Expert: Paul Henneman - 9/14/2006

Question
My husband and I are considering a dividend reinvestment plan for our 1 year old daughter.  Our plan is to buy a share of stock annually until she is 18.  Our motive for this so that she will have something that's hers all thru adulthood.  But we aren't really sure where to start.  What do you suggest?  Another question, would we be better off starting a college fund for her instead?  Our finances aren't that great and I thought it would be cheaper to start a DRIP instead of a college fund.

Answer
Kim,
  Thank you for your question!
  I think that starting a college fund instead would be clearly more advantageous for you. Depending upon the state you live in, there are often programs where for a small amount invested each month, full college education costs are paid for by the time your daughter reaches that age. The contributions are often tax deductible, and most such programs lock in the current cost of attending a state college. As prices for higher education rise so quickly, this is the path that could give you the greatest benefit for your daughter in the future.
  To invest in stocks is another alternative, but unless you really spend some time on this, it could be problematic. Also, you would need to invest a hundred or two dollars per month for this to add up and be of significant enough benefit for your daughter when she reaches eighteen. The college program, assuming she uses it, would be much more advantageous and give your daughter the most important tool of all regarding a successful life going forward.  A college education is so critical these days, and expensive. If you have enough after setting this up, then yes some sort of additional investment would be of benefit.
  To sum up, the advantages of this could be the tax deductions for the contributions you make to the college fund, locking in the current cost of college, and having all tuition full covered for a state University by the time your daughter graduates high school.
  If you do have the resources to do both, please do not hesitate to follow up with me and I can discuss the options for an investment account for your daughter in more detail. But the college fund should come first!

I hope this helps, please do not hesitate to follow up with me if I can be of any further assistance,

Sincerely,
Paul Henneman
President
ValuEngine, Inc.
ValuEngine.com