The move to ETFs has taken place because of the last few years of poor returns in the stock market. A desire for diversification, and lower fees for plans with ETFs compared to the industry average. Plan managers adding ETFs argue that doing so provides portfolio flexibility and protects against losses.
This new trend has its critics and skeptics. College-savings programs have been seen as long-term investments for decades, and the addition of ETFs to this model may encourage shortsightedness and more risk-taking with active trading. ETF proponents point to the positive results so far: the Arkansas iShares 529 plan has outperformed its peers, returning an average of 3.3 percent last year, while 529 plans lost an average of almost 1 percent. Investors are opening new accounts with this Arkansas plan more quickly than they have with any other 529 in the past three years.