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Learn... Plan... Save for College

Steps to Build Plan
  Step 1 - Define cost
  Step 2 - Estimate assistance
  Step 3 - Evaluate plans
  Step 4 - Define goals
  Step 5 - Assess your situation
  Step 6 - Develop the plan
  Step 7 - Act now
  Step 8 - Get help
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Build a college-friendly mutual fund portfolio

As a rule of thumb, "the longer away the goal, the more aggressive you should be - in a diversified context, of course." For most families saving for college, this means growth-oriented mutual funds when the child is younger, moving to income-oriented funds as they grow up, and finally arriving at cash or near-cash equivalents when the child attends high school.

The following model portfolios are broken down according to the child's age:

  • Newborn to age 5 (13 to 18 years to save) - 100% in aggressive growth. During this time, concentrate on funds that invest in high-growth stocks because you have time to ride out the markets' ups and downs, and you need to outpace inflation. The specific funds you choose will always depend on the level of risk you are comfortable enduring. This could be very aggressive, small companies or it could be very large, blue-chip companies. You might consider an allocation of 60% growth and 40% small-company funds
  • Ages 6 to 12 (6 to 12 years to save) - 60% in aggressive growth, and 40% in growth and income. As your child ages, you want to begin tempering your aggressiveness and risk with a more balanced portfolio. Since you have fewer years to invest, you want to protect your principal, but you don't want to sacrifice your growth potential either (you still have to conquer inflation)
  • Ages 13 to 18 (1 to 4 years to save) - 50% in growth and income (or equity income), and 50% in conservative cash equivalents. The issue at this point becomes complete preservation of capital - you can't let it ride that aggressively. When you have two years to go, consider 25% in growth and income, and the remaining 75% in a money-market fund that allows check writing.

When investing for maximum growth (aggressive growth), consider (in order of increasing risk) growth, small-company, and aggressive-growth mutual funds. Growth and income funds typically lessen risk by purchasing dividend-paying stocks. Conservative funds include money-market or short-term bond funds, or perhaps zero-coupon treasuries.

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