College investments and endowment funds are important components of school tuition costs. When these funds perform well, institutions better control school tuition costs and designate significant portions of earnings to university-sponsored scholarships.
Since the recent recession, many endowment funds have declined. Most investments have yet to recover to pre-2006 levels. University investment problems require that your college savings plans become more conservative and rewarding.
Security Just as Important as Earnings
The combination of declining college investments and reduced scholarship money requires you to view college fund investment safety equal to anticipated earnings and tax considerations.
Here are some lower-risk ideas that allow you to have college savings plans that won’t induce “day trader” stress, but rather stability and security.
- Opt for conservatism with age-based plans. The Gerber Life College Plan offers guaranteed growth, flexibility, fixed monthly payments that never increase, and adult life insurance protection. Without stock market risk and the ability to use your account balance for any purpose without penalties, it certainly fits a safe college fund investment philosophy.
- Evaluate prepaid options. Some states offer 529 education plans that include a pre-purchased tuition option. Using this feature, you can lock future costs to current tuition levels. This option, if available in your state, combines minimal risk and tax-deferred and/or tax-free earnings.
- Consider short-term portfolios. These options tend to minimize risk in the last few years of the investment. Sometimes aggressive at the beginning (which is traditionally a good approach), this option can offer stability, while still retaining the ability for growth.
- Evaluate bond index funds. Always a safe, conservative college investment option, bonds can be a secure component of 529 education plans. While earnings seldom exceed 4 or 5 percent, you’ll enjoy a high degree of safety for your hard-earned investment.
- Money market funds may be a safe choice. These funds typically include CDs, bank commercial paper, and various U.S. Treasury obligations. Almost as secure as bank savings accounts—with lower earnings than some other riskier options—these funds should still out-perform financial institution accounts, while offering high-level safety.
- Consider longer-term CDs. With insurance from the FDIC (banks) or NCUA (credit unions), these options offer the ultimate safety for your college investments. You could opt for five- to 12-year CDs, offering guaranteed rates of return and additional guarantees of safeguarding your principal.
While you should never accept dangerous risk with college savings plans, the recent global economic downturn has increased the possibly of principal loss. By concentrating on safety first, then earnings, you will avoid having your college savings plan be impacted by market disasters as the worldwide economy continues its tedious recovery. Even if college costs ceased increasing—which no one is predicting—you’ll establish a formidable college fund investment account that is also safe and stable.