1. Have a plan

Whether you’re saving for your retirement or a loved one’s education, having a plan can help provide diversification, which can reduce the level of risk in your portfolio. Without a plan, you’re more vulnerable to your emotions, especially during a market drop. You may give in to temptations like chasing performance, timing the market, or impulsively reacting to market “noise”—all in an effort to protect your portfolio by resorting to a quick fix.

Creating an investment plan is easier than you may think. You’ll get a good start by answering a few key questions about your goals, risk tolerance, and limitations.

Looking for help with your college savings, but feel you don’t have the time, inclination, or know-how to map and manage a plan? If you choose a 529 plan and select an age-based option, your savings will get more market exposure and almost all investment management is done for you. Of course, you’ll want to monitor your account periodically to make sure it’s still aligned to your goals and risk tolerance.

2. Don’t fixate on “losses”

OK, so let’s say you have a plan, and your portfolio is balanced and diversified across asset classes but its value still dropped significantly in a market decline. There’s no cause for panic. Stock downturns are normal, and most investors will endure several of them.

Case in point: Between 1980 and 2019 there were 8 bear markets in stocks (declines of 20% or more, lasting at least 2 months) and 13 corrections (declines of at least 10%).* Unless you sell in a situation like this, the number of shares you own won’t fall during a downturn. In fact, the number will grow if you reinvest your funds’ income and capital gains distributions. Long-term, a market recovery could reverse these losses.

Still stressed? It may be time to reconsider the amount of risk in your portfolio. As shown in the chart below, stock-heavy portfolios have historically delivered higher returns, but capturing them has required greater tolerance for wide price swings.

This is a graph showing the range of calendar-year returns from 1926 through 2019. The graph uses a series of circles, each representing one year of returns, to illustrate how the ranges of an investor's returns tend to widen as more stocks are added to a portfolio. The results include not only notably narrower bands of returns and fewer negative returns for bond-heavy portfolios but also smaller average returns.

Notes: Stocks are represented by the Standard & Poor’s 90 Index from 1926 through March 3, 1957; the S&P 500 Index from March 4, 1957, through 1974; the Dow Jones Wilshire 5000 Index from 1975 through April 22, 2005; the MSCI US Broad Market Index from April 23, 2005, through June 2, 2013; and the CRSP US Total Market Index thereafter. Bonds are represented by the S&P High Grade Corporate Index from 1926 through 1968; the Citigroup High Grade Index from 1969 through 1972; the Bloomberg Barclays U.S. Long Credit AA Index from 1973 through 1975; and the Bloomberg Barclays U.S. Aggregate Bond Index thereafter. Source: Vanguard Investment Strategy Group. Data are as of December 31, 2019.

If you’re a college saver, you may have less cause to be anxious in a downturn. That’s because if you choose 1 of the 3 age-based investment options (conservative, moderate, or aggressive), you’ll get a portfolio designed specifically to helpyou reduce your investing risk. These options gradually shift from aggressive to conservative as your child grows older and closer to college age, so your risk is dialed back automatically—an especially calming factor as tuition bills come due.

3. Resist rash actions

In times of falling asset prices, some investors overreact by selling riskier assets and moving to government securities or cash equivalents. Or they may embrace the familiar—perhaps moving from international to domestic markets, in a display of “home bias.”

It does sometimes take a market shock to alert investors to the risk in their allocations. For example, you may let your portfolio drift in rising markets, not realizing that you’re taking on more and more risk over time. But it’s a mistake to sell risky assets amid market volatility in the belief that you’ll know when to move your money back to those assets. That’s called market-timing, and the chart below shows one reason why it’s not a good idea.

The futility of timing the stock market

Its best and worst days often happen close together.

Graph showing the S & P 500 Index daily returns from December 31, 1979, through December 31, 2019. Blue lines represent the best trading days and red lines the worst. 13 of the 20 best trading days occurred in years with negative annual returns and 9 of the 20 worst trading days occurred in years with positive annual returns. Extreme market movements, up and down, often occurred in close proximity to one another.

Source: Vanguard.

Again, college savers who choose to invest in a 529 plan age-based option have an advantage because their savings automatically move through a series of portfolios that become more conservative over time. You don’t have to make any changes unless you want to. A 529 plan is the only account type that offers the convenience of age-based options for college savings.


*Vanguard calculations, based on the performance of the MSCI World Index from January 1, 1980, through December 31, 1987, and the MSCI AC World Index thereafter. Both indexes are denominated in U.S. dollars. Our count of corrections excludes those that turned into bear markets. We count corrections that occur after a bear market has recovered from its trough, even if stock prices haven’t yet reached their previous peak.


Past performance is no guarantee of future results. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.

The Vanguard 529 College Savings Plan is a Nevada Trust administered by the office of the Nevada State Treasurer.

For more information about The Vanguard 529 College Savings Plan, obtain a Program Description, which includes investment objectives, risks, charges, expenses, and other information; read and consider it carefully before investing. Vanguard Marketing Corporation, Distributor.   

If you are not a Nevada taxpayer, consider before investing whether your or the designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s qualified tuition program. Other state benefits may include financial aid, scholarship funds, and protection from creditors.

The Vanguard Group, Inc., serves as the Investment Manager for The Vanguard 529 College Savings Plan and through its affiliate, Vanguard Marketing Corporation, markets and distributes the Plan. Ascensus Broker Dealer Services, LLC, serves as Program Manager and has overall responsibility for the day-to-day operations. The Plan’s portfolios, although they invest in Vanguard mutual funds, are not mutual funds. Investment returns are not guaranteed, and you could lose money by investing in the Plan.

© 2020 The Vanguard Group, Inc. All rights reserved.