Products and Pointers
SAVING FOR YOUR CHILD'S COLLEGE EDUCATION
By Linda Henry
First, the good news: If you start saving early and contribute often,
your baby's college fund will grow exponentially by the time she's
graduated high school. Even in this volatile and unpredictable market,
with interest rates compounding and dividends reinvesting over the
course of seventeen or eighteen years, you could build up a hefty fund.
The bad news? That baby's going to need a lot of tuition money: $34,000
for a public college or university; $84,000 for a private school, in
today's dollars.
With eighteen years to build a college fund, Kiplinger Online
recommends investing in stocks or stock mutual funds,
with 75 percent in domestic stock and 25 percent in foreign stock.
You're probably too busy (and sensibly wary) to trade your own stocks,
which is why discount brokerage houses- such as Dreyfus, Fidelity,
Vanguard, to name just a few- offer a full selection of mutual funds. A
mutual fund is a pool of individual stocks (typically fifty or more
companies) that's managed by professionals. The idea is diversity, so
that if one stock drops in value, the overall portfolio doesn't suffer.
A "growth fund" simply means that the fund manager's primary objective
is growth of capital. "No-load" means you pay no fees. Look for a
no-load, growth mutual fund. The fund may be set up as a custodial
account in your child's name under the Uniform Gifts to Minors Act
(UGMA) or the Uniform Transfers to Minors Act (UTMA), depending on the
state in which you live. Other options include Educational IRAs and the
UNIQUE College Investing Plan. Research the possibilities on Websites
that are not trying to sell you their own line of products. Independent
advisors include Kiplinger; smartmoney; morningstar; and the
fun and informative "Motley Fool,". Finally, before
choosing any fund, consult with a tax expert to be sure it's a good fit
for your situation.
What's the bottom line? Ideally, you'll start investing early and
contribute continuously. If you're saving for a private-college
education, Fidelity's College Cost Calculator (available on their web
site) estimates you'll need to save $320 per month,
every month, for the next seventeen years. For a public university, the
monthly amount is $129. If your current portfolio is tied up in liquid
collection assets (i.e., diapers), financial experts recommend
investing as much as you can on a monthly basis, and adding lump sums
whenever you can. To extend the diaper metaphor, if you can endure the
constant changes, eventually you and your child will be ready for the
next step in her development. And if nothing else, once she's toilet
trained, invest the diaper money.
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About The Author
Linda Henry is a regular contributor to Your Baby Today.
