May 4th, 2008 
Vijaianand I finally made my decision to start 2 plans(Coverdell&Vanguard 529 plan) for my son who is just going to be 2 years in a month. It’s the right time to kick start something for his futre which should be ready when he hits 18years for his college.
Which Investment vehicle to choose?
Too many choices is always a problem. When you go to Walmart to just get a box of cereal. You are sure to be startled with a whole aisle full of Cereal boxes. It’s not an easy task to select one from umpteen number of brands and different type of cereals as everyone of them is best do its job as a breakfast item. Unless you know what you are looking and what you want, it is tough job to handle.
Similarly there are lot of different options in this market to make your money grow especially when it comes to kids education. It all depends on which route you want to take and what amount of risk factor you can manage. Let me tell some which I myself researched before I made up my mind.
CD Savings
The first vehicle which always comes to average individual mind is CD’s. Certificate Deposits is a good way to start savings. Actually I started my son savings as a CD which yielded 5% but not anymore. But it helped me to atleast get to an habit of putting certain amount aside for this savings.
I would also suggest you to start as a CD and try to see whether you can put aside certain amount every month for kids education. Once you got an hang off this monthly routine, just plan to move over to a different vehicle because CD’s don’t yield a lot of return especially at this economy where a CD only yield a max of 4%. With 3% average inflation, you are only gaining 1% on top of it. You need to find a vehicle which can yield atleast 8-10%.
Real Estate
Next comes Real Estate in my list. I like this route for many reasons to make your money grow but not for Kids 529. It gives lot of leverage for your money, good cash flow and adds equity to your home which is a good ROI.
But if you think for a long term, it might not be a right tool. Depreciation’s and Appreciations just doesn’t work well together. An analyst from Market watch just reported in an interesting article a month back, comparing Stocks and Real estate returns. A dollar invested in Stock market came out as 12.83 cents after 25 years where a it only yield .83 cents in real estate with all inflation and everything put together. That might be surprising for many but that’s a truth if you take only equity. So I don’t really agree with him 100% but I still don’t like real estate being a vehicle for kids education.
Stock Market
I know lot of stock brokerage firms offers you this option to open a 529 stock account to invest in stocks. I myself thought about it but stayed away. It’s a smart idea for many stock savvy investors but not for an ordinary individual like you and me. I am swing trader in stock market but that doesn’t mean that I am stock savvy investors. It is good route because it always beaten any other investment vehicles all the time if you know how to play. If you don’t the battle field, you are determined to be crushed to death. So I won’t risk my money especially when I need to save and get a good ROI to back me up after 15years.
If you would ask me, You should only put the money what you really don’t need for any purpose into the stock market. That’s the smart investors mentality. You shouldn’t put anything you really need today or tomorrow as you have the high probability of losing it in stock market.
Mutual Funds(MF)
Last but the most opted-in solution. MF’s are the right choice according to many analyst when it comes to Retirements, Kids educations or for any long term savings for that matter if you know the right company and right fund to invest. I know many might agree with me because its one of the safest route available for any individual who likes hassle and stress free shopping.
But there is a caveat to this path. You should be willing to invest atleast some amount of time to do proper research on selecting a fund company which offers low expenses, low monthly deposits and has funds with proven record. You shouldn’t just choose any MF’s in the market to do work for you.
You need to select funds which has real good history of returning atleast 10% and market proven record. It also important to keep in mind to select a Tax deferred education plan instead of usual taxable Mutual fund. The core advantage of tax deferred is to make your dollar grow better without giving to uncle sam every year during tax season. It is the big difference between taxable funds and tax deferred funds.
Conclusion
To conclude, I would strongly recommend anybody to go with Mutual Fund route choosing a right fund company and right fund to grow your money. If you are well versed in Real-estates that would be next choice.
Having recommended Mutual fund to be my first choice, I should talk about proper education plan to work with it. There are different kids of plans like 529 plan, cover dell or UTMA which is totally different and has advantages of their own. We will talk more in detail on the next blog and I will also reveal my personal funds of my choice which I selected for my son’s education.
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