Many are struggling due to the dramatic downturn in the economy. For those who are fortunate enough to have kept their jobs now is the perfect time to set up a 529 college savings plan. A 529 plan is the ideal vehicle for saving/ investing in your children's future because earnings in a 529 plan grow federal tax-free and will not be taxed when the money is taken out to pay for college. All 529 plans are not created equally, and it is essential to do your research before setting up a 529 plan or find an investment advisor to help you navigate which plan is best for you. At UNest, we offer advisor-guided 529 plans via our mobile app. We strive to simplify the college savings process for our families and provide them with an advisor-guided plan at a fraction of the cost of traditional advisors. In addition to our suggestions, we will review a few key investing principles that we utilize at UNest to help our clients navigate investing and saving for their children's future.
Dollar-cost averaging is a strategy in which an investor places a fixed dollar amount into a given investment regularly. The investment generally takes place each month regardless of what is occurring in the financial markets.
If you have been committing money monthly to a 529 plan, you will likely see that portfolio dip because of the recession. It is vital to continue investing now; otherwise, dollar-cost averaging won't work for you. Furthermore, during a recession, you should consider increasing your monthly allocation. Warren Buffett is actively buying up stocks right now, and if you have discretionary cash available, you should consider doing so as well.
Diversification in finance and investment planning is the risk management strategy of combining a variety of assets to reduce the overall risk of an investment portfolio. At UNest, we believe in Portfolio diversification because it lowers the volatility of a portfolio. This is because not all asset categories, industries, or stocks move together. Holding a variety of non-correlated assets significantly helps eliminate risk.
In other words, by owning a large number of investments in different industries and companies, industry and company-specific risk is minimized. With this strategy assets will rise and fall at different times, smoothing out the returns of the portfolio as a whole.
Age-based portfolios adjust asset allocation based upon your child's age. That means, when your child is younger, your portfolio may include more aggressive investments with a higher potential for growth. As the child becomes older the portfolio becomes more conservative. At UNest we favor this approach because it gives our clients greater upside while protecting them as they near the date they will need to access the funds. We are not alone and age-based portfolios are the most popular option in many 529 plans.
While stocks have taken a severe hit and may fall further over the next few months, it is essential to realize that no downturn lasts forever. The fundamental principle of buying low and selling high is just as true today as it has ever been. Historically when there are the most significant drops in the market due to fear over investing is also when the most money is made by notable investors like Warren Buffet, George Soros, and Carl Icahn.
Very few of us have the time to navigate the markets like the above mentioned investors which is why we created UNest to help advise and guide your family to achieve their educational goals.
Families no longer have to navigate this difficult terrain alone. At UNest we have democratized college savings and investing. Now for less than a cup of coffee a month you can have a financial advisor on your phone helping you plan for your children’s future. We invite you to join us at www.unestapp.com and together we can eliminate student debt for our kids.
Ksenia Yudina is focused on alleviating the impact of student debt on families across the economic spectrum. Using her experience helping parents plan and manage their finances at Capital Group/American Funds, she founded UNest, the first mobile app that makes it easy for families to save for college. Follow us at @UNest.