A new savings vehicle for children, colloquially termed the 'Trump ISA,' bans investment in bonds and international stocks. Reported by MarketWatch on July 3, 2026, the account requires parents to allocate 100% of contributions to US equities. The mandate could concentrate over $50 billion in annual child-directed savings flow into the domestic stock market. This represents a structural shift for 529 education savings plans and similar custodial accounts, affecting capital allocation for millions of families.
Context — why this matters now
The policy arrives amid a decade-long bull market in US stocks that has seen the S&P 500 compound annual growth rate exceed 10% since 2010. The last major policy shift in child-directed savings was the 2017 Tax Cuts and Jobs Act, which expanded 529 plan usage to K-12 expenses. The current macroeconomic backdrop features a 10-year Treasury yield at 4.2% and a US equity risk premium near its 20-year average of 3.5%. The catalyst for the new account's creation is recent legislation that created tax-advantaged savings structures with explicit investment restrictions.
The change formalizes a trend of rising domestic equity concentration in retail portfolios. Data from the Investment Company Institute shows US household equity allocations reached 52% of financial assets in 2025, a two-decade high. The new account rules eliminate traditional safe-haven assets like Treasuries from children's investment horizons. This forces a generational bet on the continued outperformance of US corporations over fixed income and global markets.
Data — what the numbers show
Approximately 25 million custodial investment accounts for minors currently hold over $400 billion in assets. Existing 529 plans hold a national average of 65% in equities and 35% in bonds or cash. The new account rules shift that allocation to 100% equities. For comparison, a typical target-date fund for a newborn holds roughly 90% in stocks and 10% in bonds. The S&P 500's 10-year annualized return through 2025 was 12.8%, versus 2.1% for the Bloomberg US Aggregate Bond Index.
| Asset Class | Typical 529 Plan Allocation | New 'Trump ISA' Allocation |
|---|
| US Equities | 50-60% | 100% |
| Bonds | 30-40% | 0% |
| International | 5-15% | 0% |
The policy directly impacts $30 billion in annual new contributions to child-focused accounts. Vanguard's Target Enrollment 2035 fund, a common 529 option, returned 8.2% in 2025 with a standard deviation of 15.4%. A pure S&P 500 portfolio returned 15.2% with a standard deviation of 18.1% over the same period. The yield on the iShares Core U.S. Aggregate Bond ETF is 3.9%.
Analysis — what it means for markets / sectors / tickers
Mandated flows will disproportionately benefit large-cap US equity index providers and funds. BlackRock's iShares Core S&P 500 ETF and Vanguard's S&P 500 ETF could see incremental inflows exceeding $5 billion annually. Sector-specific ETFs focused on US technology and consumer discretionary may also see elevated demand. The policy creates a structural bid for the S&P 500, potentially compressing equity risk premiums by 10-20 basis points over five years.
A key counter-argument is that forced equity concentration ignores basic portfolio theory, increasing risk without a guaranteed increase in return. The 60/40 portfolio has historically provided 85% of equity returns with 65% of the volatility. Financial advisors are already positioning by increasing allocations to low-volatility factor ETFs and domestic dividend aristocrats to mitigate concentration risk within the equity-only constraint. Some are shorting long-duration bonds as a hedge against the redirected flow.
Outlook — what to watch next
Monitor the Department of the Treasury's guidance on eligible securities, expected by Q4 2026. The first monthly contribution data from major plan administrators will be released in January 2027, providing hard flow numbers. Key levels to watch include the S&P 500's 200-week moving average at 4,200 and the 10-year Treasury yield's 4.5% resistance level. If Treasury yields break above 4.5%, the opportunity cost of the bond ban will increase significantly.
The 2026 midterm elections could bring legislative challenges to the account structure. The SEC's review of equity market structure in 2027 may address concentration risks from directed savings flows. Asset managers will report earnings on July 24 (BlackRock) and July 28 (Charles Schwab), with commentary on inflows expected.
Frequently Asked Questions
What is the Trump ISA and how is it different from a 529 plan?
The term 'Trump ISA' refers to a newly authorized savings account for children with specific investment restrictions. Unlike a traditional 529 plan, which allows allocations to bonds, international stocks, and age-based blended funds, this account mandates 100% investment in US-domiciled equities. Both accounts offer tax-advantaged growth, but the new vehicle eliminates asset class diversification as an option for risk management.
How could this policy affect the long-term performance of my child's savings?
Historical data shows a 100% US equity portfolio has higher expected returns but also greater volatility than a diversified portfolio. From 2000 to 2025, a 100% S&P 500 portfolio had a maximum drawdown of 51%, while a 60/40 portfolio's maximum drawdown was 32%. During the 2008 financial crisis, the pure equity portfolio took 4.5 years to recover its value, versus 2.5 years for the 60/40 blend. This increases sequence-of-returns risk for funds needed at a specific future date.
Are there any workarounds for parents who want bond exposure?
Parents cannot hold bonds directly within the new account structure. The primary workaround is to treat the account as part of a broader household portfolio. Parents could overallocate to bonds in their own retirement accounts, like IRAs or 401(k)s, to maintain a desired family-level asset allocation. Alternatively, they could select equity funds with bond-like characteristics, such as low-volatility or high-dividend ETFs, though these remain equity securities.
Bottom Line
The new account rules force a generational, undiversified bet on US equities for child savings, amplifying portfolio risk for millions.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.
