You can rebalance your 529 plan account twice a year. Just because you can, should you? If you’re in an age-based investment option, you don’t need to rebalance to maintain the correct asset allocation. That’s what an age-based strategy does for you. Those who select their own funds should rebalance, especially since your allocation has probably become more risky, not more conservative, if you haven’t. Why? Because stocks have been on a tear over the past several years, and bonds have not.

Let’s compare what your current allocation would be if you had started 5 years ago in an age-based portfolio for your student who’s now a senior, or if you had put 50% of your account in Vanguard’s Total Stock Market fund and 50% in Vanguard’s Total Bond Market fund, approximating the 50% equities/50% fixed income that’s reasonably typical in an age-based portfolio for a 12-year-old.

Using the Oregon College Savings Plan as an example, your current allocation in an age-based portfolio would be 90% fixed income and 10% equities. This is pretty conservative, and it’s based on the assumption that you can’t afford to risk your principal when you’re going to be spending it in a few months’ time.

Had you set up the 50% Total Stock Market, 50% Total Bond Market allocation five years ago and left it, you’d now have 63% in stock and only 37% in fixed income. Your portfolio has grown more risky, not more conservative, as college has neared.

There isn’t one perfect portfolio or asset allocation that is appropriate for every student at a given age. A quick look at the variety of asset allocations available in different states’ plans– and in some plans that have multiple allocations for each age band– would confirm this. The right allocation for your 529 account is a function of your risk tolerance, which includes such factors as how long until your student starts school and how much you have saved relative to the total amount you’re planning to spend. But it’s hard to argue against the general rules of thumb that stock investments are for the long term and you shouldn’t risk money that you intend to spend in the next year or two.

All this to say: If you’re not using the age-based investment options, you should rebalance your 529 account at least annually.

See Saving for College for additional info.