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Why
You Should Start Now
The best way to meet the growing
costs of college tuition is to start an investment program as soon as possible.
Simply planning and starting a disciplined program--even if modest--represents a
sizable step toward meeting future tuition payments. This will allow you to take
full advantage of two powerful forces--equity returns within a balanced
portfolio and compounding (the return of interest dividends and capital gains on
both original principal and on reinvested earnings).
The
Power of Systematic Investing and Compounding
This chart is for illustrative purposes only and does not
represent performance of any specific mutual fund. Systematic Investing involves
continuous investment in securities regardless of fluctuating price levels.
Investors should consider their financial ability to continue their purchases
through periods of low price levels.
As the chart above
demonstrates, systematic investing or the use of automatic investment plans
(investing a regular sum each month) in a stock mutual fund instead of simply
saving your money may substantially boost long-term returns. Compounding may
also increase returns by putting every dollar to work. Assuming an average
annual return of 10%, investing $100 a month for 18 years produces $57,640. In
contrast, placing $100 a month under your mattress for 18 years would total only
about one third as much.
Think
Long Term
The potential growth associated with
equity investing does come at a price: short-term volatility. So given the
vagaries of the markets, your investment horizon should be long enough to ride
out short-term fluctuations. As the due dates for college tuition bills
approach, you may want to gradually shift your investments into more
conservative vehicles such as bond and money market funds, which tend to be less
volatile.
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