All Parents Should Plan Ahead for College Costs
By Doug Lockwood
(NUI) - College is probably one of the most daunting savings goals that anyone faces. Deciding how to invest to reach that goal can make it seem even more overwhelming.
It's often tempting to invest in the "hot sector" of the moment like many investors did during the technology boom of the late 1990s.
As many of those investors learned, however, the hot sector of the moment can quickly turn into a disaster. They likely could have saved themselves a great deal of pain had they remembered one of the most important keys to long-term investing success for any goal: diversification.
The purpose of diversification is to spread out risk so that the performance of any one investment won't have a relatively disproportionate impact on a portfolio's overall performance.
If you look at growth stocks, value stocks, bonds, large companies or small companies, all have had periods of marked underperformance and dramatic outperformance over the past five years. Those people who invested in just one of these sectors would have been in for a wild ride. If they had combined them all, however, the ride would have been much smoother.
Luckily for college savers, some state-sponsored college savings plans, often called "529 plans," offer easy access to a diversified portfolio. Professional managers select securities from a wide array of investment sectors and tailor these portfolios to match a college saver's risk tolerance and time frame.
American Century's Learning Quest 529 Education Savings Program, for example, offers three investment tracks - conservative, moderate and aggressive. Within each investment track are time-based asset allocation portfolios.
Learning Quest's 19 diversified portfolios adjust for the time remaining until college. For those with young children, the portfolios are more aggressive, offering the potential for higher returns. As the student gets closer to needing the money for college, each portfolio automatically adjusts to a more conservative mix.
For college savers, Learning Quest offers a convenient way to achieve diversification in addition to the great tax benefits offered by all 529 programs.
To learn more about the Learning Quest 529 Education Savings Program, call 1-800-579-2203.
About the Author:
Doug Lockwood is a certified financial planner.
Article courtesy of www.newsusa.com.
