The Smart Way to Save for Your Kid's College
NEW YORK (TheStreet) -- All over the country, high school seniors are putting on caps and gowns and heading across the stage for that cherished diploma. Next comes college -- and a tricky set of payment issues for students and their parents.
Many families that have worked hard to save for college now have money in multiple pots -- cash in bank savings, 529 plans, a variety of stock and bond mutual funds. Which accounts should be tapped first, and which left for later?
It's hard to know for certain because you can't predict investment returns over the next few years and don't know how much college costs will rise. If stocks soar, it obviously would pay to leave money in stocks and stock mutual funds for as long as possible. But stocks are risky, and you could suffer a big loss if the funds for senior year were kept in stocks and there was a downturn at the last minute.
College savings are needed at a specific time and are spent over a short period, making it very hard to wait out a slump. Retirement savers, in contrast, have more flexibility. They can postpone retirement, trim their budget or work part time to recover from an investing setback.So it's probably best to hedge your bets with college money and not get too greedy hoping for whopping returns. Consider, for example, how the pros do it. Mutual fund firms that offer target-date funds for college savings put most the money into stocks when college is years and years off, then switch to short-term bonds and cash as freshman year approaches. On the other hand, the stock market has been doing well. If you can handle some risk, stocks holdings could grow nicely over the next two or three years.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV