The level of investment risk for an account should be a function of the time horizon of the goal that the account is intended to fund. When it comes to the investment risk of educational accounts this is typically linked to the number of years until the beneficiary is expected to attend a higher educational institution.
When an education account is established for a beneficiary that is very young it may be advantageous to take high investment risk. Younger beneficiaries have a long time horizon until they are likely to need the money to pay higher education expenses. Therefore, a high-risk strategy may increase the potential long-term rate of return which short-term losses of little consequence.
However, as the beneficiary ages it may be prudent to slowly reduce the risk level. This will help to reduce the risk of a large decline in value which may persist until the money is needed. This is especially important when the beneficiary is getting close to the age where they will likely be needing the money to pay for higher education expenses. Otherwise, a market downturn may result in a sharp decline in value right as the money is needed to fund the goal. Therefore, it is important to have a consistent risk management strategy to manage the risk of educational accounts.