529 Plans

Investing in their children's education is not like gambling. So you will want to invest in a portfolio that will grow over time so that your child has enough funds for college. some people may find the 529 college savings plan risky so there is an alternative known as college savings bonds. You're probably wondering what are these bonds but you will see how simple it is to understand what they are. Probably the safest choice, it's definitely not going to backfire on you but you don't expect to see a huge growth over time if you go for a college bonds. You're probably also wondering what would be the best way to use these bonds and you'll be surprised. It is definitely best safe choice you can make but you will see that it's not necessarily great alone.

College savings bonds work a lot like the US savings bonds. If you don't know how US savings bonds were, basically you buy a bond at a discount price from the government with a certain interest rate so that your bonds may mature over certain period of time. If you looked carefully, you probably realized the rates at which the bonds mature is usually pretty low and when I mean low you mean between 2 to 6% and it will rarely go above 6%. If you are looking for the safest choice this would definitely be it.

With this savings method you are assured that your money will mature over time but it will be slow. since the interest rates are probably the lowest among all investments you basically have an idea of how much you can earn from these bonds since the interest rates are usually fixed and if they vary they only vary by less than 1%. Like I mentioned above interest-rate will rarely go above 6%. So here here lies the problem of the savings bond, the interest rate is too low.

Unfortunately the inflation rate for college fees is approximately 5% per year so if you consider using college bonds to fund your child's college costs you need to make sure that you will have a ROI that is at least 5% or you'll still have to pay some school fees because the bonds will not be able to cover enough. This basically means you're losing money every year if you do not cover it that 5%. If you started investing early then you might want to consider higher risk investments such as a 529 plan.

I know you may be thinking bonds are safer so you wouldn't want the 529 plan that the truth is the only way to use college savings bonds probably is to combine it with an investment plan that has a certain level of risk. Although a 529 plan has risks it's still possible for you to minimize those risks by choosing more conservative options within the plan and of course mixing this plan with your savings bonds will ensure that you beat the 5% inflation rate on school fees every year.

As you can see, although there are many advantages to using college bonds such as security it would still not be enough to cover your funding needs for a child's education. College savings bonds should not be considered as a primary financial solution but more as a complementary solution to more risky investments so that you can balance out your investments. This would be basically having the best of both worlds.