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