If your baby has already turned three, and you still have not created a college tuition strategy, you are not alone, but you are losing out. While many parents neglect the first few years of their child’s financial life, early college savers enjoy a longer period of compounding growth. When you consider that college tuition rises faster than the rate of inflation, and the average long-term rate of return on the SP 500 is approximately 10%, it makes good financial sense to be saving for college in year one.
Early savers could see big gains
As with any long-term financial goal, starting early can increase the amount an investor can ultimately save. A longer savings horizon means more time to put money aside, a longer period for compounding, and more flexibility in your choice of asset allocation models.
According to Stephen Kovach, Chief Investment Officer at Global Advisers, the sooner you start investing, “the sooner you create momentum. This is true in all types of investing, including retirement and college.”
Kovach says, “the nice thing about investing for a long-term goal is you don’t initially need to be too specific about the final recipient of your funds.” In other words, you don’t have to select which college your child will attend now. All you need to do is open an account, set it on auto-invest, and let your wealth management team and the market do the rest.
Unfortunately, even this level of involvement is sometimes very difficult for parents, especially as they juggle work and family life with everything else. But, for those who take a few moments to set up a plan, even investing a few hundred dollars a month can pay off big later, provided that you catch up later before it’s too late.
Keep it manageable
Kovach insists on keeping the investment plan simple, targeted, and consistent – “My advice to parents is basically the same advice I received from my thesis adviser in college. After reading my thesis draft, she encouraged me to narrow my scope in order to keep it manageable.” She was correct.
Contact your wealth management team at 1-844-GALLEON for help setting up a college savings strategy that makes sense for you.