A Look at the Costs of College
By: Laura Chiesman
With summer coming to an end, many families are preparing to send their high school seniors off to college! You might be wondering what that costs these days. The College Board, “Trends in College Pricing 2015” provides some great information.
Published Cost of Attending College in 2015–2016
Costs not including the separate cost of books and supplies or the potential benefit of scholarships and other types of financial aid. Source: The College Board, “Trends in College Pricing 2015.”
Going forward, we do not know what the cost of attending college will be but we should expect that education costs will likely be higher in the future than they are today. So what can parents do to prepare for the costs of a college education? How can they plan for and make progress toward affording those costs?
To help reduce the expected costs of funding future college expenses, parents can invest in assets that are expected to grow their savings at a rate of return that outpaces inflation. By doing this, college expenses may ultimately be funded with fewer dollars saved. Because these higher rates of return come with the risk of capital loss, this approach should make use of a robust risk management framework. Additionally, by using a tax-deferred savings vehicle, such as a 529 plan, parents may not pay taxes on the growth of their savings, which can help lower the cost of funding future college expenses.
It is important to recognize, however, that investing in stocks also comes with investment risks. While sometimes easy to forget during periods of increased uncertainty in capital markets, volatility is a normal part of investing.
When saving for college, risk management assets (e.g., bonds) can help reduce the uncertainty of the level of college expenses a portfolio can support by enrollment time. These types of investments can help one tune out short‑term noise and bring more clarity to the overall investment process. As kids get closer to college age, the right balance of assets is likely to shift from high expected return growth assets to risk management assets.
Nobel laureate Merton Miller used to say, “Diversification is your buddy.” Combined with a long-term approach, broad diversification is essential for risk management. By diversifying an investment portfolio, investors can help reduce the impact of any one company or market segment negatively impacting their wealth. Additionally, diversification helps take the guesswork out of investing. Trying to pick the best performing investment every year is a guessing game. We believe that by holding a broadly diversified portfolio, investors are better positioned to capture returns wherever those returns occur.
Saving for your child’s education starts with a conversation. The WealthCoaches™ at FirstWave Financial™ can help you get started. If you have questions or need help putting a plan in place, please call our wealth services firm in Satellite Beach, FL – Melbourne/Brevard area at (321) 773-7773 to schedule a complimentary consultation or visit us at www.firstwavefinancial.com.
You should not assume that any discussion or information contained in this publication serves as the receipt of, or as a substitute for, personalized investment advice from FirstWave Financial. A copy of the FirstWave’s current written disclosure statement discussing our advisory services and fees is available upon request.