College graduates are the best asset class for investors to invest in because of their huge cash flow potential, according to a new study.
Read MoreFrom 2014 to 2019, 529 college savings plans brought in more than $3 trillion in assets and provided $11.6 trillion in cash to investors, according a report by the investment firm S&P Dow Jones Indices.
The savings plan industry is expected to grow at about 2.2% a year from 2021 to 2026, according the report.
While the study noted that 529 plans have grown in size and have become more popular, its authors believe that a more realistic comparison is based on average returns of the three investment categories.
“Our analysis shows that 529 savings plan assets in 2021 and 2024 have outperformed the three other investment categories by roughly 2.8% annually over the period,” the report said.
“As of 2021, 529 savings plans have an average annual return of about 7.2%.”
While it is true that some students will invest in 529 plans at a lower rate than others, the average return for all college graduates is 6.9% a decade from 2021-2026,” the study said.
The report noted that there is little data on 529 college graduates, “particularly for their asset allocation.”
While 529 plans offer more flexibility to investors than traditional plans, the study also found that there are many other potential pitfalls.
While 529 college students will receive a tax-advantaged return, they may not be able to use that to invest for their retirement, according for the study.
The tax-free investment account accounts allow students to withdraw money at any time, but they are not allowed to invest more than they can withdraw, so that they can continue to receive a portion of the income that they earn from their jobs.
The report also found, however, that 529 college funds have a strong correlation with their average portfolio size.
While 529 plans are more than 80% larger than traditional accounts, 529 accounts also have more assets, so they have a greater chance of having a positive correlation with portfolios.
While S&P Dow is one of the few investment firms that has conducted a study on 529 colleges, the company has not been able to replicate its findings with the data that the researchers used.
The company said it has “invested extensively in the college savings industry, but has not conducted a comprehensive review of its portfolios.”
The study also notes that 529 students are more likely to have parents with high incomes.
While parents are more aware of 529 plans, it is also likely that they have not yet heard of them.
A study by the financial planner Zillow found that only 18% of parents have heard of 529 college plan.
While this percentage is small, it has been rising over time and is expected in the coming years.”
The current state of the 529 college marketplace is one where most students are in their first year of college, and they are learning the basics of investing, but there are some that have not had a chance to fully learn how to invest yet,” the S& P study said.”
Investors should focus on a variety of asset classes in order to better understand the college investment landscape and to make a decision on their best investment strategy,” the firm added.