According to the U.S. Census Bureau, people with a bachelor’s degree earn over 80% more on average than those with only a high school diploma. Over the course of a lifetime this can mean a gap of $1,000,000 in potential earning power. So when you start putting away money for your children’s college education, remember that you don't just save for college: you invest for the future.

To appreciate this philosophy, you must first understand the advantages of long-term investing. We firmly believe that growth-oriented opportunities, such as domestic and international equity mutual funds, combined with the stabilizing influence of fixed-income mutual funds, can help meet long-term savings goals. Here's why:

Total annual costs (tuition, room and full-time board) at public and private universities are roughly $13,000 and $30,000, respectively. These costs will likely continue to rise between now and your child's first college semester. In fact, in the last decade, tuition costs have grown at nearly double the overall annual inflation rate. So even if you currently had enough money to meet today's tuition costs, in 18 years that amount would probably be insufficient--even if you invested your assets and beat overall inflation. If trends continue, tuition costs will more than double within 15 years. For a child born today, four years could realistically cost more than $160,000 at a public university and nearly $330,000 at a private institution.

Stock Investing: A Winning History
These obstacles may not be quite as insurmountable as they sound. Portfolios of small- and large-capitalization stocks have not only historically outpaced inflation, they have substantially outperformed government bonds and money market equivalents, such as short-term Treasury bills. So although past performance does not guarantee future results, a significant portion of tuition costs may be met by simply including stocks in your long-term investment plan.

The tale of two families: the Safes and the Wisebucks  
The Safe and Wisebuck families each have newborn babies. They have both begun investment programs for a public college that they have estimated will cost slightly more than $160,00 for a four-year education. The Safe family deposits its contributions into a bank account earning 3.5% per year. In order to fund their child's tuition using this strategy, they will need to save $526.00 each month until the child turns 18. The Wisebuck family invests their monthly contributions into a stock mutual fund with an expected annualized return of 10%. Assuming the projections hold true, the Wisebuck family will need to invest only $266.00 per month. Unfortunately, the Safes will end up paying more than twice as much as the Wisebucks--for the same education.

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