Mutual Funds Role In Saving For College
Things to consider when developing an
investment strategy
The financial world has grown extremely technical, and is changing constantly.
To receive the greatest opportunities for growth, a careful investment strategy should be
developed for your college education fund. This Plan should contain the following
key elements:
Diversification
Diversification is important for your investment strategy . If you rely upon a single investment to achieve your financial objective, the consequences could be disastrous. A diversification of investments helps reduce the negative impact of one disappointing investment.
Flexibility
As the financial environment or personal objectives change, the opportunity to allocate or re-deploy assets in a new direction is necessary. No single investment is right for all times and all objectives. Your financial Plan and investment selections should be reviewed from time to time to ensure that they continue to meet your ultimate goals.
Convenience and Accessibility
Investment vehicle should be convenient and accessible as well. Red tape and paperwork not only aggravate the process, they can cost you money in fees or lost profits if money is not properly or efficiently invested..
Mutual Funds Role in Saving for
College
A mutual fund is a large pool of assets comprised of individual investors' money.
Investors purchase shares of the fund which, in turn, invests the money in specific types
of investments to help achieve a specific set of objectives. Mutual funds are managed by
experienced investment professionals. Fund managers buy and sell securities for the fund
in hopes of benefiting all shareholders and achieving the stated objective.
Mutual funds possess a number of elements which expose your dollars to opportunities for
success. Assets are pooled to allow broad diversification. Mutual funds are flexible
because they are usually part of a fund family, and assets can be exchanged as personal
objectives change. Some of the more flexible mutual funds offer the conveniences of low
minimums, telephone exchanges or redemption's, periodic statements and toll-free access to
shareholder services representatives.
But, like choosing a college with your child, you must choose a fund and fund family
carefully. Look for funds with objectives matching your own. Find one with consistent,
above-average performance. Consider sales charges and operating expenses which can impact
the performance. Be sure the fund is part of a family which has funds to fit your changing
goals. For more specific information of types of Mutual Funds click
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Money Market Mutual Funds' Role
Parents who wish to accumulate money for college education funding have many investment
choices today: stocks, bonds, mutual funds, Certificates of Deposit, annuities or
insurance products. All of these are good choices for accumulating funds. However, when
the time between deposit and demand are short term, many parents find that money market
mutual funds meet their needs.
Money market funds are mutual fund companies which make investments on behalf of
individuals and institutions with similar short-term goals. Professional money managers
pool the assets of thousands of investors, allowing them to develop a portfolio of short
term instruments offering potentially higher rates of interest than individual investors
may be able to attain. After expenses, those earnings are passed on to fund shareholders.
If college bills are expected in less than two years, money market funds may provide the
right answer. Even though an investment in a money market fund is not insured by the
Federal Deposit Insurance Corporation or any government agency, they do offer many
features and benefits to the short-term investor. Some of these include:
 | Professional money managers make the important buy/sell decisions. |
| Money is accessible by check, by phone, or by mail request. |
| Principal is relatively stable. Money market funds seek to preserve the value of an investment at $1.00 per share, but it is possible to lose money by investing in the fund. |
| Monthly dividends can be paid in cash for student expenses or reinvested for future needs. |
| Portfolios are diversified. For example, managers can invest in bonds issued by a large number of companies, reducing risk. |
Money market funds have some disadvantages, also. You should be aware of these as you weigh money market mutual fund investing. Two worth consideration:
| Short-term interest rates tend to be lower than long-term interest rates. If college funding needs fall beyond two years, other, potentially higher-yielding investments may be more appropriate. |
| Earnings are taxable unless invested in a tax-exempt money market fund. Many fund families offer both taxable and tax-exempt money market funds. Be sure you invest in the proper fund for you. |
Money market mutual funds can be used in at
least two ways by parents who are funding college expenses. One way is when enrollment is
approaching. Parents investing in both long-term growth mutual funds and income-producing
mutual funds may wish to stabilize their accounts by transferring all or part of their
dollars to a money market fund. This may help stop share fluctuation or at least partially
stabilize the portfolio to help meet predictable expenses.
Another way is when college students are finally enrolled. Needs will arise to meet
regular expenses, such as room and board, books, travel and clothing. A money market fund
allows instant access to money with its check-writing privilege while earning potentially
higher interest rates than the average checking account.
Money market mutual funds are a good, short-term option for parents and students to
consider for college education funding. They provide relative stability, income, and
accessibility when such features are most needed. Don't overlook the money-market option
in your family's education plan.
