Expert: Doug Ingram - 2/21/2003

Question
Hello,
  I am soooo naive about investments.  I'm not even sure where to begin.  My husband and I want to put back money for college/after-graduation-necessities.  Which would provide better yields, yet be safe, C.D.'s or bonds?  Do you have better suggestions?  What are mutual funds all about?
  We are thinking about setting back a few thousand now and letting it grow for many (15-20?) years.  We would also like to do something that we could add to throughout the years that may be separate from that (we were thinking about putting $100/month into something).  
  We would really appreciate your ideas.  

Thank you for your time,
Tammy Dodd

Answer
First off, sorry I've been away and couldn't get back sooner!

Many states have a buy-it-now program for college.  You pay X dollars and years later your child can go to any state school.  Call or visit any state school website and inquire about the program.  I don't know where you are, but state schools are like Ohio State, Penn State, Ole Miss, Miss State, Illinois, Illinois State, etc.

CDs and bonds should be equally safe for your purposes.  CDs are insured up to $100,000 by the FDIC, and you're not going beyond that.

People forget that US Savings Bonds are a good deal.  
You can plan and learn from the website:
http://www.savingsbonds.gov/

Compare rates at local banks and Savings Bonds.  Go for the better yield or maybe a mix.

However, CDs and Bonds don't return a lot in the long run.  Over a great deal of time stocks will do better.  It is NOT TIME to buys stocks yet!  Holding bonds is much better.

After the stock market bottoms, it should return about 10 to 15% a year while bonds earn 3 to 5%.

Mutual Funds are managed groups of bonds or stocks.  That way, you don't risk putting all your money in one bad stock like WorldCom or Enron.  You diversify!  

A friend of mine paid the state of Mississippi $2,000 when her son was 5.  He is now 9.  When he's ready for college, he can go to any state school for 4 years PAID.  Of course, there's still meals, books, etc.  That just pays the tuition.