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

a college tuition calculator.

After doing the numbers, Claudie and Felicia Johnson of Macedonia, Ohio, figure they’ll have to put away about $427 monthly ($5,124 yearly) before they send their five-year-old son, Christian, off to hit the books in 2009. The problem: the Johnsons can’t afford the full payments and still meet their financial obligations.

“We didn’t have quite as much to start saving for Christian’s education, but we wanted to start with something as soon as possible,” Claudie explains. A vice president for Cleveland-based KeyBank’s Key Private Banking division, Claudie places $100 from his paycheck monthly into the Victory Mutual Fund his company operates. He also says he will keep his 1993 sedan for at least two more years, which he believes will help keep the family’s bills to a minimum.

After you’ve calculated the amount you’ll need to save, you need to decide where to invest. Over the long haul, the stock market is probably the best place to grow your money fast enough to keep up with rising college costs. Between 1926 and 1995, assuming inflation ran at a 3.22% average annual rate, S&P 500 shares posted a 12.52% average annual gain, compared with 3.77% for Treasury bills, and 5.54% for longterm government bonds. (Smaller stocks were the best performers with a 17.66% average gain.)

Those statistics suggest that stocks or equity mutual funds are the way to go if you intend to grow your savings. The Johnsons chose a mutual fund portfolio mix of 60% large- and midcap stocks and 40% international stocks. The Bonds, too, have a strategy. Since they’ve just recently paid down their debt, Dwayne has been saving for his son’s college education by contributing 1%-5% of his salary into the company’s stock purchasing plan. He plans to buy the stock as long as the price continues to climb. “We’re not able to save aggressi
vely, but we have time on our side because we started so early,” explains Leslie.

Remember, investing in stock is a long-term bet, one that is fraught with risk. Indeed, after the current bull market’s extended run, we’re likely to forget stocks can slip in value on occasion. That’s why it’s important to have a mix of investments to help diminish the potential volatility of the stock market. The trick over time, experts say, is to gauge just when it’s best to be more heavily weighted in aggressive stocks and when it’s better to move the gains you’ve made over time in bonds. What’s a good benchmark’ that depends on your stomach for the ups and downs the stock market might take.

According to T. Rowe Price, the Baltimore, Maryland-based mutual fund company, you should mold your portfolio according to how far away your savings goal lies in the future. For parents with a child as old as five years of age, your investment portfolio should be anchored primarily in stocks–60%-80% or so if you’re an aggressive investor.

A more moderate approach would be to temper that stake in the stock market

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