Money Management

You might need stocks to accumulate enough savings to fund your kids’ education. But are stocks worth the risk? Read on to see. 

If the idea of having to put your kids through college is daunting to you, you’re surely not alone. The average cost of tuition and fees at a private college is a whopping $39,723 a year, according to U.S. News & World Report. And while it’s considerably less expensive for public colleges, you’re still looking at a good $22,953 annually for out-of-state tuition and $10,423 for in-state tuition.

And these are just rates for the 2022-2023 academic year. Over time, the cost of college has the potential to rise even more.

Because it takes a lot of money to fund a college education, it’s not a great idea to keep your cash reserves for that purpose in a savings account. A better bet is to invest your money, whether in a 529 plan that’s earmarked for college or a brokerage account, which gives you more flexibility.

But is investing in stocks for college too risky? The quick answer is, not necessarily. And if you don’t invest in stocks, you’ll end up taking on a different sort of risk.

The right way to invest in stocks

If you’re trying to grow your money to meet a near-term financial goal, then buying stocks generally isn’t the best idea. That’s because the stock market can be volatile, and stock values can fluctuate a lot. You’ll want to give yourself many years to ride out a potential downturn, so if your goal is to buy a house in 2024, you wouldn’t want to invest your down payment in stocks today.

But when you’re saving for a long-term goal, like college, stocks can be an extremely useful tool. And while there’s no guarantee you won’t lose money in the stock market, when you have a longer investment horizon, you’re more likely than not to make money by loading up on stocks.

In fact, you may want to think of saving and investing for college the same way as retirement. If you’re 30 years away from leaving the workforce, it pays to go heavy on stocks because you have lots of time to recover from a market downturn. But you probably wouldn’t want 90% of your portfolio in stocks the year before you’re set to retire.

Similarly, let’s say your oldest child is 14 years away from starting college. In that case, you should feel pretty secure loading up on stocks. But it would also be a good idea to shift over to safer investments once college is a couple of years away.

Not investing in stocks carries risk, too

You might think that investing your kids’ college fund in stocks is risky. But not putting that money into stocks is risky, too.

If you don’t grow your savings at a rapid enough clip, you’ll risk landing in a position where you don’t have enough money to cover your kids’ costs. So while buying stocks may be outside your comfort zone, it’s important to push past that for the sake of amassing a large enough college fund.

And if you’re worried about buying the wrong stocks, it could pay to enlist the help of a financial advisor. You might also choose to load up on broad market ETFs, which can be a less stressful way to invest than choosing different stocks individually.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
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Looking to shed some square footage? Read on to see why this may not be the best year to do it. 

You may be at a point in life when you’re ready to downsize your home. Perhaps your kids have grown up and abandoned the nest, leaving you with lots of extra space you don’t need. Or it could be that you’re struggling to keep up with the costs of a larger home and need a dose of financial relief.

Generally speaking, there’s a lot to be gained by downsizing. But you may find that buying another home in 2023 is a pretty big challenge. Here’s why.

1. You might have to compromise on your new space

These days, the U.S. housing market is sorely lacking in inventory. As of the end of March, there were only 980,000 available homes for sale, according to the National Association of Realtors. That represents a mere 2.6-month supply of homes, which is well below the four- to six-month supply a more typical housing market might have.

Because there just aren’t a lot of homes for sale right now, you might end up struggling to find a suitable living space if you downsize. You might, for example, want to buy a condo in a housing community with a swimming pool, gym, and tennis court. But there may not be such a home available in your target price range right now.

2. You might get stuck with a higher mortgage rate

You may be able to sell your home and walk away with enough money to cover the cost of a smaller one in full, thereby avoiding a mortgage. But that’s not guaranteed to happen.

You may end up having to borrow money to finance a smaller home. And that could mean getting stuck with a higher mortgage rate than what you’re paying now.

As of late April, the average interest rate on a 30-year mortgage was 6.39%, according to Freddie Mac. But what if your current mortgage has you paying just 3.75%? While you might save some money by virtue of signing a smaller mortgage, your savings might be limited due to signing that loan at a much higher interest rate.

Should you downsize in 2023?

If you think you’ll be able to buy a smaller home outright based on the profits from the sale of your current home, then you may want to move forward with plans to downsize. Say your home has appreciated a lot in value and could reasonably sell for $850,000. If you owe $400,000 on your mortgage but are looking at homes in the $250,000 to $300,000 range, then you might easily manage to buy a home in cash once your sale is complete.

Otherwise, crunch the numbers to make sure downsizing makes sense right now given today’s mortgage rates. Also, try scoping out the market to make sure there are at least some properties available that appeal to you. If that’s not the case, then you may want to wait to downsize until housing inventory picks up.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Laid off? Read on to see what might become of your 401(k). 

It’s common for companies to offer workers the option to save for retirement in a 401(k) plan. In fact, in 2020, a good 67% of private sector workers had access to a workplace retirement plan, according to the Bureau of Labor Statistics.

If you made an effort to save in your company’s 401(k), you may have accumulated a nice nest egg already for retirement. But what if you’re laid off due to no fault of your own? Unfortunately, it’s the sort of thing that can happen even if you’re a dedicated employee. Does losing your job mean losing your 401(k)? Here’s what you need to know.

Your 401(k) contributions are yours, no matter what

When you put money from your own earnings into a 401(k) plan, that money cannot be taken away from you. So if you lose your job whether due to poor performance or not, you don’t forfeit that money. What you might lose, though, is your 401(k) match, or part of it.

Many companies that sponsor 401(k) plans also match worker contributions to different degrees. In some cases, when you get a match, you vest in full immediately. That means you’re entitled to those matching dollars right away. Other companies, however, subject workers to a vesting schedule that only has you gaining access to those matching dollars in full after a certain amount of employment.

So let’s say your employer matches up to $3,000 in 401(k) plan contributions a year but has you on a one-year vesting schedule. If you contributed $3,000 to your 401(k) but were only employed for nine months before getting laid off, you may not get 25% of your match, or $750. However, the $3,000 you put in is yours no matter what.

You can generally move your money or leave it

Many 401(k) plans will allow you to leave your money where it is, even if you’re no longer employed by the sponsoring company (though there may be a minimum balance requirement you have to meet in this situation). You may be inclined to leave your 401(k) alone. But that’s not necessarily the best idea.

If you go that route, you might forget about that money. Or, you may not forget about it, but you might neglect to go in and make strategic investment changes.

A better bet may be to roll your 401(k) into an IRA. That way, you have complete control over that account.

Now, if you decide to roll a traditional 401(k) into a Roth IRA, you’ll have to pay taxes on that money, since Roth IRAs are funded with after-tax dollars and traditional 401(k)s give you a tax break on your contributions. But you won’t face a tax bill if you roll a traditional 401(k) into a traditional IRA.

One thing you don’t want to do, though, is cash out your 401(k) and just put the money into a savings account. From there, you’ll lose out on tax-advantaged treatment. And if you’re not yet 59 1/2, you’ll face a penalty for an early 401(k) withdrawal. That penalty won’t apply if you move your 401(k) into another retirement plan.

Being laid off from a job can constitute a major blow. But rest assured that it doesn’t mean losing out on money you contributed to your 401(k) plan.

Our best stock brokers

We pored over the data and user reviews to find the select rare picks that landed a spot on our list of the best stock brokers. Some of these best-in-class picks pack in valuable perks, including $0 stock and ETF commissions. Get started and review our best stock brokers.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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