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.
Start early, spend less, enjoy more
According to the College Board, a four-year degree from a public, in-state university costs $21,447 per year today. For parents of a newborn, this requires setting aside roughly $460 monthly for 18 years in an investment making 8% annually (assuming college costs rise by 5% a year). But by waiting until your bundle of joy enters kindergarten to start saving, you'll need to fork over nearly $640 per month.
Think of it this way: The cash you save by starting early could update your kitchen's Brady Bunch motif or fund years' worth of family vacations.
Let's take a look at five companies you won't lose sleep over -- characterized by simple business models, blockbuster products, a stable history, and incredible brand strength -- that beg to be considered for your kids' college savings.
You might not allow your kids to drink sugary soft drinks, but millions of people reach for a Coke every day. Coca-Cola has been labeled Interbrand's "Best Global Brand" every single year since 2001. With its sensational brand, the company enjoys exceptional margins and continues to increase sales growth despite an economically challenging environment.
Mattel boasts monster margins compared to its competitors and the rest of the industry. Even though the company experienced a rough patch with the loss of Sesame Street to Hasbro late last year, Mattel has bounced back beautifully. It beat both top- and bottom-line expectations in the most recent quarter, and has huge emerging-market presence that will help fuel further growth. The company pays an incredibly enticing 3.5% dividend yield.
Apple's sleek, intuitive, and functional products entice our minds and empty our wallets. Not only has Apple managed explosive growth over the past decade, but it has also done so in a fiscally responsible manner while remaining a constant innovator. And CEO Tim Cook has emerged as an adept successor to the late Steve Jobs. The company has tons of cash on the balance sheet and pays a 1.7% dividend yield.
When your kid plays Little League, soccer, tennis, or any other sport, Nike will be there to outfit her. As the largest worldwide seller of athletic footwear and apparel, the company gains sales across the globe through its diverse product mix. Amazingly, for a company of its size, it's still growing by leaps and bounds.
Why not commission your caramel macchiato fix to not only satisfy your need for caffeine, but also add to your kid's college piggy bank? Expect future sales growth as a result of Starbucks' recent acquisition of San Francisco bakery retailer La Boulange, a deal with Coinstar to set up coffee kiosks across the country, and explosive growth slated for Asia. While the initial hit to the balance sheet could sting, this may pay off nicely for long-term investors.
Take a look at how these stocks fared in the past 18 years -- the period of time in which your newborn could have grown into a college freshman.
Total Return Over 18 Years
Source: The Motley Fool. Percentage change represents period of time from Aug. 13, 1994, to Aug. 13, 201,2 including dividend reinvestment.
That means a $10,000 wad invested equally in a basket of these five stocks 18 years ago would equal $248,700 today.
Start building for your kid's future
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 Tommy a huge head start at Wherever U.
If you'd like more smart stock ideas for your kid's college savings, our analysts have done the homework for you. Read about the one stock they've given an A+ and dubbed "The Motley Fool's Top Stock for 2010." This report won't be available forever, so get your free copy today.
Fool contributor Nicole Seghetti owns shares of Apple. You can follow her on Twitter @NicoleSeghetti. The Motley Fool owns shares of Coca-Cola, Apple, and Starbucks. Motley Fool newsletter services have recommended buying shares of Nike, Coca-Cola, Apple, Starbucks, and Mattel. Motley Fool newsletter services have recommended creating a diagonal call position in Nike, creating a bull call spread position in Apple, and writing covered calls on Starbucks. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.