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Fund Spy

Stars Can Help Guide College Savers

Studying 529 plans' average Morningstar Rating shows which states have done best.

College savers in search of a 529 plan undoubtedly want high-quality investment choices. One way to stack plans up against one another is to study past risk-adjusted returns over longer time periods. 

The Morningstar Rating, which compares risk-adjusted returns of investments in the same category, is designed to put past performance in context. Mutual funds, as well as 529 investment options, earn 3-star Morningstar Ratings if their risk-adjusted returns are in the middle of the category pack. Similarly, 4-star and 5-star investments have outperformed, while 2-star and 1-star investments have underperformed. The Morningstar Rating is distributed on a bell curve, with the largest subset of funds earning 3 stars.