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Whitneyd | Stock market, CD's, or just a savings account? |
Having just recently had a son my husband and I would really love to start him some sort of education fund. However, with the stock market in a slump if you will, we are not really sure what we should do. Should we call up our broker or go to our local bank? Everyone we know seems to have vastly different opinions on this and I am still a little confused on what to do. I know a little about the stock market and about investing but not a whole lot, so if you could explain your choice a little bit that will also be appreiciated. |
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redwine
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Open a 529 plan, invest in an index fund. You're supposed to buy when things are down, and they surely will be higher in 18 years. |
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seaportma
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First, the savings or investment vehicle you choose depends on your time frame. Since your son just arrived, and he probably will not need the money for 18 years, I recommend putting the money into a mutual fund.
A savings account is simply an account in which you can deposit or withdrawal money at any time. The bank will offer you a rate of interest, but it will be low because you are not committing the money for a fixed determined period of time.
A certificate of deposit (CD) is an account in which you deposit a sum of money of a fixed period of time (e.g. a 30 day CD – you promise to keep the money in the account for 30 days.) If you take the money out prior to the maturity date, you will have to pay a penalty for the early withdrawal. But in return for committing to money for a known period od time, the bank will offer a higher rate of interest (versus a CD).
When you invest in a mutual fund, you are giving your money to a professional investment manager. S/he will invest in stocks and/or bonds. The value of your shares may fluctuate from day to day. However, stocks and bonds have offered a better rate of return over the long term (as compared to CDs). |
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Joe
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If you are saving for college expenses, you should take advantage of federal tax breaks aimed at families saving and paying for college. These include the following:
Qualified Tuition Programs (529 plans)—Earnings grow tax-deferred and distributions are tax-free when used for qualified post-secondary education costs.
Coverdell Education Savings Accounts— Earnings grow tax-deferred and distributions are tax-free when used for qualified post-secondary education costs. May also be withdrawn tax-free for primary and secondary school expenses. You can read about these at
http://www.savingforcollege.com/ |
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muncie birder
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With the stock market in a slump, it is a very good time to begin. The 529 plan mentioned by other responders is a great way to save for your son´s education. And T Rowe Price, Fidelity, and Vanguard are great places to do so. Each has execellent investment vehicles. Beginning now and adding a couple of thousand each year, when your son turns 18 his college expenses might very well be mostly covered.
One of my favorite funds is T Rowe Price Capital Appreciation Fund. Check it out. |
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$so fresh so clean$
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Like a previous answer said, go with a 529 plan or a Coverdell savings account. You can withdraw funds from the 529 plan tax free for college expenses. Also, for added security, go with an index fund. They have low, low fees because of low turnover ( meaning they don't trade (buy and sell) often.) Also, you're investing in basically the complete market or certain index such as the S&P 500 or the Dow Jones 30. One more thing, the way to great savings and wealth is in two words: compounding (interest earning interest), and time. If you're looking into a savings account for any purpose, go with online accounts instead of traditional banks. They offer more flexibility and higher yields (HSBC, ING Direct, or Amtrust are all good.) Same with CDs, online is best. |
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jeffery d
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Have you ever heard of the Rule of 72? It is how you determine how long it will take your money to double. So with an $1,000 investment, it will take at 3% - 24 years for your money to double to $2,000, at 6% - 12 years to double to $2,000, at 12%-6 years to double to $2,000. So in savings 3%, CD's 6%, or Mutual Funds 12% do not mess with actually individual stocks. Look at your states college plan with your broker, theres several to choose from 529's, Coverdell,ETC. Your son has plenty of time for the martet to readjust. But let me ask you a question, Whom told you the market is in an slump. This years return is the 2nd largest in the history of the stock market. Dont listen to fearful people who dont know about money. My investments have grown 16% this year. I am young and I am very aggressive. But my uncle's 57 and earned 11.44% this year so far |
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docmase
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If you're looking to save for your son's college, a 529 plan offered by various mutual fund companies like Vanguard, Fidelity, and T Rowe Price, is a good choice. It allows you to save money for his college fund and all gains that occur from investments made with these funds are not taxed if they are used for college expenses.
Call one of these companies and have them explain it to you. You can invest the money in a variety of mutual funds based on risk tolerance and you will have ~18 years (assuming he goes to college when he is 18) to grow the funds tax free.
Your contributions are taxed at normal rates based on your income.
A CD or a savings account do not provide any level of tax savings and they do not provide the returns you would see from a long term investment in the stock market.
Best Regards,
Docmase |
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