By Stuart Vick Smith, ML&R Wealth Management LLC, www.mlrwm.com

As any parent can probably tell you, the sticker price for a college education has been on the rise beyond general inflation for at least 30 years and seems destined to continue moving upward into the foreseeable future.¹ How can you expect to save enough to cover college tuition and college costs?

The three most important aspects to consider when saving for college are time horizon, costs and growth versus preservation.

Start Early

Just like with retirement savings, the earlier you start planning for college expenses, the better off you will be. Regardless of how, where and with whom you save for college, start saving today. Having time on your side is one of the best ways to allow wealth to accumulate while enabling you to ride out down markets that occur along the way.

Costs Matter

As with any investment choice, costs matter. Studies indicate that added investment expenses are not expected to result in increased returns, so why spend them? Unfortunately, some investment expenses aren’t easy to spot. And if you are comparing different types of strategies, it can be hard to do apples-to-apples comparisons. An investment advisor who has accepted a fiduciary level of care and has no vested interest in the funds you select can help you read between the lines, so you can make objective choices.

Growth Versus Preservation

Saving for college is a delicate balancing act between two equal but opposite forces: growth and safety. On the one hand, your savings must at least keep pace with the double whammy of inflation and rising education costs. This calls for investments designed for capital growth, which requires exposure to market risk. At the same time, the money needs to reliably be there when the tuition bills come in. This calls for capital preservation by sheltering your assets in less-risky fixed income or cash holdings.

Essentially, the goal is to create a blend of risky and safe holdings in proportion to your need for each as you begin, accumulate and spend down your college savings. Two common ways to do this are establishing a 529 plan or simply starting college expense funds separate from your general investment accounts. Each has its advantages and disadvantages, so let’s look at both.

529 Plans

Most states and some institutions sponsor 529 educational savings plans that allow you to set aside money for college expenses. In these plans, your money grows tax-free, and withdrawals for qualified educational expenses are not taxed.

All 529 plans are portable, which means you can set up an account in any state, even if you don’t live there or plan to go to school there. You want to find a fund that has low administrative fees and low investment management fees. To do so, consult with an advisor, or compare costs and other plan features at: www.savingforcollege.com.

One benefit to 529 plans is they make saving for college easy. Most 529 plans offer age-based investment options, a simple way to balance risk/return with safety/reliability. When your child is younger, the portfolio is weighted more toward stocks to allow growth. As your child ages, the holdings automatically shift to a less-risky investment allocation to preserve the capital that will be needed in the short term as college expenses become imminent.

A low-cost 529 plan can offer a relatively straightforward, easy way to save and invest on “auto pilot.” But read the fine print. Not all plans are created — or priced — equally.

General Investment Account

Instead of having your money committed to a 529 plan, you may want the flexibility of setting up your own college savings account. You will gain flexibility and control over the assets, investment options and costs. However, you will lose the tax advantages available through the 529 plans.

With your own account, you have the ability to build a general investment portfolio designed to reflect your overall financial goals. Just be sure to adjust risk levels down as college costs become closer.

In Summary

Whether you choose a 529 plan or open your own investment account, clearly, there’s a lot to consider when it comes to college savings. Long before you purchase your child’s first college textbook, it pays to save early, keep a sharp eye on investment costs, and balance growth and preservation in the portfolio. As always, consult an advisor as needed to choose an appropriate, long-term college saving plan.