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Dos and donts: apprentice loans - loans


Parents be supposed to begin cutback money early for their children's institution culture for the reason that of the high costs and expectations that parents will pay part of the costs linked with the education. More than a few stock mutual funds are recommended.

Here's a ask that's as affable to be concerned about as a group hazing: How will you come up with the money to send your child to the campus of his or her choice? If you're like most Americans, your key is almost certainly loans--unless you start discount and investing more effectively. According to a hot MONEY poll, fully 87% of U. S. moms and dads assume their kids to go to college. But just about half of them, 47%, have not yet stashed away any money to cover the costs, which at present run an be an average of of $7,118 a year for tuition, fees, room and board at four-year civic schools and $18,184 at confidential universities, according to the Institution Board. And at the existing development rate of 5% a year, the cost of a four-year amount is projected to rise to $73,834 (public) and $188,620 (private) for a child born in 1997.

The analysis of 1,118 adults with children, conducted by ICR of Media, Pa. (margin of error: plus or minus 2. 9 percentage points), also provides a wake-up call for parents who say they are economy for their kids' academy costs. More than half stash their savings in unwise seminary investments, such as certificates of deposit. And just about a area of parents who are cutback are putting away a base $500 or less a year for each child.

Yes, your child can decrease your burden by running part time and by pursuing scholarships (see "Strategies That Can Cut Costs 30% or More" on page 126). But pecuniary experts say that the be in the region of blood relation must be equipped to pick up at least a third of total school costs.

If your child is in high drill and you haven't saved enough, check out our assistance on page 138 on borrowing for college. If your offspring are younger, however, the more rapidly you start to save, the better. For example, Richard and Deborah Winters of Milford, Conn. (pictured at left) began putting away col- lege money for son Kyle, 4, when he was six months old and for daughter Kar- lie, 2, when she was 1 1/2. Oakland registered nurse Iris Winn (pictured on page 139), a late starter, now stashes a gigantic $12,000 of her $70,000 twelve-monthly salary into school savings for her daughter Monique, 15.

But each time you start your savings regimen, you can augment your dollars by preparation and investing wisely. Later in this article, we bring to mind investment strategies for families with college-bound children. But ahead of you get to the certain advice, study these basic rules--the dos and don'ts of smart invest- ing for college:

--Do set ancestors goals. You must first be included out how much you need to carve out of today's expenditure for tomorrow's institution costs. To do this, you can use the savings calculators incorporated in common software such as Quicken, online armed forces like MONEY's seminary savings calculator (http://www. pathfinder . com/cgi-bin/Money/collsave. cgi) or free worksheets obtainable by brokerages and mutual fund companies, as well as Charles Schwab (800-435-4000) and Conformity (800-544-8888).

"Parents and kids ought to work as one to make sure they are alert on the same goal," says James Pearman of Fee-Only Fiscal Arrangement in Roanoke. "That way, you can face tough questions early on--for example, what to do if you are forecast to pay for 75% of coaching at an in-state civic instruct and your child wants to go to Harvard. "

--Do start economy early. Every year, as your investment principal grows, so do the dividend on your money. The message is simple: Don't put off investing.

--Do invest in stock mutual funds. According to the MONEY poll, parents economy for school have plowed 53% of their edification nest egg into low-risk--but low-interest--CDs and savings the books at banks and money-market mutual funds. The parents have invested only 23% of their money in stocks and stock funds. That's a critical mistake. While stocks carry some risk, they are your best bet for creation your money grow over five years or more. Since 1926, stocks have gained an arithmetic mean of about 11% a year, more than any other type of investment. Moreover, you can't count on bank balance and CD yields to keep pace with education hikes.

The safest, easiest and most restricted way to invest in equities is because of mutual funds. Not only do funds offer diversification but many will also waive first investment minimums if you make consequential deposits every month, typically as a small amount as $50 or $100. To avoid having any money siphoned off in commissions, stick with no-load funds like the ones we name in this article.

--Don't neglect economy for retirement. Arrangement for your child's learning ought to not departure you from construction conventional charity to your own 401(k), IRA or akin tax-deferred retirement account. You austerely don't want to miss the attempt to make the most of the tax-deferred gains accessible in such accounts. And retirement assets won't change your eligibility for national need-based academy economic aid.

--Don't invest in esoterica. From time to time, you may bump into sales pitches hopeful you to save for academy with nest egg such as annuities or cash-value life insurance. Both defer taxes on your investment gain but at the price of costly withdrawal rules. Many delayed annuities, for example, allege penalties of 7% or more if you need to take out money inside seven years of creation your investment. Tempted to buy zero-coupon Capital bonds, which freshly yielded 6. 6%? They can be fine investments--as long as you buy ones that will be redeemed when you need the money. If you have to sell a zero already maturity, you may lose principal if appeal rates have risen since you bought it. Prepaid-tuition plans, a new way of construction up seminary savings, can make sense if you're too jumpy to invest in stocks (see the box opposite).

--Don't put your money in your child's name if you hope to get monetary aid. Institution fiscal aid formulas in the main command a child to be a factor 35% of his or her assets concerning costs, but parents typically need to put up no more than 5. 6% of their savings.

With those basic dos and don'ts at the heart of your investment strategy, here are moves to make, based on your kid's age:

If your child is 13 or younger, you have adequate time to become rough any short-term stock bazaar squalls. Investment strategists for that reason advocate that you put 75% to 100% of your school savings in stock funds, depending on how much risk you can tolerate, and the rest in such fixed-income funds as bonds and bond mutual funds. You might start your savings code with a fund that holds shares of large and mid-size companies with dependable income gains and beefy development potential. Economic schemer Michael Zabalaoui at Reserve Management in Metairie, La. suggests Oakmark (up an be in the region of of 25. 13% annually for the three years that ended June 30; 800-625-6275). Pearman recommends Forefront Index Value (up 25. 46%; 800-851-4999). Both funds seek out undervalued equities and bear below-average risk, according to fund ranker Morningstar.

After you have accumulated $5,000 in your starter portfolio, you can move as much as a third of your property into small-company and worldwide stock funds, which offer the hope of juicier profits but also carry bigger risk. For funds specializing in shares of small companies, Zabalaoui positive discrimination Berger Small Cap Value (up 22. 6%; 800-333-1001). Among worldwide funds, he likes Janus Worldwide (up 24. 7%; 800-525-8983).

If your child is 14 or older, bring down risk to safeguard savings. Zabalaoui recommends being paid at least 50% of your money out of stocks by the end of your child's freshman year and emotive all of your institution savings for that child into short-term bonds, fixed earnings and cash by the end of her sophomore year. To keep risk low, most investment experts prescribe short- and inter- mediate-term bond funds, which will add more pop to your total arrival than CDs or U. S. Savings Bonds. Pearman likes Front Bond Index Intermediate-Term (up 8. 62%; 800-851-4999). The fund shuns high-risk bonds and has an enormously low twelve-monthly cost ratio of about 0. 2% of principal, enabling more savings to go for your child's academy costs.

Marc Sylvester is anticipate based in Edison, NJ. He holds expertise in the banking and finance sector and is a conultant to important commerce houses.

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