In the past, parents had to buy piggy banks and open basic savings accounts to put away money for their children’s future. Today, there are unique options specifically designed for college savings, such as the 529 plans. This has made it more profitable for parents to set aside funds for their child’s college education. The interest collected is compounded, which means you earn interest on top of the interest you already receive. The sooner you start investing in your child’s education, the better.
Most parents are wary of investing in college savings plans because of the volatile stock market. But there is a way you can do this wisely. The following tips can be used to help lower your risks, while still stacking funds for your kid’s college education.
Go with an Age-Based Plan
Not all 529 plans have options that are age-based. Most have a similar philosophy, which is to start off aggressively then become conservative later on. However, not all plans require an aggressive approach from the get go.
You’ll find various risk tracks associated with age-based investment options. Some are very aggressive, others are moderate and some are conservative. This gives you more freedom to select a plan that is comfortable for your investing style. Not everyone is cut out for higher risk options. This will also take weight off the shoulders of parents who are making decisions themselves, since the investments are professionally managed. The strategy here is to buy and hold.
Prepaid Options Are Viable
In some states, you can find 529 plans that are prepaid. This is when you put money upfront for either a portion or all of the college expenses. The great thing about these plans is that it locks in the costs. After paying the price of the plan, it becomes the primary goal of the account. This exhibits less risk and it’s best to take advantage while your children are still in diapers.
Consider Money Market Funds
With this option, you are investing in a variety of accounts, including CDs, short-term notes, commercial paper and U.S. Treasuries. This will give you diversified funds, which will yield better results than a regular savings account.
Go with a Bond Index Fund
Bonds have and continue to be a safe way for investors to invest. It allows you to select from a wide array of bond options that your 529 plan’s index. It gives you better security, while maintaining a chance for a reasonable return on investment. Normally, bonds take between two and five years to mature. It’s good to have a diversified bond fund, such as from government, corporate and international markets.
Try Long-Term CDs
Certificates of deposit are FDIC-insured, so you don’t have to worry about loss. These can be obtained from a variety of 529 plans. Investors can rest easy knowing their funds have a guaranteed return that the federal government backs.
If you’re planning to send your child to the University of Cincinnati, make sure he or she will have the proper funds. The 529 plans are an exceptional way to begin saving for your kid’s college education today.