We occasionally come across commentary that seems to confuse the issue of types of accounts and types of investment strategies. For example, we’ve heard that 529 college savings plans “failed” due to stock market losses in 2008. A similar argument has been made about retirement plans such as 401(k)’s. There is no question that many investors had poor investment results in these accounts due to the financial crisis, but why did this happen? Is there something about these types of accounts that is inherently very risky? The answer is a clear “No”. These accounts provide savers with opportunities to set money aside for future goals such as college and retirement, while providing the advantage of tax deferral that you wouldn’t get otherwise. Since you can still set aside money in these accounts and still receive the benefits of tax deferral, how can someone claim that the accounts have failed? What’s really going on is that some people are confusing a failed investment strategy with a failure in the account itself. Yes, some parents invested very aggressively in their children’s 529 plan accounts, perhaps allocating 100% of the accounts to stocks. When stock prices plummeted in 2008 and account values could no longer cover the tuition bills, some cried foul. But that’s not the fault of the account. If you want to invest conservatively within a 529 plan, the choice is yours! You might like the safety of FDIC-insured certificates of deposit. Someone else might like to take more risk in the hope of generating more return. Workplace retirement plans such as 401(k)’s have a similar story, with some retirees (or those close to retiring) heavily invested in stocks prior to the financial crisis. The drop in account values likely means lower spending for many of them for years to come. But if you review your account, you should find that you have a variety of options between investments focused on capital preservation to those seeking aggressive growth. The account can work equally well for investors on either end of the spectrum, or anyone in between. The key is that you take the amount of risk that is appropriate for you. Investors with relatively short time frames should be wary of high exposure to stocks due to the high risk. It doesn’t matter which type of account you buy stocks in – they’re still stocks, with all the attendant risks. You don’t need different accounts; you just need a plan that works for you. Call Modus Advisors at 952-946-1000 today if you need help in developing an investing strategy that works for you.