Top Ten Tips for Investing for Children
Mutual Fund Education Alliance

If you have small children...or children of any age...you already know the challenge that awaits you when it's time to send them off to college. How will you pay for four years or more at the college of their dreams -- or the college within your financial reach? (You may also want to review our information on Qualified Tuition Programs, referred to as 529 Plans, which enable you to save for education in tax-advantaged accounts.)

So, where do you begin if you're thinking about investing for your child's future?

After reviewing the information in this section, consider following the simple 10-point checklist as a good way to get started:

1. Begin before the child is born.
Don't laugh. Eighteen years is not a long time and it will be here before you know it. When investing for children, one thing is certain: time is on your side. While deciding to invest for college when the child is 10 is better than not investing at all, time is the greatest ally you have in building investment assets. The longer the time you have to invest to reach your goal, the more aggressive you can be and the more likely you are to reach your goal. Start now and watch your investment grow right along with the child.

2. Invest regularly and stick to it.
This is the big one. Invest a fixed amount in a mutual fund every single month. Budget it, don't cancel it, and increase the amount whenever you can. You gain the advantage of a disciplined investment program, investing at regular intervals without guessing when the market is at a high or a low. You also benefit from a technique known as dollar-cost averaging, since you purchase a larger number of shares when the price is low and fewer shares when the price is high, thereby "averaging" out the cost of shares over time and avoiding the dilemma of trying to guess when to buy. Investments that are funded steadily can grow steadily and also gain the advantage of compound growth over time.

3. Determine how much money you will need, based on the child's current age.
Interactive calculators let you calculate the exact amount you will need in the future. Why not get the bad news now: college is going to cost a bundle and the pure shock value of seeing it in big numbers may prompt you to do something. In addition, you'll have a defined goal to work toward -- another way to help ensure investment success.

4. Determine how much you will need to invest each year to reach your goal.
Break the amount down into monthly goals. It's less overwhelming when viewed as a long-term monthly obligation, rather than a staggering lump sum. Interactive calculators help you determine your needs.

5. Identify all potential sources for financial support.
Such as a possible inheritance, gifts, loans, trusts -- and then disregard them for the time being. Invest as if this is all there is going to be.

6. Encourage investment gifts.
Let the grandparents, aunts, uncles, etc. know that an investment has been established for the child and that you would welcome investments into their mutual fund account. Grandparents, remember that you can reduce your estate by giving tax-free gifts to your grandchildren.

7. Avoid the "I don't have enough money to invest" excuse.
Many mutual funds reduce or even waive entirely the initial investment requirements if you set up an automatic investment program and invest a small amount monthly. In addition, many funds waive or reduce the minimum requirements if you set up a custodial account for a minor. Find funds that are "friendly" to the small investor.

8.Select funds appropriate for your timeframe and goal.
This rule applies to every type of investment, but is especially important when investing for the long-term. Typically, the longer the timeframe in which you have to invest, the more aggressive your investments can be. That said, the age of the child now along with your own risk personality must be evaluated.

9. Select low-cost investments.
Mutual funds are ideal for long-term investments for children and college. By selecting funds with no sales loads, or very low sales charges, low expenses and no excessive fees you ensure that more of your dollars are invested.

10. Make your child part of the process.
In the old days, mom and dad would show you your bank passbook with your very own name on it. Or maybe they let you save money at the local S&L using your own "money folder." You remember the kind -- with little slots for dimes, nickels and pennies leading to a big fat piggy bank. For sure, you learned that saving was good. Let your children know that you are investing for their future. Let them know the process and the sacrifice necessary to prepare for college. And let them see the results periodically. There are many lessons to be learned, not least of which is that the child gains knowledge of the investment process, how mutual funds work, and the power of a focused, long-term investment approach to reaching a defined lifetime goal.

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