We started saving for college on September 21, 2005, and since it’s been a little over a year, it’s worth assessing our progress. Agnes and I haven’t talked about an exact amount that we’re targeting for college savings, but we can come up with a preliminary target if we look at projections for tuition, room, and board for the year that our kids enter college, multiply it by two, and decide what percentage of the total we would like to have when the kids enter college. I don’t know if 50% is the right percentage, but it seems like a reasonable place to start.
Assuming the above calculations give us a target savings amount, here’s where we stand:
- We’ve saved 2.4% of our target and used 5.6% of our time.
- In the past year, we had an 8.5% gain on our principal as compared to a 10% gain that the S&P 500 enjoyed during the same period.
It’s probably okay that we’ve saved only 2.4% so far. Savings tend to grow more quickly during the later stages due to the effects of compounding on past gains.
It’s not great that we were beat out by the S&P 500, but I’m not that concerned either. We have a good mix to our investments, which I think will help us ride out some of the bumps we would face if we were invested solely in an index fund that mimics the S&P 500. The S&P 500 is dominated by large-cap stocks, and even though we don’t need the money for another seventeen years, I think it’s good to still diversify beyond what the S&P 500 provides.
That being said, with our current contribution rate, we need to average about a 12% gain each year to meet our goals. That’s probably unrealistic. Alternately, if we expect to average an 8% gain each year, we’re going to need to bump up our yearly contributions by $1,000 for each of them.
For now, I don’t think we’re going to make any drastic changes. We may try contributing a little more over the next year, but I don’t see the need to change what we’re investing in. We’ll let it go another year and assess where we are again before we make any changes. Our investments have drifted a little bit from our original allocation, but that’s easy enough to rebalance. We’ll see where we stand next year.