Long-Term Goals
The average annual cost for a four-year education at a private college or university in 2015 is $134,600; $39,400 for a public college. By 2033, those costs are estimated to increase to $323,900 and $94,800.
Paying for college tuition is a big concern for many Americans. It won’t be long before it will cost $100,000 for a 4 year public college. We already know private schools have already reached or surpassed this number. According to a study by Louis Harris and Associates, eighty percent of parents polled stated that they would give up their vacations to save for college. Seventy nine percent said they would work overtime or even work a second job to help pay tuition costs.
Paying for your child’s college education is a long-term goal many people share. Long-term goals are generally defined as those that can be achieved over your lifetime. They are best facilitated by:
- Adopting a practical lifestyle that stays within your means
- Investing the same amount of money each month
- Investment education to instill the confidence to weather periods of market decline
- The discipline to continue investing regularly even when share prices drop
Long-Term Goals
Most people have fewer long-term goals but they are lofty in size and require disciplined commitment. For example:
- Paying for children’s college education
- Funding a long and active retirement
Investing Strategies
- Dollar cost average–invest the same amount of money each month, buying more shares when prices are low and fewer shares when prices are up; results in a lower cost per share over time.
- Diversify–spread your money across many different securities, increasing your chances that one or more of the securities will perform well at any given time–and minimizing your risk.
- Asset Allocation–approximately 91% of your investment portfolio’s performance is determined by how your assets are allocated, so it’s important to allocate your money across different asset classes, such as stocks, bonds, and cash–as opposed to simply diversifying holdings within one particular asset class.
Investment Selection
With long-term goals, you can be more aggressive in where you invest your money, since there will be time to recoup any losses and take advantage of bargain buying during down markets. The following are your basic choices:
- Stocks–represent ownership in a company, and generally offer the best growth opportunities over the long term
- Bonds–represent your loan to a government or corporation, and generally offer steady, fixed income
- Cash–represented by short-term instruments, providing more downside protection for your investment but less opportunity for growth
As a general rule, riskier investments offer higher returns. However, by investing in all three categories, you combine riskier investments (stocks), with moderate-risk investments (bonds), and low-risk investments (cash). This strategy maximizes your return potential while minimizing your overall investment risk.