Bonds are lower risk, but not risk-free

Bonds can be a great investment for your MOST Missouri 529 Education Plan account if you're looking to balance the volatility of stocks in your portfolio and lower your overall risk of loss. But what happens if bonds fail to produce a positive return?

Bond investors can find themselves in this situation when interest rates rise. That’s because bond investing comes with interest rate riskwhen interest rates rise, bond prices fall.

If this happens while you’re saving for a child’s future education expenses in MOST Missouri’s 529 Education Plan, what should you do?

If you invest in an age-based portfolio

Most people investing in MOST Missiouri’s 529 Education Plan choose a conservative, moderate, or aggressive age-based portfolio. With these options, Vanguard's investment management specialists predetermine the amount invested in stocks and bonds in the portfolio at any given time. So, if you invest in an age-based portfolio, you have a mix of stocks and bonds that's appropriate for the amount of time you have left to invest for your child's education.

While the bond portion can at times lose value (as any investment can), bonds still offer more stability than stocks. And most importantly, by having a diversified portfolio, you are lowering your overall risk because gains in one area can help to offset losses in another.

If you don't invest in an age-based portfolio

If you're not investing in an age-based portfolio and have invested a lot of your savings in bonds, you may feel nervous if you see rising interest rates having a negative effect on your balance. Just keep in mind that downturns in bonds are generally not as severe as downturns in stocks. If you move from bonds to stocks, you could be worse off if stocks begin to fall.

The best action is often no action

Trying to time when to move in and out of stocks or bonds is very tricky, which is why it's usually better to stay the course with your investments. If you're considering making a change, be sure to base your decision on your risk tolerance and the amount of time you have to invest, and not emotion.

Lastly, if you're interested in more stability, the plan offers an alternative that doesn't invest in stocks or bonds. It's called the Interest Accumulation Portfolio, and it owns funding agreements issued by one or more insurance companies, as well as shares of Vanguard Federal Money Market Fund. The funding agreements are interest-bearing contracts structured to preserve principal and accumulate interest earnings over the life of the investment.

While the Interest Accumulation Portfolio does offer stability, it comes with a trade-off: lower return potential. That lower return potential is why the portfolio is generally only used when the child is close to needing (or currently needs) the money to pay for education expenses. Investors with younger children have more time and therefore may want to wait out a downturn.


All investing is subject to risk, including the possible loss of the money you invest. Bond funds are subject to interest rate risk, which is the chance bond prices overall will decline because of rising interest rates, and credit risk, which is the chance a bond issuer will fail to pay interest and principal in a timely manner or that negative perceptions of the issuer's ability to make such payments will cause the price of that bond to decline. In a diversified portfolio, gains from some investments may help offset losses from others. However, diversification does not ensure a profit or protect against a loss.

Vanguard Income Portfolio and Vanguard Interest Accumulation Portfolio both invest in Vanguard Short-Term Reserves Account, which, in turn, invests in Vanguard Federal Money Market Fund. Vanguard Short-Term Reserves Account's investment in Vanguard Federal Money Market Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of the investment at $1 per share, it is possible that Vanguard Short-Term Reserves Account may lose money by investing in the fund.

For more information about MOST—Missouri's 529 Savings Plan, download a Program Description, Privacy Policy, and Participation Agreement or request one by calling 888-414-MOST. Investment objectives, risks, charges, expenses, and other important information are included in this document; read and consider it carefully before investing. Vanguard Marketing Corporation, Distributor.

If you are not a Missouri 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.

Missouri taxpayers can use MOST 529 assets to pay for K–12 tuition at public, private, and religious institutions, with no Missouri state tax consequences. State tax treatment of K–12 withdrawals is determined by the state where the taxpayer files state income tax. If you're not a Missouri taxpayer, please consult with a tax advisor.

Federal legislation allows rollovers from 529 plans to Achieving a Better Life Experience (ABLE) accounts without incurring federal taxes up to the annual ABLE contribution limit. Missouri statute may allow for rollovers of MOST 529 assets to ABLE accounts without Missouri state tax consequences. We suggest MOST 529 account owners who are residents of other states consult with a tax advisor about their state laws.


The Missouri Education Savings Program (the "Program Trust") is a trust created by the State of Missouri. When you invest in MOST—Missouri's 529 Savings Plan (the "Plan"), you are purchasing portfolio units issued by the Program Trust. Portfolio units are municipal securities. The Plan has been implemented and is administered by the Missouri Education Savings Program Board (the "Board"). Ascensus College Savings Recordkeeping Services, LLC, serves as the Program Manager and Recordkeeping and Servicing Agent, and together with its affiliates, has overall responsibility for the day-to-day operations of the Plan. The Vanguard Group, Inc., serves as Investment Manager for the Plan. Vanguard Marketing Corporation, an affiliate of The Vanguard Group, Inc., markets and distributes the Plan. The Plan's portfolios, although they invest in mutual funds, are not mutual funds.

Investment returns are not guaranteed, and you could lose money by investing in the Plan. Participants assume all investment risks, including the potential for loss of principal, as well as responsibility for any federal and state tax consequences.

© 2020 State of Missouri.