As financial advisors, we routinely find ourselves inundated with news and information: while financial pundits endlessly opine on our office television, our e-mail inboxes are deluged with daily news blasts and industry publications dominate our mail. While at times overwhelming, we challenge ourselves to remain current on topics that directly or indirectly impact our clients.
One article that recently captured our attention appeared in the April 16th Wall Street Journal. Titled “The Best and Worst College-Savings Plans,” the article summarized the ratings of various states’ 529 college savings plans as recently released by Morningstar Inc. The subtitle of the article was particularly interesting: “In New Ranking of Popular 529 Programs, Virginia, Illinois Join Top Tier; New York, Mississippi, Ohio Fall to Bottom.” Being familiar with many of these plans, especially Ohio’s, we were immediately perplexed. However, upon reading the full article, we quickly identified the flaw — Ohio’s rating applied only to the broker-sold portion of Ohio’s College Savings Plan.
Morningstar’s report rates Ohio’s commission-based Putnam CollegeAdvantage Savings Plan. The plan received its unfavorable rating due to “poor fund performance” and “troubling turnover” among key personnel at Putnam. While we agree with these observations, both the ratings and article ignore the second, and eminently more compelling, component of Ohio’s CollegeAdvantage 529 Savings Plan which allows for access to the low-cost index funds offered by the Vanguard Group.
Access to the Vanguard investment menu is key as Truepoint and Vanguard share the view that low costs and diversification are critical to long-term investment success. The Vanguard investment options within Ohio’s Plan allows investors to benefit from a globally diversified portfolio that efficiently captures the return of the financial markets. Also, in addition to the appeal of Vanguard as a fund manager, the flexibility of the Ohio investment options allows for the employment of either “ready-made” age-based portfolios or self-directed customized portfolios based on time horizon, risk tolerance and cash flow expectations.
While the aged-based portfolios provide an attractive and simple solution, we take advantage of the flexibility of the investment options by employing a customized allocation and altering the allocation as a beneficiary’s time horizon changes.
When evaluating Ohio’s 529 Plan inclusive of the Vanguard options, the Plan’s tax advantages, low costs, and investment flexibility make it not only very attractive for Ohio residents, but often a compelling option for non-Ohio residents as well. In fact, Savingforcollege.com, a service that regularly rates 529 plans nationwide, assigns Ohio’s Vanguard plan its highest rating which carries the following definition: “a program that offers outstanding flexibility, attractive investments, and additional economic benefits (such as generous state tax incentives) that for some people, at least, will provide a substantial boost to their savings. There are few, if any, weaknesses noted in the program.”
If you would like to learn more about Ohio’s CollegeAdvantage 529 Savings Plan or have any questions related to the article in the Wall Street Journal, please do not hesitate to contact any member of the Truepoint team. If you are not currently a client, but would like to schedule an appointment or a complimentary consultation, please contact Lisa Reynolds at (513) 792-6648 or email@example.com.