PLANNING FOR COLLEGE COSTS

With fees approaching six digits, it's never too early to look at investment strategies that can lighten the tuition burden

better to face up to the fact that you’ve got little option other than to stockpile funds and search for wily investments for your tot’s college education. Since there’s no guarantee that your child will win an academic or athletic scholarship, logic points to the advice of experts like Kalman A. Chany, author of the Princeton Review’s Student Advantage Guide to Paying for College “It is better to save and earn interest on your money than to borrow later and pay interest on an educational loan.”

Jonathan and Sharon Reid of Alpharetta, a suburb of Atlanta, understand that logic well. The Reids have a brood of three to fret over, and beginning nine years from now, nine-year-old Brittany will be the first to start moving into a dorm. Brittany will be followed by Jonathan Jr., now six, and Marcus, four. The Reids are faced with the task of amassing enough funds to get all three children through college, while paying their regular monthly expenses–all on Jonathan Sr.’s approximately $70,000 salary as the director of finance and administrative services at the Atlanta Art Institute.

Since there is only one breadwinner in the family, the Reids have adopted a high-risk strategy. They are trying to stay ahead by salting away $350 a month in mutual funds and stocks, which include small companies that have recently gone public, one of the highest-stakes segments of the stock market. Their portfolio consists of shares of the Fidelity Mutual Growth Fund, which they’ve been investing in for the past four years, and four telecommunications and Internet-related companies traded on the NASDAQ stock exchange. Jonathan, 34, feels these holdings offer very high potential for growth. “I’d rather take the high risk now and then evaluate my portfolio in the next couple of years,” he says. In addition, he puts $400 into his retirement account monthly. And the couple plan to use their 401 (k) for college, too.
Such consistent investing will pay off in the long term, says Douglas Hansford, financial consultant at Smith Barney in Beverly Hills, California. “A lot of the college savings game is proper planning,” he says. “You have to have the discipline–It’s serious money.

So, how much should you be stowing away? The Personal Financial Planning division of Ernst & Young has produced a table to help you determine the amount you’ll need for your child’s college tuition, whether you plan to invest in one single payment, yearly payments or monthly installments. The table offers projected college costs and assumes those costs will rise at a 7% annual rate and you will earn a 6% after-tax rate of return on any investments you make. For example, if your child is five years old, you would need about $106,996 when he or she enters college, which would require you to sock away $5,346 annually or $452 a month. If you know the projected tuition expenses of a specific school, you can calculate the amount you’ll need to save at the Fidelity Investments website http://www.fidelity.com), which features

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