529 plans are an excellent way to save for college.  However, there are alternative investment platforms that can complement these college savings plans.  These investment vehicles can act as an avenue of exposure to alternative assets that may not be available inside a 529 plan.  Furthermore, these investment vehicles can potentially act as a hedge against risks in the 529 plan. 

Having an alternative vehicle can help fund your child’s education in a more effective manner.  Considering that future education expenses will be, for lack of a better term, astronomically expensive, investors need every bit of help they can get.  Based upon estimates from data from the U.S. Department of Education, the annual cost of public higher learning institutions increased 6.5 percent from 2000 through 2010 alone. This means that by 2030, the average annual public college tuition will be $44,047 dollars. For private institutions, the total estimated total cost for a four-year degree from a private institution will be well north of $200,000 dollars. 

Needless to say, investors need a way to be able to not only invest their money carefully, but a way that lets them see how their investments are performing and have low cost access to high impact investments.  Saving for college should not be limited to 529 plans, and here is how 4Thought sees it:

Wider Availability of Investment Options

Although 529 plans benefit from certain tax benefits, they are also limited to the investment options within the plan.  Similar to a 401k, the plan can only invest in certain mutual funds, which makes asset allocation and risk mitigation tricky.  529 plans often also suffer from additional drawbacks that 401ks may or may not have, such as high management fees and upfront sales charges.

Instead, 4Thought Financial suggests that investors consider complementing a 529 with a Separately Managed Account (SMA) that can potentially provide lower-cost access to a wider variety of investments.  A wider availability of investment options also helps investors avoid concentrating too many of their assets into one position, or “putting their eggs all in one basket”, which may put their portfolio and their goals at more risk than it would if the portfolio was properly diversified. Diversification cannot eliminate the risk of investment losses or market risk.

Self-Directed Investors Still Need Direction

With the advent of online investing, more investors are turning to platforms that give them more control in their investments.  But even the most ardent self-directed investor still needs direction. Investment research, asset allocation and mitigation of potential tax liabilities are just a few factors that investors must consider.  Although this presents a daunting challenge, it is not a difficult one if you have the right partner.

4Thought Financial believes that investors and their advisors need clear direction and transparent information access.  More importantly, they need a well-defined investment methodology that helps them understand how their investments are performing.  Our platform is designed for investors who want control over their investments, but could also benefit from some professional assistance and human interaction.

Keep a portion of your childrens’ college savings liquid for potential other uses

Before you know it, the time to send your kids to college will be just around the corner, and your investments should not be locked up or subject to punishing sales charges or surrender fees from certain mutual funds or annuities.  But even before college arrives, there may be other unexpected events that require you to access your assets early. 4Thought suggests looking at investment options that do not come with any penalties for liquidating early in order to maintain flexibility and control.

For example, our SMA platform utilizes liquid readily marketable securities that don’t keep your money locked up. This makes sure the assets are available without problems or cost should they be needed right away. 

Disclosure: Potential investors of 529 plans may get more favorable tax benefits from 529 plans sponsored by their own state. Consult your tax professional for how 529 tax treatments and account fees would apply to your particular situation. To determine which college saving option is right for you, please consult your tax and accounting advisors. Neither APFS nor its affiliates or financial professionals provide tax, legal or accounting advice. Please carefully consider investment objectives, risks, charges, and expenses before investing. Investments in 529 college savings plans are neither FDIC insured nor guaranteed and may lose value.