York makes the top 10 in all
four periods.
SavingForCollege.com created its rankings several years ago to help
investors gauge how well their plans were performing relative to
their peers - a daunting task because plans can be so different in
their investment offerings and approaches, said SavingForCollege.com
founder Joseph Hurley.
"It's so difficult to do an apples-to-apples comparison," Hurley
said. "Some have 10 options, some have 25."
Most 529 plans have age-weighted options that grow more conservative
as the beneficiary nears college age, although those "glide paths"
vary considerably. The plans typically offer a wealth of other
investment choices for those who want to construct and manage their
own portfolios.
SavingForCollege.com compares the published performance of seven
portfolios from each plan and creates a composite of those results.
The portfolios represent asset weightings of 100 percent stock, 80
percent stock, 60 percent stock, 40 percent stock, 20 percent stock,
100 percent fixed-income and 100 percent short-term investments.
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PERFORMANCE, OTHER FACTORS
But families should consider more than just performance rankings
when picking a 529 plan.
Most states, for example, offer tax breaks and other incentives to
their residents for sticking with the in-state plan, Hurley said.
Investors may prefer a passive investing approach over active, or
vice versa, and may also feel more comfortable with investment
managers they know well.
"If your retirement funds are managed by TIAA-CREF and you think
they're doing a good job, you might want to have your college money
there, too," Hurley said.
Morningstar Inc, a research firm that compiles annual rankings of
529 plans, includes performance as a factor but also considers plan
costs, oversight and management, among other factors, said Leo
Acheson, an analyst for fund strategies at Morningstar.
Its rankings try to predict which plans will continue to outperform
their peers on a risk-adjusted basis, he said.
The bottom line is that investors have a great deal to consider
besides performance, said Andrea Feirstein, managing director of New
York-based AKF Consulting Group, which advises 33 state plans.
"It should never drive the final investment decision," she said.
(Editing by Beth Pinsker and G Crosse)
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