I received a package from Missouri Most last week highlighting a change to the college savings plan.
For those investors, like me, that use the age-based options, Vanguard is expanding the stock/bond options to make the journey a little smoother for investors.
Currently, there are five age categories, starting with zero to five years old, then six to ten years old, 11-15 years old, 16-18 years old and for 19-year olds and above.
To make matters a little more confusing (but also helpful for the well informed), the plan offers three varieties of each category: conservative moderate and aggressive.
Deciding among these three options is what investors need to do and Vanguard will make changes to the age brackets over time automatically.
In that regard, nothing changes: investor’s main responsibility is still deciding whether they want to be conservative, moderate or aggressive.
What’s changing is that Vanguard is nearly doubling the number of age based brackets from five to nine. They summarize the change nicely with the following image (you can find the entire report here).
These new brackets may change your child’s allocation. For example, my 15-year old daughter, who is in the aggressive option, will see her stock/bond exposure shift from a 60/40 stock/bond mix to a 50/50 stock/bond mix. My younger daughter, who is 13-years old, had a 60/40 stock/bond mix before the shift and that won’t change under the new plan.
Most of the changes aren’t significant, although Vanguard did highlight one example where the stock exposure increased: a six year old that currently has an 80/20 split will be a 90/10 split after the change. I found a few other examples like that, none of which caused me any concern.
For most investors, the change isn’t meaningful enough to justify changes. Most people in the age-based options want to ‘set it, and forget it’ anyway and, in my judgment, they can continue to do so.
As always, if you have questions or want to see how this will change the stock/bond mix for your child or grandchild, let us know and we’ll run the numbers.
The changes will occur between October 19-23.