Investment Options
The Michigan Education Savings Program (MESP) offers a choice of seven (7) Investment Options. These options vary in investment strategy and degree of risk. It’s important to select an option or combination of options that fit your needs and your risk tolerance.
For more information on the risks involved in investing in such Investment Options, and the type of investor for whom each Investment Option may be appropriate, read the Disclosure Booklet (PDF).
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Investment Options
- Conservative Age-Based Allocation Option
- Moderate Age-Based Allocation Option
- Aggressive Age-Based Allocation Option
- 100% Equity Option
- Balanced Option
- 100% Fixed Income Option
- Principal Plus Interest Option
Changing Your Investments
Once you invest in a particular Investment Option, you can transfer contributions and any earnings to another Investment Option once per calendar year or upon a transfer of funds to a MESP account for a different beneficiary.
Periodically Review Your Investments
It's a good idea to periodically re-evaluate your investment strategy as your goals, investment horizon, and personal situation change - for example, annually at tax time, on a yearly basis if your income changes, or upon the birth of another child.
Age-Based Allocation Options
Investing in the Age-Based Allocation Option follows the method of using the number of years an investor has for saving to determine the appropriate investment allocation. The Age-Based Allocation Option is the core investment for MESP. There are three options to choose from that vary in risk, including a Conservative, Moderate and Aggressive Option. Although there is no guarantee that the investment objectives will be met, Age-Based Allocation Options offer the opportunity to invest aggressively and over time, more conservatively, thus creating a balanced approach.
Aged-based Investment Options combine equity, real estate, fixed income, and money market mutual funds offered by the TIAA-CREF Funds - Institutional Class. Younger beneficiaries will have a higher exposure to equities and real estate investments, and that exposure will decrease significantly as they approach college age, as the following charts illustrate.
To find the allocation that would apply to your account, look for the appropriate "age band" for your beneficiary. As your beneficiary nears college age, more of your money would be moved into bonds and money market investments and out of equities.
Conservative Age-Based Allocation Option
This Investment Option invests in the same underlying Funds as the Moderate Age-Based Allocation Option. However, the initial contributions to this Investment Option are less heavily invested in equities and real estate than in the Moderate Age-Based Allocation Option. While the Conservative Age-Based Allocation Option maintains the investment objective of earning a rate of return that is greater than the rate of increase in the costs of higher education while limiting the risk of losing principal, it is less likely to keep pace with rising tuition rates because with less risk and lower volatility the investment returns are generally lower.
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Allocations for all investments are as of October 2010. Allocations are reviewed and adjusted periodically.
Moderate Age-Based Allocation Option
This Investment Option seeks to match up the investment objective and level of risk to the investment horizon by taking into account the Beneficiary’s current age and the number of years before the Beneficiary turns 18 and is expected to enter college. Depending on the Beneficiary’s age, allocations to this option will be placed in one of six Age Bands, each of which has a different investment objective and investment strategy. The Age Bands for younger Beneficiaries seek a favorable long-term return by investing primarily in Mutual Funds that invest in equity or real estate-related securities, each of which has a high level of risk, but greater potential for returns than more conservative investments. As a Beneficiary nears college age, the Age Bands allocate less to Mutual Funds that invest in equity and real estate-related securities and allocate more heavily to Mutual Funds that invest in fixed-income and money market securities to preserve capital.
As the Beneficiary ages, assets in your Account that are attributable to this option are moved from one Age Band to the next on the first “Rolling Date” following the Beneficiary’s fourth, eighth, twelfth, fifteenth and eighteenth birthdays. The Rolling Dates are March 20, June 20, September 20 and December 20 (or the first business day thereafter).
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Allocations for all investments are as of October 2010. Allocations are reviewed and adjusted periodically.
Aggressive Age-Based Allocation Option
The Aggressive Age-Based Allocation Option uses the age of the beneficiary as a guide in determining the proper mix of equities, bond, and money market investments. The Aggressive Age-Based Allocation Option allocates a higher percentage of the investments to equities. Younger beneficiaries will have a higher and longer exposure to equities than under the Conservative or Moderate Age-Based Allocation Option, and that exposure will decrease significantly as they get older. While equities have higher risk, they offer greater opportunity for higher returns than bond or money market investments over the long term. Past performance is no guarantee of future results.
To find the allocation that would apply to your account, look for the appropriate "age band" for your beneficiary. As your beneficiary nears college age, more of your money would be moved into bonds and money market investments and out of equities.
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Allocations for all investments are as of October 2010. Allocations are reviewed and adjusted periodically.
100% Equity Option
The 100% Equity Option seeks to provide a favorable long-term total return, mainly from capital appreciation, by investing primarily in a blend of domestic and international equity mutual funds. Because of the high exposure to domestic and foreign equities, and the corresponding high degree of risk, this option may be appropriate for investors with substantial college savings from less volatile investments (e.g., fixed income) or those with a long investment horizon and who can tolerate a higher level of risk.
Balanced Option
The Balanced Fund Option invests in an equal combination of equity and bond investments offered by TIAA-CREF Funds - Institutional Class. The Balanced Option has approximately 50% of its holdings invested in equity funds and 50% of its holdings invested in bond funds.
The Balanced Option is designed to appeal to moderately conservative and moderately aggressive Account Owners who are willing to accept and can tolerate a degree of volatility in exchange for potentially higher returns over time. This option may be appropriate for use as a single Investment Option, or for use in conjunction with other Investment Option offered by the program.
Allocations for all investments are as of October 2010. Allocations are reviewed and adjusted periodically.
100% Fixed Income Option (Risk level — Moderate)
This Investment Option seeks to provide preservation of capital along with a moderate rate of return through a diversified mix of fixed-income investments. This Investment Option may be appropriate for you if you have a medium to short investment horizon and can tolerate a moderate level of risk.
Allocations for all investments are as of October 2010. Allocations are reviewed and adjusted periodically.
Principal Plus Interest Option
This Investment Option seeks to preserve capital and provide a stable return. It may be appropriate for you if you have a short investment horizon and are looking for a conservative investment with a low level of risk. The contributions invested in this Investment Option are allocated to a Funding Agreement issued by TIAA-CREF Life to the Michigan Department of Treasury, which is the policyholder under the agreement. The Funding Agreement provides for a return of principal plus a guaranteed rate of interest and allows for the possibility that additional interest may be credited as declared periodically by TIAA-CREF Life. The interest rate guarantee is made to the Michigan Department of Treasury only, and not to Account Owners or Beneficiaries. The rate of any additional interest is declared in advance for a period of up to 12 months and is not guaranteed for any future periods. The term of the Funding Agreement is intended to coincide with the term of the Management Agreement. For more information on the Funding Agreement, please see “Summary of the TIAA-CREF Life Insurance Company Funding Agreement” in Appendix I of the MESP Disclosure Book.
Effective October 1, 2011, accumulations (including contributions and earnings) under the Funding Agreement for the Principal Plus Interest Option as of September 30, 2011 will be credited to MESP with an effective annual interest rate of 1.85%, and are guaranteed to earn this rate through September 30, 2012, subject to the claims-paying ability of TIAA-CREF Life Insurance Company.
Account values are not guaranteed and will fluctuate with market conditions. For a complete discussion of risks associate with each Investment Option, please refer to the Disclosure Booklet.
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