I’ve long been a critic of 529 plans. Additional costs and a tendency to take too much risk with money you have allocated to a loved one makes their use much less attractive than many alternatives.
Oppenheimer Funds, in an effort to increase sales, is ratcheting up the volatility in their 529 plans. Oppenheimer’s Steve Dombrower recently told Investment News that, “Thousands of advisers who sell these funds aren’t selling our 529s, and we hope they now will. We’re also adding alternative investment choices, including commodities, real estate, and special minerals.”
Investing for college involves a relatively short investing period, and a significantly short draw down period. That is not to say that one should not invest for college, but allocations to volatile assets for most should be monitored and likely a minor portion of the overall allocation.
Oppenheimer’s inclusion of asset classes with extreme volatility shows their goal of selling investment funds need not fit with their investors goals of not losing their child’s education fund to market loss. According to Morningstar MORN +1.76%, Oppenheimer Funds’ Gold and Special Minerals fund (OGMYX), has a 15 year Standard Deviation of 36.33, over twice that of the S&P 500 at 16.17.
Oppenheimer has an unfortunate history of increasing risk beyond appropriate levels. According to another Investment News article by Darla Mercado, “Many remember the tumult that rocked a number of Section 529 savings plans that featured the Oppenheimer Core Bond Fund in 2008. The fund was listed as a conservative option, but ended up suffering a 36% loss that year, while its peers, on average, lost about 4%. A high-yield offering, Oppenheimer’s Champion Income Fund, experienced a nearly 80% decline in 2008, compared with its peers’ average loss of 26%.”
It’s clear some Wall Street firms will never learn. Think twice and get a second opinion an advisor independent from mutual fund firms whose objectives may clash with you own before risking your child or grandchild’s college in a bad 529 plan.
The preceding blog was originally published by Forbes. To view the original blog please visit our blog at Forbes. http://www.forbes.com/sites/feeonlyplanner/
