Paying for college may start out as a long-term goal, but as your child gets older, it becomes a short-term goal. That means your investment decisions are complicated by the fact that you have two potentially conflicting responsibilities:
You
need to invest aggressively enough to provide adequate
growth.
You
need to protect the value of your investment to ensure
the money will be available when you need it.
You have a better chance of being able to
meet both goals if you
allocate
your assets
in your investment account based on your child’s
age and the number of years remaining until he or she is ready
to enroll. That will mean changing the investment mix at least
once and perhaps more often in the years the account is open.
Let time be your guide
When your child is young, you can afford
to invest more aggressively because your investment will have
time to recover from possible downturns in the market. Downturns
can limit growth or even reduce the value of your investment account.
But when the market recovers, the value of your account can rebound.
That puts you back on track.
But by the time your child is a junior or
senior in high school, and while he or she is enrolled in college,
you won’t want to run the risk of a serious downturn because
you don’t have time to wait for the market to recover. Instead,
you need to have moved your accumulated assets into nonvolatile
investments whose value won’t decline no matter what happens
in the overall markets.
