how to add lump sum?

We currently have a Massachusetts 529 age-based plan with Fidelity. We fund it at $50 per month for our 4 year old and now have a lump sum of $1000 to add. Should I add this to our plan that has a 5 year performance of negative 15% (like most I think?). Or, should I wait until things look a bit better and invest in a more stable fund then rollover later? Alliance has a principle income protection plan that looks interesting.

(By the way, I know these amounts are small, but we are also funding other things, including Roths in our name intended for college savings, on our very moderate 65,000 income)

Thanks!!
Andrea

Andrea

You have correctly recognized that most (actually all) 529 plan options with heavy equity weightings have done poorly over the past 3 years as a result of the bear market in equities. And I do think you have to consider your own risk tolerance in how you allocate your future contributions.

But I think you will hard-pressed to make a future judgment that the market has turned or is even "look[ing] better", and using that as a basis to move your investment into an equity-weighted holding. Obviously, however, you may well feel more comfortable investing in equities in the future than you do today. As long as you can distinguish the two - your comfort/tolerance level vs. your ability to "time" the market - then using a safe or guaranteed investment vehicle is not necessarily a bad thing.

If you do think the markets will improve in the future, then you also might want to think about spreading your lump sum amount over a period of months, or more. Dollar-cost averaging into a declining market will yield better returns when the market recovers than trying to time the market or lump-summing into a declining market.

What's important, however, is your comfort level.

Hope this helps.

TJ