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