Kids grow up so fast. One moment they’re in our arms, the next they’re on our nerves (but we love them dearly anyway) and getting set for college. Emotions are rarely stronger than when you leave your child after moving her in to face freshmen year.
I can remember my parents paying the tidy sum of approximately $450 per semester for me to attend Rutgers University back in 1974. How times have changed! Remember chapter 9, “It Lives,” where I jokingly discussed how a stock seems to know what you paid for it just as you’re about to break even, and often has no intention of accommodating your desires? Let’s apply this rule to investing for college.
Just because your kid is going to attend college in some future year does not automatically mean that the stocks or mutual funds you own will appreciate by enough to achieve your monetary goals. In fact, there’s a distinct possibility that they won’t. They may even post a loss. Some will reason that the number of years remaining until their child reaches college age somehow assures a favorable investment outcome or insulates their portfolio from losses. Besides, they argue, the stock market generally rises over time.
That’s a bold assumption to make when investing for college, however, because you’re dealing with a specific time period in which that appreciation will need to occur. You’re basically saying to the investment vehicle you’re counting on to help you pay that college tuition that it needs to appreciate by a certain amount by a certain time. But the market doesn’t take orders well. It’s the boss, not you. Remember, the stock market does not know your personal status, nor does it care.
While I’m well aware that many equity instruments have performed well enough to assist parents with paying the high (to put it mildly) costs associated with college these days, that isn’t always the case. And in those instances where sums earmarked for college were held in technology shares in early 2000, in an assortment of equity-related instruments during the major market setback of late 2007 to early 2009, or in most energy-related equity vehicles from their 2008 or 2014 peaks, funds destined for higher education declined. Just look at the monetary evaporation in gold and silver mining shares (whose peaks generally date back to 2011) through 2016’s first-quarter troughs. Even the widely watched Standard & Poor’s 500 Index took more than thirteen years to move convincingly above its March 2000 peak of 1552 (it temporarily topped that mark in October 2007 before collapsing). It took more than fifteen years for the NASDAQ Composite Index to better its March 2000 peak of 5132—from which it proceeded to tumble by 78 percent over the next thirty-one months ending in October 2002.
