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A Case for the TuitionMAR.

Money Management Executive

| May 28, 2007 | COPYRIGHT 2007 SourceMedia, Inc. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan.  All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)Copyright

As Money Management Executive launches this year's set of State Tuition Index and Datasheet reports, a new paradigm for evaluating college savings plan is introduced. With MME's TuitionMAR (minimally acceptable return) statistics, a set of core absolute return benchmarks is now available to assist mutual fund companies, 529 plan sponsors and financial planners in evaluating the ongoing success of a college savings plan investment.

Updated annually and a core element of MME's 529 Risk-Adjusted Performance (RAP) Report series, these benchmarks create a framework for the ongoing evaluation of minimum target rate returns required by parents faced with saving enough for college.

Some call the MAR an investor's hurdle rate, but due to their specificity of purpose and applicability to the college savings plan model, we refer to an absolute benchmark created specifically for the college savings industry as the TuitionMAR.

The application of MARs is common in many investment sectors, including pension funds where a targeted ongoing payout remains a goal in the burgeoning world of hedge funds where the measurement of downside risk below a fixed, given return is often the most important evaluation metric.

For retail investors, though, performance evaluation against strict, sector-neutral benchmarks remains fairly uncommon. Yet due to the non-correlated nature of college savings investment returns (what is achieved by the investor) and tuition inflation rates (what is required by the investor), successful out-performance against relative return benchmarks such as the S&P 500 index provides little information concerning the overall effectiveness of a college savings strategy.

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