Financial Planning Tip of the Month

Building College Savings into Your Financial Plan

As tuition costs continue to rise, many families with young children are worried about how they’ll pay for college.

Where to begin?
First off, it’s important to keep things in perspective.

Here are a few facts to consider:

-Your savings will have a minimal impact on financial aid. Using the Free Application for Federal Student Aid (FAFSA) formula, only 5.6 percent of parental assets counted for financial aid purposes can be factored into your expected contribution. 20 percent of the student's assets are used.  Your income during the child’s college years will have a more substantial impact when factored into the FAFSA equation.

-Your child will likely get some help. Thanks to financial aid, loans, and grants and scholarships, few families end up paying the full price of tuition. Even more affluent families can qualify for assistance. The amount of aid you receive will largely depend on your personal situation at the time your child enters college.

The key to saving for college: start early!
The sooner you begin planning for college, the better off you’re likely to be.

These tips can help you jump-start your savings plan:

-Use the “one-third rule.” The prospect of paying for college may seem more manageable if you think about dividing the cost into three pots. Plan to save one-third of anticipated college costs, pay one-third from current income and financial aid, and use loans (either parent or student) to cover the final third. As your financial situation changes, you can adjust the percentage you allocate to each pot. For example, as your savings grows, your next stop might be one-half, one-quarter, one-quarter.

-Set a benchmark.  Another option is to set a specific monthly or annual savings goal, breaking it down so that the amount is reasonable and attainable. For example, a goal of $2,500 per year is equivalent to saving about $50 per week.

Most importantly, Don’t shortchange retirement.
Saving for college shouldn’t derail your retirement savings plan. You will likely be working while your child is in college and may be able to cover some of the cost with current earnings. Keep in mind that, while loans and financial aid can assist with college expenses, you can’t take out a loan to fund your retirement.

Economic and Market Commentary

This month we are going to share some timely and educational insights from one of our research partners...State Street Global Advisors.  These 5 reports are in line with our current thinking and investment strategy. 

*All data is as of 05/31/2017.  

You may notice that some of the recent market activity can be explained by much of this information. 

-The first report "Market Breadth" has already started to unwind as we have seen technology stocks fall from their highs.

-The second report "Asset Class Performance" shows how major asset classes have performed over the past year and most recent month.  Earlier this year at RAA, we eliminated direct exposure to Small Cap stocks and increased our exposure to International stocks (both developed countries and emerging markets).

-The next report "Global Valuation" shares some further support for our continued interest in owning Emerging Markets stocks.

-"Credit Trend #1" shares some thoughts on High Yield Bonds.  This report pretty much sums up why we do not currently have direct exposure to traditional high yield bonds.  We are not getting paid for the risk.

-Lastly, we look at a potential opportunity.  Traditional Energy stocks have been in a downtrend.  "US Sector Valuations" shows us that from a valuation standpoint and not considering geopolitical and commodity specific risks, the sector is trading at attractive levels.  We do not currently have direct exposure to the energy sector.

We hope you find these reports interesting and would love to hear your feedback.

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