How and where you invest makes a big difference
Staring down that big future tuition number can be daunting but the most powerful
factor on your side is the power of compounding. The two factors that effect compounding
are time and rate of return. So you should start saving as soon as possible and
you need to find an investment that maximizes your return for a reasonable amount
of risk.
A $10,000 investment in US Government Bonds today will be worth $24,700 in 20 years.
Not a bad return and certainly a low risk choice but the returns pale in comparison
to some of the alternatives.
Instead if the same money was invested in a broad market index mutual fund and if
that funds returns something close to the long term historical average for equity
indexes then that $10,000 would be worth over $46,000. Of course, investing in mutual
funds is more risky than government bonds but a long term investment horizon can
help mitigate the short term market fluctuations.