| Sargent & Lundy Savings Investment Plan |
| SAVING FOR COLLEGE: DOS AND DON'TS |
| The following excerpts are from an article in the September
issue of "Money" magazine. The opinions of the author, Peter
Keating, may or may not reflect those of the SIP Committee.
Here's a question that's as pleasant to consider as a fraternity hazing: How will you come up with the money to send your child to the campus of her or her choice? If you're like most Americans, your answer is probably loans - unless you start saving and investing more effectively. According to a recent "Money" poll, fully 87% of U.S. moms and dads expect their kids to go to college. But nearly half of them, 47%, have not yet stashed away any money to cover the costs, which currently run an average of $7,118 a year for tuition, fees, room and board at four-year public schools and $18,184 at private universities, according to the College Board. But whenever you start your savings regimen, you can maximize your dollars by planning and investment wisely. Study these basic rules - the dos and don'ts of smart investing for college: Do set family goals. You must first figure out how much you need to carve out of today's spending for tomorrow's college costs. "Parents and children should work together to make sure they are focused on the same goal," says James Pearman of Fee-Only Financial Planning in Roanoke. "That way, you can face tough questions early on - for example, what to do if you are planning to pay for 75% of tuition at an in-state public school and your child wants to go to Harvard." Do start saving early. Every year, as your investment principal grows, so do the earnings on your money. The lesson is simple: Don't put off investing. Do invest in stock mutual funds. According to the "Money" poll, parents saving for college have plowed 53% of their education investments into low-risk - but low-interest - CDs and savings accounts at banks and money-market mutual funds. The parents have invested only 23% of their money in stocks and stock funds. That's a serious mistake. While stocks carry some risk, they are your best bet for making your money grow over five years or more. Since 1926, stocks have gained an average of about 11% a year, more than any other type of investment. Moreover, you can't count on bank account and CD yields to keep pace with tuition hikes. The safest, easiest and most disciplined way to invest in equities is through mutual funds. Not only do funds offer diversification buy many will also waive initial investment minimum if you make automatic deposits every month, typically as little as $50 or $100. Don't neglect saving for retirement. Planning for your child's education should not sidetrack you from making regular contributions to your own 401(k), IRA or similar tax-deferred retirement account. You simply don't want to miss the chance to make the most of the tax-deferred gains available in such accounts. And retirement assets won't affect your eligibility for federal need-based college financial aid. Don't invest in esoterica. From time to time, you may encounter sales pitches encouraging you to save for college with investments such as annuities or cash-value life insurance. Both defer taxes on your investment earnings but at the price of costly withdrawal rules. Many deferred annuities, for example, charge penalties of 7% or more if you need to take out money within seven years of making your investment. Don't put your money in your child's name if you hope to get financial aid. College financial aid formulas generally require a child to contribute 35% of his or her assets toward costs, but parents typically need to put up more than 5.6% of their savings. |
This page updated on 10/27/97