What happens if the stock market drops? Does it affect a savings plan set aside specifically for a child’s education?
Don’t worry, the stock market will drop. Yes that’s just a part of investing in stocks. Don’t ask “What happens if” but when. Accept that it will happen and you’ll feel more comfortable when it does.
For every stock market pullback and bear market we’ve had, has always been followed by a recovery period. So when you are investing for your children’s college education you can invest in stocks as long as you have a long period of time to take care of a recovery. What I mean by long period of time is at least seven (7) to ten (10) years. When your children are getting older and they are closer to spending that money for college, meaning two (2) to five (5) year time frame, then you should be more balanced with some stocks and some fixed income investments as well in order to make sure that you have a balanced portfolio. As your child’s getting closer to college and they’re going to be using that money for their college expenses in the next year or so, then you really want to go conservative and have a portfolio with very little in stocks. With only a year or less, it might not be enough time to recover from a stock market dip.