Investing in Mutual Funds Smart for College?
Scott's UMGA plans for his kids' college education recently tanked, so now he has only 5 years to save. Are mutual funds the best way?
QUESTION: Scott set up UGMA plans for his kids’ college education, but the funds he invested in recently tanked. Now he only has five years to save for his kids. What’s the best way for him to invest for their education now?
ANSWER: The stock market has gone up 97% of every five-year period and only 63% of every three-year period have gone up. If you only have three years to save, you should not invest in mutual funds. You should put the money in a money market account where the principle is protected, even though the rate of return is lousy.
Compound interest will not be your friend in this situation; big principle payments are the best thing you can do now.