The student media organization of California State University Northridge

Daily Sundial

The student media organization of California State University Northridge

Daily Sundial

The student media organization of California State University Northridge

Daily Sundial

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Parents of college students advised to preserve funds as stock market plunges

Parents of college students were among the hardest hit during late summer’s stock market turbulence, and financial planners are suggesting these investors look into options outside of Wall Street.

“The parents with young children still have time to increase their savings, but the parents of children in college should really consider opting out of the market,” said Charles Rotblut, vice president of the American Association of Independent Investors.

The stock market plunged in early August with the Dow’s biggest decline since Dec. 2008, at the start of the recession. After the Dow lost about 10 percent, the stock market witnessed the fall of other market indexes as well.

Recent volatility in the market have prompted experts to warn parents with future college expenses to have no more than 20 percent invested in the stock market, and parents of seniors should be even more conservative, Rotblut said.

“One of the best ways to preserve savings is to invest in a money market or CD account,” he said.

Both of these are short-term investments which would allow investors to retrieve their funds when they need them.

Money market accounts are offered by banks and credit unions and work like regular savings accounts, said Rotblut. The main difference is that interest rates and minimum balance requirements are usually higher in money markets.

While banks often place a monthly withdrawal limit on money markets, investors are still able to take out the money they need at any given time.

Unlike money market accounts, certificates of deposits (CDs) typically don’t allow investors to withdraw from funds until the specified amount of time they set for their account has passed. CDs pay investors interest on the money they have saved.

Parents of college students and investors who plan to retire soon should make changes in their savings plans.

“If that money needs to be utilized soon, it’s best not to take any chances,” Rotblut said.

In addition to college parents, people planning to retire soon were shaken during the stock market flux.

“These two groups will be affected more than others because their stocks are short-term, meaning that the savings in their funds were meant to be used in the near future,” said Clarice Clouey, a certified financial planner with Lincoln Financial Advisors in Ventura.

It is unlikely these groups will be able to accumulate the funds they lost in a short amount of time, but long-term investors have a better chance of recovering their losses, she added.

Parents of college-bound students have also been affected if they’ve invested in 529 plans, accounts specifically for college expenses, said Couey.

“If the value of their investments has gone down with the recent plunge, then that’s going to affect the value of their portfolio, therefore affecting how much they’ve saved for their kids’ college already,” she said.

Couey said she anticipates the market’s erratic nature will change once more in the coming months.

“Although the stock market percentage dropped significantly in a short period of time, it is already starting to slowly climb back,” she said. “Those who choose not to sell [their stocks] and wait it out instead are not in any grave danger.”

Parents of college-bound students who wish to maintain their savings should have a solid investment strategy, said James P. Dow, chair CSUN’s department of finance, real estate and insurance.

Although Dow cannot give specific advice without knowing the details of a person’s financial situation, he said investors should follow a general set of rules when it comes to making important investment decisions.

Do not invest as a reaction to news, he said. The state of the market changes constantly and parents should not make any quick decisions based on the present, and temporary, situation.

Parents should have a well-planned, long-term strategy, he added. Consider creating 5-year or 10-year investment plans that will help prevent costly mistakes.

Long-term investments tend to fare better than short-term ones, he explained. An investor’s savings can grow significantly in a span of five to 10 years, but not so much in short-term stocks.

Stocks that are held longer are likely to ride through the market’s ups and downs, he added.

“Be educated,” Dow said. “The more you know, the more you’ll save.”

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