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Saving for College
When choosing funds to invest savings for college there are different aspects to look at before investing. The main quality to look for is diversification. Funds that are more diversified are more likely to do well. Choosing to invest in a mutual fund can save time and money. In six years, it is estimated that the cost of attending a private college will be 200,000 dollars for four years. When picking two mutual funds, it is wise to choose funds that are different. One fund could be risky, but likely to have a higher return over many years. The other could be safer with a lower but guaranteed return. The two mutual funds I have chosen to save for college are CGM Focus and Fidelity Capital & Income.
The first mutual fund that I chose to add to my portfolio is CGM Focus. This is my risky fund. It focuses on economic growth and large companies. It tries to reduce risk by blending growth and value. However, focusing on growth is risky because it is like betting that the company will do well without knowing for sure. CGM Focus diversifies the fund by incorporating many different types of stocks in its portfolio. This fund is also diversified because it is a global fund that buys stocks from around the world. This benefits the fund because the United States may not always be doing well, but foreign stocks might be doing better. This fund, however, only buys stocks and not bonds limiting its diversification and making it a riskier investment. Bonds have a guaranteed return, but with stocks the market can fluctuate and effect your earnings. Having a portion of my money with CGM Focus for as long as possible will give me a greater chance for a larger return on my investment. CGM Focus had one of the highest returns as of August 2007 (61.78%), and over the past ten years CGM Focus had an average return of about twenty percent. It also received five out of five stars on from Morningstar.
The second fund for my college money is less risky because it focuses on bonds. This fund is Fidelity Capital & Income. A bond is like an I.O.U. It is also important to include bonds in a portfolio because if you buy a bond there is a set and guaranteed percentage that the buyer of the bond must return. Including Fidelity Capital & Income in my portfolio helps diversify it. This fund has many high yielding bonds. Fidelity Capital & Income has had an average of 17.31 percent return over five years and an average of 7.51 percent over ten years. This fund also had a five star rating from Morningstar.
The two funds, CGM Focus and Fidelity Capital & Income, have many differences and similarities. For example, CGM Focus has stocks and is more likely to have a larger return over a long period of time. On the other hand, Fidelity Capital & Income is a less risky fund that focuses on bonds with a guaranteed return over a certain amount of time. Having both of these mutual funds in my portfolio makes it very diversified. The funds are similar because they both have five star ratings and both had high returns for their type of fund.
The most important thing to do when choosing funds to add to your portfolio is to diversify your investments. For college, 55 percent of my money will be invested in CGM Focus and 45 percent in Fidelity Capital & Income This is because I only have six years to invest my money before I go to college. Six years is not a long time; therefore, I only invested a little more that half of my savings in CGM Focus to make sure I had some money guaranteed when college comes around in a few years. The 45 percent of my savings in Fidelity Capital & Income would have a lower return but, guarantee a definite amount of money over a certain period of time. Having a diversified portfolio for my college funds that includes both stocks and bonds will allow my money to grow, yet be somewhat protected.
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