What are some ways to save,plan and invest for your childs future?

Question

What are some options and/or resources out there? Although I have a savings account for my children,what more can I do to help them out in the long run? Nothing risky, I just want to be able to provide for them when the time comes.

Answer 1

Vegas doesn't know what he's talking about. He says $2,000 will grow to a million in 39 years. To get that growth you need to earn about 15.75% per year. Warren Buffet did a lot better than that over 39 years but mere mortals investing in major stock indices like the Standard & Poors 500 earn 10-11% over several decades. Beating the S&P500 by 50% is an unrealistic goal.

Vegas says he bought Pepsico 8 years ago and now 5 shares are worth more than his 401(k) plan. His 401(k) must be in bad shape because 5 shares of Pepsico is worth about $310 now. Maybe he dropped a zero or two, but it doesn't matter. If he bought the bottom in 1998 (unlikely), he bought at about $30. Now it's at $61.80. Nice to get a double, but taking 8 years to do it isn't exactly setting the world on fire. True, that all-important dividend increased return a little bit. I don't know what it's been over the 8 years; it's now 1.9%.

Vegas says to buy stocks in companies you buy from. There is no rational reason to pick stocks because you personally buy their products. If you have a long investment horizon and are growth-oriented, it makes sense to buy companies that you can't buy products from, at least not yet. How many people have fuel cells in their houses? FuelCell Energy (FCEL) has dozens of fuel cells installed around the world. They can use a wide range of fuels, including waste gas from a brewery, get a lot more energy out of fuel than you can burning it, and emit no pollution. Wouldn't anyone with an ounce of imagination or optimism think this company has more potential for explosive growth than Wal-Mart?

Anyway, to answer the question. Don't look at a Uniform Gift to Minors account. The preferred way to shelter money now for college is a 529 plan. The only negative is the investment choices are limited and some of the plans have high fees (state governments picking providers = little competition = excessive fees). If you can live with the limitations then that's the way to go because of the tax benefits.

There is an eternal argument about safe stocks and bonds vs. risky stocks. My position is that for college savings you should go for high risk and high volatility in the early years, especially if you are adding money regularly. You may get clobbered, but then you can buy shares more cheaply and be positioned for the next upturn. Throttle back the risk in the last few years and focus on income and preservation of capital when you actually start paying the college bills.

Answer 2

For children there are two very good options.

The first is called an Educational Savings Account (ESA). This works much like an IRA but instead of saving for retirement you are saving for school.

With an ESA, the money can be used for ANY school related expense, from uniforms to tuition (at any level). The funds in an ESA can also be invested in anything, from a simple money mearket fund, to stocks, bonds and mutial funds. The downside of this account is any money left over (not used for educational expanses) faces a penalty tax upon withdrawal. Alsost forgot, the earnings in the account accumulate tax fee and there are limits on how much can be deposited annually.

The second type of account is a trust fund. These can be opened by anyone, for anyone under the age of 18. There are no limits to how much can be deposited, but any amount over $11,000 per year is subject to the gift tax. The money can be withdrawn at any time for any reason and is subject to capital gains taxes (TRust funds are not tax shelters). The funds also automatically revert to the trustee at the age of 18, so control is lost at that point. The benifit is that the funds can be rolled over into an IRA once the child is earning income and not face any penalties or extra taxes.

While Those are the two best options, there are many others from just purchasing a long term Gov't bond, to using a regular savings account.

Answer 3

Never underestimate the ultimate value of compound interest. Start a savings account with the understanding that when it reaches $600.00, $500.00 will be rolled over into a Roth IRA. Started early, an IRA (Individual Retirement Account) is tax exempt, usable as collateral for the all-important auto and home loans, and uses compound interest to such a high degree that a $2000 investment at age 26 with nothing more invested will balloon into a nice million dollar figure by the time it matures at age 65.
Personally, contact Edward Jones Financial Planners and ask for advice and start up a plan early on.
Putnam International Equity Fund seems to have a low risk and a good return.
MVL - Marvel Comics is floating around 19.75 per share and raises and lowers with the release of whatever XMEN or SPIDERMAN movie is coming out.
HAL - Haliburton sits at $78 per share and will keep going up as long as Republicans are in office.
I-Bonds are issued by the Gov't and will not LOSE value but will fluctuate on their return percentages based on the rate of inflation and can be bought at the bank along with T-Bills, Bonds, and IRA's.
If you are investing into stocks, remember you will have to pay broker commission. Pick something that pays dividends and then re-invest those dividends into more stock. Also, pick something that you use regularly, like Wal-Mart, Radio Shack, GE, Panasonic, Hoover, General Mills, Viacom, CBS, HP, Yahoo.
Look around your house. I bought 5 shares of Pepsi-co for the nephew when he was born 8 years ago and now his shares are more valuable than my 401K plan.
Good Luck.

Answer 4

Check if your state runs a scholarship savings program; it works better if the kids are younger, since you pay a rate based on how old they are; for example, in Nevada, if you use this program, the child can attend four years at a state university.

Some more traditional ideas would be to invest in a mutual fund with conservative strategies; just set it up to roll over any dividends back into the funs to keep it growing.

Answer 5

Start when they are really young as young as possible, with savings bond, college saving account at bank or credit union and by putting money in their little bank at home.

Answer 6

Take Life insurance policy on the names of children , though the return is lesser than bank recurring deposits ; still it is useful.

Answer 7

savings bonds at christmas and birthdays.