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529 Plans Use of ETFs Increasing

Jul 13, 2012

More State 529 plans are introducing ETFs into their investment portfolios. Recently, Nebraska added four new ETFs to three of its 529 plans, New York added six new ETFs to one of its plans, and Nevada's Upromise 529 dropped mutual funds in favor of ETFs. Traditionally, states have used mutual funds exclusively.

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.

Got further questions? Catch me on twitter and DM me @529SavingsPlans or e-mail me at 529CollegePlans at Want to be heard? Leave a reader comment below.

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