For many 529 college savings plans, the past two years have been defined by massive losses, followed by large gains and a return to volatility.

Still, the plans seem to be the preferred method for college savings among financial firms and independent certified financial planners, and investors appear to agree as well. As of the first quarter of 2010, there were 9.4 million 529 plan accounts, up from 8.4 million during the fourth quarter of 2007, according to the Financial Research Corporation. Assets under management hit the highest level in more than two years at $123.4 billion in part a result of market gains.

Investors who open a 529 plan early while their child is a newborn or in elementary school are often at an advantage since they allow more time for the markets to work to hopefully offset any significant losses. But determining how to invest over an 18-plus-year period that includes volatile markets requires some planning.

Here are five 529-plan investing strategies for a child up to age 10.

Start now

An investor who s set on opening a 529 plan should ideally start it by the time the child is born. The person opening the account doesn t necessarily need to be a parent; he or she can be a grandparent or other relative who designates the child as the plan beneficiary.

Starting early is important because of the power of compounding: The value of your investment increases over time as you earn interest on the interest on your money.

Consider setting up an automatic deposit each month where a fixed amount of dollars is deposited into the 529 plan from your paycheck or checking account. Set this up while you re signing up for the plan or call your existing plan s administrator.

Also, try to deposit the money the child receives from birthdays, graduations and any other events, says Stuart Ritter, a vice president and certified financial planner at T. Rowe Price. And consider letting other family members know about the account in case they re interested in depositing money there.

Look at tax perks and fees

When you re shopping for a 529 plan, look for one that gives you state tax benefits either a deduction or credits. Start with your own state s 529 plan. Not every state offers tax benefits, and in some cases more generous tax benefits are available to in-state residents.

Plan fees can vary greatly, so look for a plan with low fees and consider how much they could eat into your returns. Investors should also compare plans' historical performance. For a young child s 529 plan, look at the plan's 10-year track record, which should give you a better sense of long-term historical returns than just the past year s returns, says Ritter.

Invest in equities

With 10 or more years left until a child enrolls in college, the majority of a 529 plan should be in stocks, says Doug Chittenden, a vice president at TIAA-CREF. This strategy is mostly for investors who are comfortable with risk and are looking for potential growth. Ritter recommends investors with newborns invest 100% in equities, with 60% in large-cap stocks, 20% in mid- and small-cap stocks, and another 20% in international stocks in developing and emerging markets. That should be enough time to ride out market fluctuations, he says. Then when the child is 10 to 15 years away college, adjust the asset allocation to 80% equities and 20% fixed income.

But considering current market volatility, investing heavily in equities can be a risky strategy even if the child is a newborn or in elementary school. Aaron Schindler, a certified financial planner with Wealth Advisory Group, suggests a more conservative approach with just 35% to 40% in stocks.

Consider age-based portfolios

Despite their losses during the market downturn, age-based portfolios could still be the right option for some investors as long as they re comfortable with their allocation, says Tom Arconti, a fee-only certified financial planner.

Age-based portfolios are supposed to get more conservative as a student gets closer to college. They can also be an easy way to invest in a mix of stocks, bonds and short-term investments.

In most cases, expect to see a minimum 80% allocation to equities with young children. If that s too much exposure, shop around for other age-based options or consider investing within a 529 plan without an age-based option.

And consider the impact the current market situation could have on a youngster s portfolio. Say your child is one and the age-based [portfolio] puts them in 85% or 100% stocks and the markets plummet you could start off with a large drop and at a disadvantage in some ways, says Schindler.

Focus on preserving capital

Investors who can t stomach market risk should still stick to 529 plans, but ones that include a certificate of deposit or savings account. That way you can still qualify for the tax benefits. But don t expect high returns for at least as long as the federal funds rate remains near 0%.

As a result, investors will need to stash more cash into these investments in order to keep up with rising tuition costs, says Ritter. With this strategy, principal won t go down, but it won t go up very much, he says.