What Can I Do to Prepare to Pay for College?
Develop Your College Savings Plan
There's no one size fits all approach to college funding - you may be saving for several children, each with a different time horizon and educational aspiration. You need to develop a plan that works for you and your family.
Start Early - You'll you benefit from the power of compounding by earning returns on both your principal and reinvested income each year. If you're late to the game, it's okay. Starting early on is a good idea, but the point is to invest as soon as you can. The longer you wait to begin, the more you may need to invest to reach your goal.
Take a look at the example below. It shows how an initial single lump sum investment of $10,000 made when a child is born can grow to almost $40,000 at an 8% annual return by the time the child starts college.
The longer you wait to begin, the more you may need to invest to reach your goal.
Invest Regularly - A systematic plan of regular investments can, over time, really help build up your investment. You'll benefit a lower average cost per share (your purchases over time average out and lower your average cost per share) and the compounding effect of reinvested earnings.
Take a look at the example below. It shows the results of investing $100 a month starting when a child is born. The total invested over 18 years is $21,600 while the account grows to $48,329, assuming an 8% rate of return.
Diversify – With time and budget constraints, conservative saving may not be the most efficient. While stock and bond prices fluctuate in the near term, over time they have historically provided higher returns. Diversifying your investments among stocks, bonds and money market instruments can help you balance the risk and rewards of investing to suit your needs and goals. Asset allocation does not guarantee a profit or protect against loss.
Adjust Over Time – It's wise to tailor your investment plan to your family's changing needs and time horizon:
A financial advisor can help you create a plan that can work toward your goals. If you don't already have one, call us at 1-800-896-2645 for assistance.
An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation, or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market fund
Share price, yield and investment return fluctuate and an investor's shares may be worth more or less than the original cost upon redemption.
Investors should consider the investment objectives, risks, charges, and expenses of a fund carefully before investing. Download a prospectus that contains this and other information about a fund, and read it carefully before investing.