Market hurts college savings plan

10 of 11 investment options register losing returns for first half of the year

July 18, 2002|By Eileen Ambrose | Eileen Ambrose,SUN STAFF

The worsening stock market has taken its toll on Maryland's new college savings plan, with all but one of the investment options posting losses for the first half of the year.

The Maryland College Investment Plan offers 10 investment options made up of T. Rowe Price Associates' mutual funds.

The best performer, and the only portfolio with a positive return, was the one made up entirely of bonds. The bond portfolio gained 1.62 percent in the second quarter, which ended June 30, and was up 2.64 percent in the first six months of this year.

The second-best return was posted by the Portfolio for College, designed for those entering college within a few years. The portfolio, with 80 percent of its money in bonds and money market funds, lost 1.99 percent in the quarter and 1.81 percent over six months.

Hardest hit were portfolios invested entirely in stock funds. For example, the Portfolio 2021, which means the money isn't expected to be needed for another 19 years, fell 11.69 percent for the quarter and 10.81 percent for the first six months. The equity portfolio lost 11.68 percent in the quarter and 10.72 percent over six months.

In comparison, the Standard & Poor's 500 Index lost 13.7 percent in the first six months.

"It's reflective of the overall difficulty people are having with investments these days," said Edwin S. Crawford, chairman of the Maryland Higher Education Investment Board, which oversees the plan.

"Even the best stock pickers are down. All things being equal, I don't think it was too bad a quarter. July is certainly a challenging month that's not reflected in these numbers."

Crawford said Maryland's results are likely similar to those of other states' plans, and experts agree.

"That's typical," said Joseph Hurley, founder of Savingforcollege.com, an online resource for college savings plans. "It doesn't surprise me in light of the stock market."

Investors in the Maryland plan can change their investment options once a year without having to switch beneficiaries.

Seven of the portfolios are based on when beneficiaries are expected to enroll in school, with the money being invested more heavily in stocks when students are younger and then gradually shifted to more conservative investments when college approaches. The other three portfolios don't change their investment allocations over time.

Despite investment losses, investors nationwide likely will continue to contribute to the plans, Hurley said. The plans have grown enormously popular largely because of a change in federal law last year that permits tax-free withdrawals provided the money is used for college.

By the end of last year, plan assets nationally had grown to $9 billion, up from $2.5 billion at the start of the year, Hurley said. By the end of December, he projects plan assets will be $25 billion.

Maryland's plan, which was launched late last year, had $157.6 million in assets at the end of June with more than 22,000 beneficiaries enrolled.

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