Navigating Market Trends for Education Funding

Navigating Market Trends for Education Funding

Setting the right financial goals for your family’s education plans requires a close look at the market.

The right education plan can spell the difference between a smooth college experience and a disastrous headache, and that’s why 75% of parents in 2024 have started helping their children save for college early.

Building a solid education savings strategy involves thinking through and appropriately navigating the many different savings vehicles available, tax implications, roadmaps to specific goals, and the annual rate at which education costs increase.

All of this boils down to thoroughly understanding how the market will affect your child’s education savings, and doing so requires identifying the right considerations and creating the right strategies.

Key Economic Indicators to Monitor

You may be wondering, how does the stock market affect the economy? The truth is that the stock market (and the state of the general economy) impact both commercial and personal savings. 

Credit demand influences interest rates, for example, which may guide, in turn, how much you invest and how much you’re comfortable with spending on purchases. Higher interest rates tend to discourage borrowing and limit commercial expansion, thus negatively affecting the stock market and the education savings accounts that correlate to it. 

Lower interest rates, on the other hand, tend to have the opposite effect.

And let’s not forget about inflation. According to Fidelity research, 93% of parents say that inflation and its correlations to the ever-rising costs of college are their biggest concerns when saving for their children’s educations.

This is for good reason: When inflation is high, the purchasing power of the dollar decreases, limiting how far your education savings will go in covering college costs. High inflation generally tends to lead to lower investment returns, especially if your education savings account isn’t tied to inflation-protected assets, like real estate, commodities, and indexed annuities.

Each of these indicators works together to signal the overall state of the economy and how you can expect your education savings account to perform.

So, with that being said, how can you protect your child’s education savings when the market goes south?

Tips for Effective Education Funding

Successful education funding requires careful planning, proactivity, and saving as soon as possible. 

Consider these education funding strategies to protect your education savings from market swings.

1. Diversify Investments 

Diversification helps investors navigate and protect themselves from market volatility. 

By diversifying your investments across different classes—such as stocks, bonds, real estate, and cash—you’re working to protect (or “hedge”) your savings against volatile market swings.

With education funds, you can save in a tax-advantageous account, like a 529 savings plan, and incorporate a separate mix of stocks and bonds.

This way, a downturn in one of these asset classes won’t affect your entire portfolio.

2. Try Dollar-Cost Averaging

Dollar-cost averaging involves consistently investing a fixed amount of money at regular intervals, regardless of market conditions. 

This approach works by purchasing more shares when prices are low and fewer shares when prices are high, so you average the purchase price over time. 

This strategy helps mitigate the impact of market volatility, reducing the risk of making poor investment decisions based on short-term fluctuations. 

3. Understand Traditional Savings Accounts

Part of a diversified portfolio is leveraging traditional methods like savings accounts and Certificates of Deposit (CDs). 

While these won’t always bring in huge returns, you’re sacrificing some growth for stability and reliability, which go a long way in education planning.

4. Use Education Savings Accounts

529 plans provide tax benefits for college savings. You can invest in market portfolios through these plans, and their tax benefits include tax-free growth and withdrawals so long as the funds are used for qualified education expenses. 

Prepaid tuition plans are also a type of education savings account where you can lock in current tuition rates for use in the future for in-state colleges. 

These prepaid plans help you protect your funds against rising costs, but keep in mind that they don’t have as much flexibility or growth potential as other plans.

5. Seek Professional Guidance

Even with the knowledge of basic best practices, there’s still a lot to consider when developing a financial plan for education that hits your long-term goals and provides the financial stability that you seek for your child. 

Work with a financial advisor who can navigate market trends and help you develop a personalized education funding plan. 

Secure Your Child’s Education With Help From Avior

It’s hard to predict what the market will do from one year to the next, but keeping an eye on key economic indicators will help you invest wisely for education. 

Your family’s educational goals are an important part of your overall wealth management strategy, and monitoring the market alongside your changing goals and priorities will help you maintain an effective plan.

When you’re ready to prioritize education funding, talk to the team at Avior. We work together with you to truly understand your long-term goals and implement an action plan that aligns with your family’s unique priorities. 

Contact us today to get started with a one-on-one consultation!

Disclaimer: Nothing contained herein should be construed as legal or tax advice. Avior and our Advisors will work with your attorney and/or tax professional to assist with your legal and tax strategies. Please consult your attorney or tax professional with specific legal and/or tax questions. Investment Management and Financial Planner are offered through Avior Wealth Management, LLC, an SEC-registered investment advisor. Past performance is not a guarantee of future results.  Investments are subject to loss, including the loss of principal.