Low Risk Way to Save for High College Costs
by
Gregory Grant
If you've been burned by high tech stocks, how about low risk, tax-free bonds? If you're looking to save a certain sum--say for college--by a specific date, zero coupon bonds may be an option.
By the year 2015, the Filler family could have 3 kids in college: Talli -- 5-1/2, Ariel -- 3 and Rachel -- now 2-1/2. Parents Mickey and Richard have done the math -- and say the numbers are overwhelming.
Zero coupon bonds may be a means to meet the high cost of college. Zero coupon bonds are fixed income investments that pay no periodic interest-but at maturity are worth a set amount.
Certain Comfort Level
"Zero coupon bonds are investments that you purchase knowing a specific amount that you're going to get back at maturity," says Dave Savetz of Merrill Lynch. "For example, if you buy a five year zero coupon bond issues by the treasury for 7K today in five year, you're not going to get any interest payments but in five years you're going to get back 10K."
Zero coupon bonds offer a certain comfort level -- the investor knows exactly how much money he's getting when the bonds mature-the principal plus interest accrued.
"A candidate for zero coupon bonds would be someone who wants the comfort of knowing that in x number of years they will have x dollars to fund certain event that they have such as college or retirement," says Savetz.
Zero coupon bonds are often sold at a discount-because they pay no interest until maturity. In most cases -- the interest earned is free from either local, state or federal tax.
In recent years, companies have flocked to the web to set up dot.com sites. Initially retail companies caught the attention of investors and consumers alike.
When to sell a stock is as important as when to buy a stock. The investor that goes beyond just looking at the financial pages will find that this kind of in-depth research will pay off in helping to make wiser investment choices.