Here's Why I'm Investing My Kids' College Funds Rather Than Keeping the Money in Savings

When I saw that the average cost of private college last year was almost $40,000 for tuition and fees, I nearly fell out of my chair. Heck, $40,000 could be a down payment on a home in some parts of the country. Or, you know, it could pay for a single year of college.

Of course, private university isn't the only option. And my kids may have to resign themselves to a public education if they don't want to wrap up college saddled with debt of their own.

But even so, public college can cost upward of $10,000 a year in your home state, and roughly $23,000 a year if you go out of state. And these figures only apply to tuition and fees -- not room and board. That's yet another expense.

Because of this, I've been busting my tail to sock money away for my kids' college since basically the moment they were born. But the money for their education isn't sitting in the bank. Rather, I have a small chunk of it in a 529 plan and the majority in a brokerage account. Here's why.

I need that money to grow

These days, you might score a 4% interest rate or more in your savings account. But historically, savings account rates have been a lot lower. And I know that if I keep my kids' college funds in a regular old savings account, I'm not going to end up with enough money to pay for their education in full.

The stock market, on the other hand, has rewarded investors with an average annual 10% return over the past 50 years, as measured by the S&P 500. That's the sort of return that's more likely to get me to my goal.

Now you may be thinking, "But aren't stocks risky?" And yes, they are. There's no guarantee that you won't lose money in the stock market.

However, when we look at the long-term data, we see that over time, the market tends to gain value. So as long as you're investing over a good number of years (ideally, seven or more), your chances of making money rather than losing it are stronger.

As mentioned, I began saving for my kids' college when they were newborns. It was hard, but necessary in my book.

But because of that, I effectively have an 18-year window per kid (assuming I don't have a Doogie Howser situation on my hands, which doesn't seem to be the case). And in my mind, that gives me enough time to ride out stock market downturns.

Don't sell your college savings short

Keeping your kids' college fund in the bank might seem like the safer choice. But while your principal may be protected, in doing so, you run a different risk -- falling short of the amount of money you need to cover your children's education costs.

Let's say you can get a 4% return on your savings over 18 years, which isn't so likely, but we'll go with it anyway. If you sock away $300 a month over 18 years, you'll end up with about $92,000.

But if you manage to score a 10% return in your brokerage account during that time, you'll end up with $164,000. Based on today's numbers, that could be enough to cover tuition and fees at a private college for four years (though the idea of parting with that much money pains me to a large degree).

College has gotten almost ridiculously expensive, and the cost of attendance could grow even more. Because of that, I can't allow myself to settle for a modest return on my kids' college funds. I need strong returns. And investing that money is what's most likely to make that happen.