Investing for Your Children’s Future

There are a million ways to the truth in money management, and no such things as the “Holy Grail.”  And if you’re raising children and facing serious tuition prospects in the near future, here are a few guidelines to follow.

Of course, college education today can cost as much as $40,000 annually.  And that’s before you buy books, much less the computer-related fees that are standard in higher learning today.  If you take the route into private education earlier, at the high school level, the costs are still mind-boggling.  Boarding schools can charge more than $24,000 a year.  And because many parents are in a dual income (professional) household, preschool and private grammar schools can set you back $15,000 a year or more. 

I believe in a three-part practical approach to investing for a child’s education.  Start with U.S. Treasury zero coupon bonds.  These bonds pay no interest in cash.  You can buy them at a discount, say, 30 cents on the dollar.  They mature at face value in a specified time frame.  This way you can target maturities to match your requirements like, maturities to coincide with freshman year in college, and so on. 

Currently, money doubles in these instruments in 11 years so that $5,000 automatically becomes $10,000 in October, 2020.  This works out to be about 5.9% annually.  Not so hot, you say?  Perhaps, but it makes sure that part of the tuition is taken care of automatically, and you don’t have to suffer through the sometimes (if not more often) negative bias of the stock market. 

The second part of investing for children’s education involves periodic purchases of a good growth mutual fund.  Such can be found through Rydex and CAM Trading.  And money should probably be systematically added to the fund so that you can take advantage of dollar cost averaging (putting similar amounts in monthly or annually, often when prices are lower and more shares can be bought).  Any financial website can provide you with historical returns of all the mutual funds they carry.  The earlier in a child’s life you start this program, the better it will work. 

The last part is the most aggressive part, and like the growth-oriented mutual fund, it requires patience and discipline.  It involves hiring a professional investment management firm where your money can take advantage of both the ups and downs of a cyclical market. 

Put your plan into action.  The earlier, the better.  Invest at the same time each year, like a child’s birthday, or during the holidays.  It makes it simpler to remember and becomes automatic.  It also helps you stay discipline and patient.