So I have a 13 y/o kiddo who will start college in 5 years. She currently has $9500 in her 529 and we are automatically contributing $100/month. We hope to be able to crank that up in the near future, but let's assume for the sake of this question that it stays at $100/month.
Question: Would you keep the funds in a "target date" sort of account or put them in a FDIC account? I know most will want to say, "Invest!" immediately, and I did put them there, BUT I ran a 5 year calculator, and even assuming 7% annual returns for the next five years (which may be a bit optimistic), it doesn't beat the guaranteed/FDIC option by much, only a few thousand dollars. And of course there is the risk of a downturn right in the middle the window.
OPTION 1: Target Date Fund: Calculator says $20,444 in five years when she starts school.
OPTION 2: Guaranteed Return/FDIC Fund: Calculator says $17,060 in five years.
So do you think the potential upside of $3300 or so justifies the potential of a down market, considering we're in a pretty small window?
I know this sounds like a market timing question, and I guess it is, but again with only a 5-year window, I wonder if it might be wiser to just take the guaranteed 2.4% return (the FDIC rate) and know that she'll have $17K when she starts college.
Edited to add: I just ran the numbers again with the 2.4% return and contributing $150 per month and it hits $20,000 almost exactly ($20,242), which has sorta been our goal. I have a feeling my wife will lean toward the "safe" option once we talk about this again.