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The 3-Step Plan to Get Your Kids Through College

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When times are tough, you have to prioritize your financial obligations. Given how hard it can be just making ends meet, trying to figure out how to save for long-term goals like retirement or helping your kids finance their college education may seem completely out of reach.

Yet with the cost of college on the rise and the importance of higher education to career opportunities, many parents want to do whatever they can to support their children and help keep their student-debt burdens down. The big question is this: How can you make every dollar you set aside count?

College saving 101
In this month's brand-new issue of the Fool's Rule Your Retirement newsletter, Foolish retirement expert and financial planner Robert Brokamp attacks the question of saving for college. With a simple approach, he covers not just how to save but also how much and what types of accounts you should use to reach your goals.

I'm not going to go into all the details here -- that's something that Robert does quite well, and I'd strongly urge you to take a look at the article and see for yourself what he has to say. Instead, I'd like to focus on a slightly different question: the types of investments you should choose for college savings.

In some ways, saving for college is like planning for any long-term goal. When your child is born, you know you have 18 years or so to save up whatever you're going to put aside for college before you need to spend it. Unlike other goals like retirement, though, college is nice because you can usually count on having to cover four years of tuition before calling it a day.

That leaves one big unknown variable: how much tuition will cost you. With prices on the rise, it's hard to predict what they'll be by the time your child is in school. Moreover, scholarships can save you a ton of money if your child is fortunate enough to receive one.

The flexible approach
That's why I recommend a three-step plan that allows for the give-and-take of changing circumstances rather than locking you into a rigid framework:

  • If you have 10 years or more before you're going to need your college money, sticking almost entirely with stocks gives you the best growth prospects, especially as you're starting to ramp up your savings. You can even afford to make some aggressive investment plays. For instance, MAKO Surgical (Nasdaq: MAKO  ) has lost a huge amount of ground lately on fears that its growth is slowing. But if it can bounce back, it has huge upside potential -- just the sort of thing that could help make ends meet for your college savings. Similarly, 3D Systems (NYSE: DDD  ) is at the cutting edge of a new technology that makes it easier to produce valuable goods. Even if you're stuck with set investment choices, you can often find aggressive-growth options that fit with this mentality.
  • Once you get into the five-to-10-year range, stocks still make sense, but consider being a bit less aggressive with your investing. If you're scared of risk, sticking with low-volatility defensive stocks can help you sleep better. Individual stocks that meet that test include Procter & Gamble (NYSE: PG  ) and Coca-Cola (NYSE: KO  ) , with stable businesses and nice dividend yields to boot. If you don't have access to individual stocks, then Vanguard High Dividend Yield ETF (NYSE: VYM  ) is just one of many ETFs and mutual funds that focus on stocks that provide high levels of dividend income.
  • As your child approaches college, you'll want to cut back on your stock exposure dramatically. Unlike retirement, where you need to plan for your money to last 20 to 30 years or longer, you'll use your college savings in four years or less. That leaves you far less time to ride out a badly timed downturn, so start trimming risk early, with five or so years to go.

Learn more
Believe it or not, the investments you make aren't necessarily as important as where and how you make them. That's why the advice that Robert provides in the latest Rule Your Retirement issue is so important. And with the service offering a 30-day free trial subscription for new readers, there's no reason not to take a look at what Robert has to say. His advice could save you thousands of dollars -- money that could make a huge difference to your child's education.

College saving is a tough burden, but it's not an insurmountable one. Let Rule Your Retirement show you the way to successful investing.

Want to know more about MAKO Surgical's growth prospects? Read our premium report to get more details on MAKO's story. Click here to access it now. 

Fool contributor Dan Caplinger appreciates his parents' efforts in helping him with his college expenses. You can follow him on Twitter @DanCaplinger. The Motley Fool owns shares of MAKO Surgical and Coca-Cola. Motley Fool newsletter services have recommended buying shares of Coca-Cola, MAKO Surgical, Procter & Gamble, and 3D Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy gives you an education.


Read/Post Comments (4) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 08, 2012, at 3:45 PM, xetn wrote:

    First, everyone's finances are limited and are prioritized based on need.

    Why do you assume that everyone needs to attend college? Because some make more that not college grads? At what cost?

    Many non-college grads make more the many college grads, especially the ones that are serving coffee at Starbucks.

    If college IS need, why not Clep out of as many courses as you can and only pay for the courses you really need? You can save a fortune, especially since college has gotten so expensive.

  • Report this Comment On September 08, 2012, at 6:23 PM, hudsondusters wrote:

    I'd never recommend mako or 3d systems for college savings, no matter the timeline. Fine for personal investments in the speculative vein, but college savings should definitely follow the Buffett maxim of rule number 1 being don't lose money and rule number 2 is don't forget rule number 1. Pg and ok should be fine with that time horizon.

  • Report this Comment On September 08, 2012, at 6:23 PM, hudsondusters wrote:

    KO not OK. :)

  • Report this Comment On September 08, 2012, at 6:46 PM, SuntanIronMan wrote:

    I have a two step plan:

    Step 1: Commit to teaching your children a foreign language at a very early age.

    Step 2: Send your children to a far cheaper overseas university. Maybe a country with a favorable currency exchange rate.

    Or skip Step 1 and send your children to a cheaper university in an English-speaking country.

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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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