Make the Most of Your Assets
Some families choose to save for college through conservative vehicles such as FDIC-insured bank savings accounts or CDs. While these options may help keep assets growing a little ahead of inflation, college costs have been growing at a rate much faster than inflation. So plans geared toward savings alone may fall behind in real terms. To make significant progress, college funding assets need to grow faster than college costs themselves. Unlike bank products, investment products are not FDIC-insured.

Invest Early
Starting early is sound advice for any financial plan because it lets you benefit from the power of compounding by earning returns on both your principal and reinvested income each year. The following hypothetical illustrates how an initial single lump sum investment made when a child is born can grow to almost $40,000 at an 8% annual return by the time the child starts college.

$10,000 Lump Sum Investment

This chart shows a hypothetical $10,000 investment earning an assumed 8% annual rate of return over 18 years, with all amounts reinvested and no adjustment for taxes. These returns are not considered representative of any actual investment.

Invest Regularly
Very few individuals have the resources to invest a large lump sum today to put toward a college fund. However, a systematic plan of regular investments can, over time, really help build up that fund. The following hypothetical illustrates the results of investing $100 a month starting when a child is born. The total invested over 18 years is $21,600 while the account grows to $48,329, assuming an 8% rate of return.

$100 Monthly Investment

Source: U.S. Department of Education. This chart illustrates a hypothetical $100 investment made at the beginning of each month at an assumed 8% rate of return, with all amounts reinvested and no adjustment for taxes. These returns are not considered representative of any actual investment. Regular investing cannot assure you of profit and may not protect you against a loss in a declining market.

The Potential Benefits of Diversification
Given most parents' budgets and college funding time horizons, conservative saving may not be the most efficient use of financial resources. Through investments that tap into the potential appreciation of the stock and bond markets, you may be able to achieve the same goal with smaller regular financial commitments. While stock and bond prices fluctuate in the near term, over time they have historically provided higher returns. Diversifying your investments among stocks, bonds and money market instruments can help you balance the risk and rewards of investing to suit your needs and goals. Asset allocation does not guarantee a profit or protect against loss.

Rebalance Your Portfolio
It's often wise to tailor your investment plan to your family's changing needs and time horizon:

Early start. If you have many years before a child reaches college age, you may want to consider more aggressive investments. Your longer time frame may make you more willing to ride out the risks, such as market volatility, for the possibility of potentially higher returns.

Midway. As a child reaches adolescence, you may want to start thinking about protecting some of your gains. You may want to shift some of your assets into investments that are more conservative but still geared toward capital appreciation.

Rapidly approaching. Once a child enters high school, it may be time to shift some of your holdings into even more conservative investments, such as money market funds or government securities funds, for greater principal protection. But don't lose your focus on growth since you're likely to still need some appreciation potential to close in on your goal.

In college. Your portfolio will need to last at least four years (some people don't finish in four years). So keep at least one year's worth of expenses in very conservative liquid investments, such as money market funds, and consider holding the rest of your money in conservative growth funds, income funds and other less aggressive investments.

A financial advisor can help you create a plan that can work toward your goals. If you don't already have one, call us at 1-800-896-2645 for assistance.

An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation, or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market fund

Share price, yield and investment return fluctuate and an investor's shares may be worth more or less than the original cost upon redemption.

Investors should consider the investment objectives, risks, charges and expenses of a fund carefully before investing. Download a prospectus that contains this and other information about a fund, and read it carefully before investing.

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