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We want our kids to have a better life than ours. But even though rising college costs aren't expected to ease up, don't let a dire situation paralyze prudent planning. The best solution is to get started right away and let the power of compounding growth work for you.
Later in this article I'll discuss five stocks to help you build a solid foundation for your child's college savings, but let's first address why waiting to get started is costing you more than you think.
It all goes by so fast
According to the College Board, a four-year degree from a public, in-state university costs $21,447 today. For parents of a newborn, this requires setting aside roughly $460 every month for 18 years in an investment earning 8% annually. But by waiting until your bundle of joy enters kindergarten to start saving, you'll need to fork over nearly $640 per month.
Let's take a look at five companies you won't lose sleep over, each characterized by incredible brand strength, simple business models, blockbuster products, and stable histories.
Walt Disney (NYSE: DIS )
Mickey Mouse's massive empire includes theme parks, television, movies, and an amazing brand. Disney's return on assets and return on investment absolutely dwarf the competition standing at twice the industry average. Earnings growth is expected to double over the next five years versus the prior five. Expected growth will probably come, in part, from the continued success of its subsidiary Marvel Studios' clever film franchises.
Clorox (NYSE: CLX )
Cleaning up after your little ones is no small feat, and nearly 100-year-old Clorox eases the dirty work. The company reported 4% top-line sales growth in the most recent quarter, attributed in part to successfully passing higher input costs to consumers. And in good times and bad, we still need to clean our homes. To tidy things up further, the company pays an impressive 3.6% dividend yield.
McDonald's (NYSE: MCD )
McDonald's has secured a top 10 spot on Interbrand's "Best Global Brand" list every year since 2001. The company enjoys exceptional margins and continues to increase sales growth despite a challenging economic climate. Watch for McDonald's to benefit from its recently renewed emphasis on brand imaging, premium products, healthier menu options, and remodeled restaurants. McDonald's is expected to grow earnings 9% annually over the next five years. Its 3.2% dividend is a tasty treat for shareholders.
PetSmart (Nasdaq: PETM )
Before your child was a twinkle in your eye, there's a good chance Spot melted your heart. You're not the only one: Pet industry sales are expected to top $74 billion by 2015. PetSmart's net sales increased 7.7% annually for the past four years, and same-store sales were up 5.4% in 2011. Company earnings are expected to grow at a 16% annual clip over the next five years; that news is like a scratch behind shareholders' ears.
Whole Foods Market (Nasdaq: WFM )
Whole Foods co-founder and current co-CEO John Mackey identified the organic food trend more than three decades ago, when his company became America's first national Certified Organic grocer. Now a $17 billion retailer with a presence in three countries, Whole Foods operates 300 stores in the United States and plans to open three times that number domestically. A huge helping of international expansion opportunities packs this retailer's plate.
Take a look at how these stocks fared in the past 18 years -- the blink-of-an-eye period of time your newborn could have grown to a dorm dweller.
Total Return Over 18 Years
|Whole Foods Market||2,663%|
Source: The Motley Fool. Percentage change represents period of time from Aug. 13, 1994, to Aug. 13, 2012, including dividend reinvestment.
Consider these five won't-lose-sleep-over-them companies for your child's college savings, either as a portfolio of five stocks or just one or two of them. Of course, these companies may not grow at the same clip in the coming 18 years, but even if they perform half as well as they did, that'd still give little Tommy a huge head start at Wherever U.
If you'd like another stock idea that's as brilliant as your kid, our analysts have done the homework for you. Read about the one stock they've given high marks to and awarded "The Motley Fool's Top Stock for 2012." This report won't be available forever, so get your free copy today.