| Parents should begin saving money early
| |
| | hikes.The safest, easiest and most
|
| for their children's college education
| |
| | disciplined way to invest in equities is
|
| because of the high costs and
| |
| | through mutual funds. Not only do funds
|
| expectations that parents will pay part
| |
| | offer diversification but many will also
|
| of the costs associated with the
| |
| | waive initial investment minimums if you
|
| education. Several stock mutual funds are
| |
| | make automatic deposits every month,
|
| recommended.Here's a question that's as
| |
| | typically as little as $50 or $100. To
|
| pleasant to consider as a fraternity
| |
| | avoid having any money siphoned off in
|
| hazing: How will you come up with the
| |
| | commissions, stick with no-load funds
|
| money to send your child to the campus of
| |
| | like the ones we name in this
|
| his or her choice? If you're like most
| |
| | article.--Don't neglect saving for
|
| Americans, your answer is probably
| |
| | retirement. Planning for your child's
|
| loans--unless you start saving and
| |
| | education should not sidetrack you from
|
| investing more effectively. According to
| |
| | making regular contributions to your own
|
| a recent MONEY poll, fully 87% of U.S.
| |
| | 401(k), IRA or similar tax-deferred
|
| moms and dads expect their kids to go to
| |
| | retirement account. You simply don't want
|
| college. But nearly half of them, 47%,
| |
| | to miss the chance to make the most of
|
| have not yet stashed away any money to
| |
| | the tax-deferred gains available in such
|
| cover the costs, which currently run an
| |
| | accounts. And retirement assets won't
|
| average of $7,118 a year for tuition,
| |
| | affect your eligibility for federal
|
| fees, room and board at four-year public
| |
| | need-based college financial aid.--Don't
|
| schools and $18,184 at private
| |
| | invest in esoterica. From time to time,
|
| universities, according to the College
| |
| | you may encounter sales pitches
|
| Board. And at the current growth rate of
| |
| | encouraging you to save for college with
|
| 5% a year, the cost of a four-year degree
| |
| | investments such as annuities or
|
| is projected to rise to $73,834 (public)
| |
| | cash-value life insurance. Both defer
|
| and $188,620 (private) for a child born
| |
| | taxes on your investment earnings but at
|
| in 1997.The survey of 1,118 adults with
| |
| | the price of costly withdrawal rules.
|
| children, conducted by ICR of Media, Pa.
| |
| | Many deferred annuities, for example,
|
| (margin of error: plus or minus 2.9
| |
| | charge penalties of 7% or more if you
|
| percentage points), also provides a
| |
| | need to take out money within seven years
|
| wake-up call for parents who say they are
| |
| | of making your investment. Tempted to buy
|
| saving for their kids' college costs.
| |
| | zero-coupon Treasury bonds, which
|
| More than half stash their savings in
| |
| | recently yielded 6.6%? They can be fine
|
| unwise college investments, such as
| |
| | investments--as long as you buy ones that
|
| certificates of deposit. And nearly a
| |
| | will be redeemed when you need the money.
|
| quarter of parents who are saving are
| |
| | If you have to sell a zero before
|
| putting away a paltry $500 or less a year
| |
| | maturity, you may lose principal if
|
| for each child.Yes, your child can lessen
| |
| | interest rates have risen since you
|
| your burden by working part time and by
| |
| | bought it. Prepaid-tuition plans, another
|
| pursuing scholarships (see "Strategies
| |
| | way of building up college savings, can
|
| That Can Cut Costs 30% or More" on page
| |
| | make sense if you're too nervous to
|
| 126). But financial experts say that the
| |
| | invest in stocks (see the box
|
| average parent should be prepared to pick
| |
| | opposite).--Don't put your money in your
|
| up at least a third of total college
| |
| | child's name if you hope to get financial
|
| costs.If your child is in high school and
| |
| | aid. College financial aid formulas
|
| you haven't saved enough, check out our
| |
| | generally require a child to contribute
|
| advice on page 138 on borrowing for
| |
| | 35% of his or her assets toward costs,
|
| college. If your children are younger,
| |
| | but parents typically need to put up no
|
| however, the sooner you start to save,
| |
| | more than 5.6% of their savings.With
|
| the better. For example, Richard and
| |
| | those basic dos and don'ts at the heart
|
| Deborah Winters of Milford, Conn.
| |
| | of your investment strategy, here are
|
| (pictured at left) began putting away
| |
| | moves to make, based on your kid's age:If
|
| col- lege money for son Kyle, 4, when he
| |
| | your child is 13 or younger, you have
|
| was six months old and for daughter Kar-
| |
| | enough time to weather any short-term
|
| lie, 2, when she was 1 1/2. Oakland
| |
| | stock market squalls. Investment
|
| registered nurse Iris Winn (pictured on
| |
| | strategists therefore recommend that you
|
| page 139), a late starter, now stashes a
| |
| | put 75% to 100% of your college savings
|
| whopping $12,000 of her $70,000 annual
| |
| | in stock funds, depending on how much
|
| salary into college savings for her
| |
| | risk you can tolerate, and the rest in
|
| daughter Monique, 15.But whenever you
| |
| | such fixed-income investments as bonds
|
| start your savings regimen, you can
| |
| | and bond mutual funds. You might start
|
| maximize your dollars by planning and
| |
| | your savings program with a fund that
|
| investing wisely. Later in this article,
| |
| | holds shares of large and mid-size
|
| we suggest investment strategies for
| |
| | companies with consistent earnings gains
|
| families with college-bound children. But
| |
| | and strong growth potential. Financial
|
| before you get to the specific advice,
| |
| | planner Michael Zabalaoui at Resource
|
| study these basic rules--the dos and
| |
| | Management in Metairie, La. suggests
|
| don'ts of smart invest- ing for
| |
| | Oakmark (up an average of 25.13% annually
|
| college:--Do set family goals. You must
| |
| | for the three years that ended June 30;
|
| first figure out how much you need to
| |
| | 800-625-6275). Pearman recommends
|
| carve out of today's spending for
| |
| | Vanguard Index Value (up 25.46%;
|
| tomorrow's college costs. To do this, you
| |
| | 800-851-4999). Both funds seek out
|
| can use the savings calculators included
| |
| | undervalued equities and bear
|
| in popular software such as Quicken,
| |
| | below-average risk, according to fund
|
| online services like MONEY's college
| |
| | ranker Morningstar.After you have
|
| savings calculator ( .com/cgi-bin/Money
| |
| | accumulated $5,000 in your starter
|
| collsave.cgi) or free worksheets offered
| |
| | portfolio, you can move as much as a
|
| by brokerages and mutual fund companies,
| |
| | third of your holdings into small-company
|
| including Charles Schwab (800-435-4000)
| |
| | and international stock funds, which
|
| and Fidelity (800-544-8888)."Parents and
| |
| | offer the prospect of juicier returns but
|
| children should work together to make
| |
| | also carry greater risk. For funds
|
| sure they are focused on the same goal,"
| |
| | specializing in shares of small
|
| says James Pearman of Fee-Only Financial
| |
| | companies, Zabalaoui favors Berger Small
|
| Planning in Roanoke. "That way, you can
| |
| | Cap Value (up 22.6%; 800-333-1001). Among
|
| face tough questions early on--for
| |
| | international funds, he likes Janus
|
| example, what to do if you are planning
| |
| | Worldwide (up 24.7%; 800-525-8983).If
|
| to pay for 75% of tuition at an in-state
| |
| | your child is 14 or older, reduce risk to
|
| public school and your child wants to go
| |
| | safeguard savings. Zabalaoui recommends
|
| to Harvard."--Do start saving early.
| |
| | getting at least 50% of your money out of
|
| Every year, as your investment principal
| |
| | stocks by the end of your child's
|
| grows, so do the earnings on your money.
| |
| | freshman year and moving all of your
|
| The lesson is simple: Don't put off
| |
| | college savings for that child into
|
| investing.--Do invest in stock mutual
| |
| | short-term bonds, fixed income and cash
|
| funds. According to the MONEY poll,
| |
| | by the end of her sophomore year. To keep
|
| parents saving for college have plowed
| |
| | risk low, most investment experts
|
| 53% of their education investments into
| |
| | prescribe short- and inter- mediate-term
|
| low-risk--but low-interest--CDs and
| |
| | bond funds, which will add more pop to
|
| savings accounts at banks and
| |
| | your total return than CDs or U.S.
|
| money-market mutual funds. The parents
| |
| | Savings Bonds. Pearman likes Vanguard
|
| have invested only 23% of their money in
| |
| | Bond Index Intermediate-Term (up 8.62%;
|
| stocks and stock funds. That's a serious
| |
| | 800-851-4999). The fund shuns high-risk
|
| mistake. While stocks carry some risk,
| |
| | bonds and has an extremely low annual
|
| they are your best bet for making your
| |
| | expense ratio of about 0.2% of principal,
|
| money grow over five years or more.
| |
| | enabling more savings to go toward your
|
| Since 1926, stocks have gained an
| |
| | child's college costs.Marc Sylvester is
|
| average of about 11% a year, more than
| |
| | expect based in Edison, NJ. He holds
|
| any other type of investment. Moreover,
| |
| | expertise in the banking and finance
|
| you can't count on bank account and CD
| |
| | sector and is a conultant to leading
|
| yields to keep pace with tuition
| |
| | business houses.
|
