I perhaps should have included some premises or assumptions, which are (1) I intend to invest in a 529 plan with a static option (not one that becomes more conservative over time); and (2) while I recognize that a fund that performs better than the market usually will surpass the difference between a small and a large expense ratio, I have little reason to be confident that an actively managed fund will in fact beat the market, so I tend to take the approach of "all other things (i.e. returns) being equal, ...." My general strategy is to rely on index funds for half or more of my overall portfolio (with Fidelity, as it happens, though I don't think it matters). So I would be content to have 529 funds in a S&P500 index fund or a total market fund, and I could achieve proper balancing, as necessary, in other accounts.
As for the wisdom of index funds vs. actively managed funds (a digression, I suppose, on a site devoted more specifically to college savings, but still relevant), I'm surprised to hear you say that "if you invested in the Vanguard S&P 500 fund for the last 7 years, you would have underperformed the average managed mutual fund every year." I have the impression that, over time, the majority of actively managed funds do not beat the market average. I can't, at the moment, cite specifically to the data that prove it, but I've read that repeatedly over the years. Are you saying that if I had invested in an average- or median-performing actively managed large-cap fund, I would have been better off than with a S&P500 index fund? If so, could you please provide a reference to something I could look into further? What if one takes a view broader than 7 years? I am particularly interested because my general strategy generally has been to use index funds for large caps and actively managed funds for mid and small on the theory that there is more advantage to wise stock-picking among groups of stocks that vary more in their performance and/or are less stable. That theory has recently been challenged by information that indexing works just as well or better with mid and small stocks. So I may move further in the direction of indexing. Unless I put my faith and trust in an anonymous poster who casually says otherwise. (Insert gentle smirk here.)
I wasn't offended upon reading the first reply (in part because of thick skin developed on far more rough-and-tumble sites), so no apology is needed. Although I must ask, if one can't be a fanatic or an extremist on this site, where does one go? Is there a site for people who are only moderately interested in the topic of college savings? Or a site for people who aim to do it in a less-than-optimal way? (This is only a rhetorical question; no responses necessary.)
To circle back a bit, and so as not to lose one of my main points, it seems to me that Virginia's rather new VEST program, with Vanguard funds, is the #1 lowest-cost option (without sacrificing performance, in my opinion) for low balances. But I've never seen it recognized or touted as such. Conspicuously, Jonathan Clements did not do so in his recent article in the Wall Street Journal (1-4-06, p. D1). I feel that I've read their materials well enough, but is there something else I'm missing? I.e., some other reason to avoid that plan? I don't see any risks associated with the fact that Virginia just recently rolled it out since, after all, Vanguard has been in the biz for long enough.
Thanks to both of you for responding.