For years one of the biggest knocks against New York’s 529 College Savings
Plan was the lack of international stocks and bonds available in the
extremely popular age-based investment options.
This was a large omission by Vanguard, the plan’s investment manager,
which drove some people to use other state’s 529 plans and forego the New York
state tax deduction.
Fortunately, the complaints must have made an impact as
Vanguard recently announced that as of July 30th they will be adding
the Vanguard Total International Stock Index Fund and Vanguard Total
International Bond Index Fund to the underlying funds used in the age-based
options. You can read more about the
changes here.
The age-based options put the investment strategy on
autopilot for account owners. As the
beneficiary gets older, the investments become more conservative since they are
closer to starting withdrawals from the plan.
These options are popular among investment advisors who recommend the
New York Direct 529 plan.
Vanguard also announced it would be replacing the Vanguard
Inflation-Protected Securities Fund with the Vanguard Short-Term
Inflation-Protected Securities Index Fund in the Income Portfolio. Both of these moves are wins for those who plan
to save for college using New York’s Direct 529 Plan. The plan remains low-cost at a paltry .16%
management fee.
The timing may be a benefit as well since international
stocks have lagged U.S. stocks over the past five years and may be poised for a
turnaround. Also, replacing the
Inflation-Protected Fund with a Short-Term Inflation Protected Fund may help
protect short-term investors against the effect of rising interest rates over
the next few years.
Steven Elwell, CFP®
