Today’s market volatility can be nerve-racking for families who are paying for college or will soon be. A nasty correction can turn $10,000 in college savings invested in the market into $6,000 or $7,000 in the course of a year, says Joe Messinger, co-founder and director of college planning for Capstone Wealth Partners in Dublin, Ohio, who adds that’s a real-life example from 2008. If $100,000 in savings erodes to $60,000, that’s barely enough to cover the annual total sticker price at some elite schools.

Most 529 college savings plans offer age-based portfolios with glide paths that automatically reduce exposure to equities as kids get older, he says, but many parents don’t take advantage of this. Those who set up a 529 account before age-based portfolios took off five or 10 years ago may not have revisited its asset allocations, he says.

Messinger says he sometimes encounters new clients who have 80% to 100% in equities in a 529 account for a junior or senior in high school. He recently met with potential clients who were nine months away from their first tuition bill and had 100% of their child’s account in an S&P 500 fund. They felt “it’s safe, it’s good, it’s diversified,” he says, but the portfolio was entirely in U.S. stocks.

Messinger also encourages families to diversify when they plan to fund college through employee stock purchase plans heavily concentrated in the employer’s stock.

“It takes a village to pay for college,” he says, and everyone in the village—including grandparents saving outside a 529 plan—must pay attention to volatility and to the resources being used.

Mike Branch, a certified financial planner with Focus Financial in Minneapolis, reached out to clients with high schoolers during last year’s rocky fourth quarter and helped some of them move a portion of 529 assets out of stocks and into money-market funds and short-term bond funds. Current tax law limits investment changes in 529 plans to twice a year, he notes.

Parents of high-school seniors occasionally tell Branch they want to keep 529 assets in equities because they think the market will bounce back. If they have other ways to pay for school while they wait, they could use these funds for their child’s later college years or for a younger child, he says.

Market volatility has been a hot topic of inquiry at the call center of my529, Utah’s 529 college savings plan, says Lynne Ward, executive director of the $12.7 billion plan. The plan offers four age-based investment options (aggressive global, aggressive domestic, moderate and conservative) and customized age-based accounts.

For 17-year-olds with $10,000 invested in my529’s age-based moderate option (at that age, the option allocates 10% to equities and 90% to bonds, cash and a stable value fund), a 20% market decline would shave just $200 off an account balance. The plan introduced the stable value fund last August because of where we are in the market cycle, says Ward, and because stable value funds historically provide a higher return than money market funds and FDIC-insured accounts.

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