Investing In A College Education: A How-To Guide
Saving money for college is not just about setting aside money each month. If you really want to make the most of your money, you will need to utilize investments as well. By combining both high risk and low risk investments, you should be able to save enough money for college and then some while spending less out of your pocket.
The Younger the Child, The Higher the Risk
When your child is just born or only a few years old, you should consider more high risk investments. This way, you will have more time to recover from any mistakes or losses that should occur. Likewise, if all goes well, you can end up saving a lot more money than you would have if merely depositing into a savings account.
What Are High Risk Investments?
High risk investments include anything that puts your money at risk—meaning you may incur a loss if all does not go well. Some examples include stocks and mutual funds. These are very risky, but if you know what you’re doing—or have hired someone with a lot of experience in this regard—you may be successful in turning your pennies into dollars.
As Your Child Grows, Switch To Low Risk
The closer your child gets to college age, you will want to move any high risk investments you may have into low risk ones. This is because high risk investments are often more difficult to “cash out” quickly without a penalty of some sort. Low risk investments are much more “fluid” and can be applied to tuition costs without much hassle. This is where you want the majority of your money to be by the time your child is nearing the end of their high school career and all of it to be when they’re applying to colleges.
What Are Low Risk Investments?
Low risk investments typically do not involve a risk on the principal of your investment. This means that you will at the very least end up with the same amount of money that you deposited. High risk investments pose a risk of losing some of your principal as well. Examples of low risk investments include prepaid tuition plans, bonds and FDIC savings accounts.
When And Where Should I Invest?
Answering this question is two fold. If you are willing to take larger risks, then investing in a high risk mutual fund or something of that sort should occur when your child is a baby or no older than five years of age. Your best bet is always to start investing early, regardless of the risk level. However, be mindful to always switch over your high risk investments to low risk ones well before your child enters college. In fact, only about 25% of your investments should be high risk once your child enters middle school. That way you can ensure there’s enough money available when your child starts college.
Selecting places to invest can be difficult if you don’t know what you’re doing, so it may be best to enlist the advice of an expert to get the ball rolling. Just always remember that what you save now needs to account for both inflation and the ever rising tuition rates. So long as you keep these factors in mind, you should be okay.
Investing is not easy, but it is well worth the effort if done right. There’s nothing more satisfying than walking away with more money than you initially put into savings. Imagine how much easier paying those tuition bills and other college expenses will be because of it?.