Ask Money

Time to raise cash

Chris Farrell Aug 10, 2011

Question: I’m on track to have enough saved to cover my 16-year-old son’s expenses at an in-state school, given that tuition doesn’t go up dramatically in the next few years. My investments are about 50% stocks (mostly small caps), 30% corporate and municipal bonds, and 20% short-term investments. How should I be adjusting this mix over the next few years? Cathy, Raleigh, NC

Answer: It’s a safe bet that tuition and fees will go up by the time he goes to college. The college tab has been increasing at about twice the rate of consumer inflation for years. Nevertheless, you’ll still be in good financial shape to pay the bill–or at least most of it.

Here’s the thing: Your son will be heading off to college in two to three years. That is a short period of time from an investment point of view. (It’s even shorter measured in parent time; it’s stunning how quickly freshman year comes.) You’ll want to lock in as much cash as possible the pay the college tab.

You might have the first year covered with 20% in short-term investments. I also would look at your corporate and municipal bonds and see if there are gains to be reaped. You might give up future returns, but you’ll also guarantee that you’ll the college money when you need it. And that’s the goal.

The stocks are trickier. Right now, the stock market is swinging wildly as investors try to figure out how likely is a sovereign debt implosion in Europe and how slow is economic growth in the U.S. and the rest of the world. However, I would opportunistically lock in gains when you can over the next few years with a goal of having all the tuition money set aside in safe, short-term savings by the time he’s a freshman.

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