Isn't investing my kids' college savings in the stock market too risky? Ask a Fool

Mony
4
0

Question: I’ve heard that any money I need for a specific expense doesn’t belong in the stock market. By that logic, isn’t it a bad idea to invest the money I’ve saved for my kids’ college education?

Answer: You aren’t alone in your reluctance to invest college savings. According to a report by Sallie Mae, 30 percent of parents choose to stash their college savings in a savings or checking account earning little or no interest.

You’re absolutely correct that you shouldn’t invest money you need for a specific expense. However, that common recommendation applies mainly to near-term expenses.

My suggestion is to approach college saving in a similar way to saving for your own retirement. While your child is more than a decade away from college, you have time to ride out the market’s ups and downs and therefore can take on a bit more risk.

For example, my daughter is 15 years away from college, so her college savings account is invested in a relatively aggressive portfolio. While it’s certainly possible, it’s highly unlikely (based on historical performance) for stocks to produce negative returns over a 15-year period.

On the other hand, just as you should do as retirement gets closer, as your child gets closer to college age, their portfolio should gradually shift to a more conservative fixed-income or even cash-based portfolio. If you save for college in a 529 savings plan, there typically are investment options available that will do this gradual reallocation for you.

More: What can I do if IRA maximum contribution limit isn’t enough for retirement? Ask a Fool

More: Are convertible bonds smart fixed-income investments? Ask a Fool

More: What is a blue-chip stock, and why are they favored? Ask A Fool

The Motley Fool has a disclosure policy.

The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.

 

Offer from the Motley Fool: Offer from The Motley Fool: The 10 best stocks to buy now
Motley Fool co-founders Tom and David Gardner have spent more than a decade beating the market. In fact, the newsletter they run, Motley Fool Stock Advisor, has tripled the SP 500!*

Tom and David just revealed their 10 top stock picks for investors to buy right now.

 

Click here to get access to the full list!

*Stock Advisor returns as of Aug. 6, 2018.

Facebook Comments

Comments are closed.