I told my oldest elf that her Uncle John was coming to visit over the holidays and that he was looking forward to playing with her and chasing her around.
She smiles and asks, “Can I body slam Uncle John?” Either she remembers the stories of her uncle John being a wrestler or I have played waaaay to rough with this child! I need to teach her better and get her, and her sister, into a good college!
Speaking of, I left off last Tuesday on telling how you can send your child to college for free! It involved a little investing in state sponsored 529 plans. This Tuesday I wanted to bring you up to speed on doing intelligent investing so your 529 can grow, even during a stagnant economy.
I said ‘intelligent’ as we are all intelligent here, right? If you are reading this dry info you must have an interest in it. Now I do not want to assume you know everything I am pointing out here (You probably do) so I want to start with some basics to understand that are really, really cool.
First are two key terms, Compounded Annual Growth and Dollar Cost Averaging and why these two are always phriendly phrases when investing.
Even in the worst economies Dollar Cost Averaging is always on your side. Simply, it is the idea of steady, constant investing. The Motley Fool describes it this way: the discipline of regularly buying shares of stock. An investor using this long-term technique would invest a set amount every month, as opposed to saving it up and investing it in one lump sum.
The keys here are 1) set amounts of money and 2) every month. An example is say you invest $50 every month in a stock and that stock’s price is $25. So each month you buy 2 shares. Say the price of the stock drops all the way down to $12.50. Bad, right? No its good this time. Now that $50 buys you 4 shares of that stock that month. So, if you are a long-term investor (for college) you are accumulating more shares of stock this way to compound. Over time, these purchases average to a mid price of all purchases, bringing your purchase prices lower…over time.
The compounded annual growth is phriendly concept thats maybe a bit harder to grasp. But it is the reason we invest over a long period of time. Simply, if you have $500 to invest and it grows 10% the first year you will have $550 at the end of the year, or $50 in growth. Now imagine in a few years you invest regularly and your investment grows to $5000. Now the same 10% annual growth is $500 in growth. Lots bigger than the $50 year one! Like the batter bunny, it keeps growing and growing and growing….
That is why you should invest regularly and over the long-term (get started as early as possible) to save you’re your Einstein’s education in 529 plans. Get the most for your dependents….and get your entire yearly investment back each year; in the form of state tax credit! Going to college for free!