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The College Foundation of North Carolina's 529 plan has a simple sign up process. Once your account is set up, you have several options.



The first question that we need to answer is what your risk tolerance is. Are you a conservative investor, an aggressive investor, or somewhere in between? A conservative investor wants to avoid risk at all cost. The jar buried in the back yard looks good compared to investing in the stock market. On the other hand, an aggressive investor is willing to take significant risk for the chance of a significant return. The moderate investor is willing to take some risk for a bigger return. Now, there is nothing right or wrong with any of these investors. That being said, you need to be honest with yourself as to which type of investor you are. You are not going to earn a 10% return with a conservative investment portfolio. You also should not be overly surprised by seeing larger swings in portfolio value in an aggressive investment mix.



The second question you need to ask is much easier. When will the funds be needed? The shorter your timeline, the more conservative you need to be.



There are three age adjusted tracks based on the type of investor you defined yourself as. These tracks adjust your account mix based on how many years remain before the money will be needed. As you get closer to needing the money, your account adjusts from growth to capital preservation. These tracks are made up of a mix of Vanguard mutual funds.



You also have the option of customizing your mix of Vanguard funds based on your knowledge and risk tolerance. Now, most people do not have the time to research all of the funds and how each fund is invested. That is the reason the College Foundation has these easy 1,2,3 tracks. But, I would encourage you to seek out a Certified Financial Planner to review the funds and your strategy, (OK, there is my shameless advertising). Just selecting a track will likely not get you to your goal in the most efficient manner.

Remember, the shorter your timeline the more you will need to contribute and the less risk you should be taking. You may see a large return with an aggressive portfolio, however if it drops you may not have time for the market to recover.

Tomorrow I will be looking at these Vanguard funds in more detail and discussing how to evaluate a mutual fund.