Finance Management

Your Investment Plan Can Make College Affordable

No matter how much college costs continue to go up, and whether your sights are set on a public or private college, you want to be able to pay for your child's education.

Carl Sanger
Serenity Wealth Management LLC
New York, N.Y.

It's a whole new ball game. Right up there with wanting only the best for our children comes the thought of providing a college education. The high cost of college, however, has always weighed heavily on our minds. Unlike retirement, which could come at any age, or even be postponed, we know we have just a certain amount of years to sock away a huge sum of money if we are going to let "junior" have that sheepskin.

Maybe you've considered all the costs and started saving. However, a new wrinkle just came into play. College costs have always risen faster than the rate of inflation, making the need for growth of your savings imperative. However, the College Board announced recently that, primarily due to the slowing economy, fees at four-year public colleges increased an average of 5.8 percent and fees at two-year schools rose an average of 7.9 percent — and that was in just one year! Private colleges had similar pops in tuition. Are you worried about keeping up? You should be.

A Wealth-Manager can help
Your "Wealth-Manager" should be able to analyze your financial picture to help determine ways you could successfully invest for college. He or she can "crunch the numbers" and calculate a reasonable approximation of expected college costs with these yearly increases. Additionally, an effective Wealth-Manager can calculate the amount you must save to meet these costs, and where to place your savings to achieve your goals, taking any kind of markets we may experience between now and then into account.

Helpful tips
Use these tips to ensure that your Wealth-Manager is setting up and maintaining your college-fund properly:

Be sure to contribute to all appropriate, tax-sheltered, college-savings vehicles before you contribute to accounts that are not tax-sheltered. Take advantage of education-based accounts such as Education (Coverdell) IRA's, UGMA accounts, etc. The amount that builds up tax-free or tax-deferred will dwarf the amount in a taxable account. Try to contribute the highest amount each type of account allows for your tax-bracket.

Make sure the investment capital is properly diversified among stocks, bonds and cash. You cannot take chances by being too aggressive or too conservative at the wrong stages of your savings-plan. You only have a limited time to accomplish your goals and your investments must be diversified and allocated properly each step of the way. Your college-fund must be set up and adjusted regularly to provide maximum growth at the earlier stages of savings and gradually changed to more income-producing growth and preservation at the latter stages of the plan.

Don't fall for the "529" myth! Many "advisors" will want to place your savings in a "529" plan and will espouse all of the tax-benefits that go with the plan. These plans are highly profitable for the "advisor" to sell, but are age-based, cookie-cutter plans that let you loosely pick an allocation between stocks and bonds.

Logic seems to fly out the window when it comes to these plans. The main problem is that you have no control over where the stock-portion of your investment actually goes or where the bond-portion actually goes. If the manager of the "529" plan invests too heavily in aggressive-stock funds, you are powerless to stop your account from dropping enormously should the markets have a few down years.

Another thing that just does not make sense: If all the money is invested the same way, based on the age of the child, and one investor needs more growth than another because he is contributing less to the plan monthly, how can both achieve their goals? Just having the same age child will not magically make your account grow to the same amount as another person's if you are contributing less.

Your college-plan must take into account how you will achieve your goals, given your financial situation. Your college-plan must be tailored to you and to meet your goals because your situation is different than anyone else's. You also need personalized attention because your financial situation may change and your college-plan may need to change accordingly. The tax-savings you had along the way won't matter much if it comes college-time and you can't pay the bill.

Make sure your Wealth-Manager is fee-only and receives no commissions. Commissions are garnered by "sales representatives" who place you into "529" plans or expensive load-funds. These expenses will kill your portfolio over the long-term. Your Wealth-Manager should be fee-based and thus not have his or her responsibilities end when your account is opened and the commission is paid. A fee-based Wealth-Manager is paid to constantly monitor your account, ensuring it is on-track. If fee-based, he or she will be keeping all your fees as low as possible to help ensure your portfolio's growth is maximized. There will also be no conflicts of interest when placing your capital into investments.

Stop worrying — your children can become anything they want to be. Working with your Wealth-Manager, you should be able to set up a concrete plan that will have you not worried about how to pay the college bills but smiling proudly as your child goes off for higher-learning. Your college-savings plan, if done right, can be set up to reasonably withstand all types of markets and to maximize growth while reducing risk of loss.

Of course, the earlier you start your plan, the easier it is to attain your goal-amount. Besides the lifelong social-bonds that are formed at college, the College Board estimates that, over the course of their careers, college graduates earn about $1 million more than high school graduates. Your Wealth-Manager can help ensure you can provide this gift for your family. How's that for a return on investment?