Tue, 20 Oct 2015
Alaska's T. Rowe Price College Savings Plan and the Maryland College Investment Plan, both rated Gold, benefit from a well-diversified mix of strategies and a thoughtful step-down in equity allocation.
Leo Acheson: Alaska's T. Rowe Price College Savings Plan and the Maryland College Investment Plan stand out as truly exceptional 529 offerings. The plans are nearly identical to one another. T. Rowe Price serves as a program manager for both, which means it is responsible for the investments in the plans. It has done a good job building out the investment options.
More specifically, T. Rowe Price's asset-allocation group, which manages the firm's well-known target-date series, designed both of the plans. That's a benefit to begin with, as the group has proven its expertise in asset allocation.
One important thing to look at when evaluating 529 plans is the age-based portfolios. Those tend to be the most popular options because they employ a set-and-forget approach, so as the beneficiary of the plan ages and approaches 18, the investment derisks by reducing equities.
T. Rowe designed a very thoughtful age-based track within both of the plans. They tend to hold more equities than most throughout the college-savings years to combat the effects of rising tuition rates. Unlike some 529 plans' age-based options that have steep step-downs in equities at various ages for the beneficiary, these plans gradually adjust their stock exposure. Starting with 100% allocation to equities, the plans readjust their stock stake each quarter, targeting less than a 6% shift each year until enrollment. The gradual shift in allocation helps college savers avoid moving out of equities just after a market dip when there is potential to lock in losses.
Not only did T. Rowe design a thoughtful age-based track, the plans are enhanced by a compelling suite of underlying funds. The underlying funds are a well-diversified mix of standout strategies offered by T. Rowe Price--the vast majority of which receive medals from Morningstar's analysts.
Not surprisingly, given the quality of the underlying investments and T. Rowe Price's thoughtful approach to asset allocation, these plans have turned in some of the best performance within the 529 industry, and we think that the forward-looking prospects for both remain bright.