College Investment Funds
The rising price of a college education is on the rise and its making harder for students to afford a quality education. People have a significantly lower amount of opportunities if they don’t have a college degree. The world today requires higher education if you want to become successful. In order to meet the rising demands of the cost of college, investors are setting up college investment funds for their children. College investment funds should be started early. It’s never too soon to start a college investment fund and parents who are investors have a wide variety of options to choose from.
Parents are advised to set up a college investment fund the day their baby is born. College investment funds pay a decent amount of interest that investors are attracted to. The closer the time comes for their son or daughter to pay for college, the less they have to invest. The interest earned over time builds up significantly during the life of the fund. Before investors make a decision on which college investment fund is right for them, they should do some research and find out what opportunities are made available to them. Investors are encouraged to begin with an aggressive strategy.
The best advice for new investors is to start out aggressively in the beginning of the college investment. Later, they can change this strategy to a conservative one the closer they get to send their kids off to college. In other words, early on during the college investment plan, investors should focus on investments that have higher risks. Higher risk investments also produce a higher return. When the time is getting closer for college, fewer risky investments should be invested in order to ensure the fund’s stability. Fewer risky investments can be found easily through a college savings account.
A rule of thumb that investors go by when planning for college, is investing in college funds that pay around double what the inflation rate is. Tuition fees go up about twice the amount that inflation will. A college investment fund that pays around 7% to 8% will cover the amount that tuition will raise during the college fund. Earlier in the college fund, if the markets fall dramatically, there isn’t a large amount of investments being lost. However, over the years, the college fund accumulates a significant amount of income that can be lost if the markets fall enough to affect it.
The higher amount of income accumulated within the college fund, the higher the element of risk is involved. Investors will spend most of their risk during the beginning years of the college investment. Around 75% of the investment should be concentrated on higher yield investments. The remaining 25% of the investment should take place with safer investments. After the child has reached 5 years old, the investment strategy should start to change. As the years go by, the majority of the investment should be focused on safer investments. In other words, by the time the child as reached age 16, 75% of the income invested should be placed with safe investments while only the remaining 25% should be placed in higher risk investments.
Investors should do their research and come up with a well thought out plan that will ensure the cost of college is completely covered. Not all investors think alike and there are many different ways to planning a successful college fund. Making adjustments for inflation, and choosing college funds that pay enough interest is a start in the right direction. Investors should be flexible with their college investment funds in order to meet the changes that economies will go through during the years to come.