A client recently came to see me aboutfor his newborn son’s education.
My client lives on a fixed-- his wife is currently at home with their child, and he was nervous that he couldn't afford to save for both his retirement and his child’s education.
But I knew a solution for his special circumstance, one that allowed him to save while generating income.
But saving wasn't enough. My client needed income, too. That's why we decided to invest in dividend-paying capital gains in the long . It provides a perfect balance of regular income and moderate growth for long-term investors.and mutual ; They provide a steady stream of income with the potential for some
This is exactly what my colleague Amy Calistri recommends to readers of her "Daily Paycheck" newsletter. And if my client had wanted to magnify his earnings, there is a way to do that -- another trick Amy recommends. It's simply this: Reinvest the dividends into purchasing more stocks.
Even without reinvestment, my client would still enjoy $53,170 in dividends paid for a total return of $137,400, or a 7.9% annualized return.
You won't see impressive returns overnight -- or even in a year or two. But in the 18 years it takes my client's son to grow, he should see rewarding returns invested.
Investing for your child’s education is kind of like being stuck between a rock and a hard place. On one hand, you want your investments to grow over the next 15 or 20 years until your child goes to school, but on the other hand, you want your investment to be stable because you don’t want to take the risk of losing the money for your child’s education.
Investing in the right dividend-paying stocks can solve both of these problems, something my client realized.
The savings plan, improving your savings even more.Answer: One nice thing about reinvesting your dividends is that you can do it in a 529
A 529 savings plan is designed for parents (or other relatives) to save for a child’s post-secondary education. The money saved in the account can be used by the future student towards education related costs such as tuition, room and board, fees, books and computers.
My client wanted to save for his son’s education but he wasn’t convinced that a 529 savings plan was the way to go. He wanted to invest in a regular savings account his son decided not to attend a post secondary school. This way he could use the money for something else if his son decided not to pursue his studies after high school.
But the interest, dividends and capital gains earned in a 529 savings plan are not subject to federal and (usually) state taxes if the money is used for qualified college expenses, making it worth your while to consider.