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Doug's Quiz Corner: College Savings

Posted by Doug Hutchinson | CFA®, Director of Research and Trading

January 17, 2017

Quizmaster, Doug Hutchinson, presents his quiz for the month.
Here, Doug discusses strategies for saving for college.

Consider this Scenario:

Your friends Martha and Jack are planning on setting up a college savings investment plan for their toddler, Max. They are examining a few different options for this investment plan and have asked for your help.

One option they are considering is to start contributing now with a $4,000 initial contribution and then adding $1,000 per year for the next 17 years. Assume the contributions occur at the beginning of each year including the first year.

The other option they are considering is to start contributing 5 years from now with a $5,000 initial contribution and then adding $1,500 per year for the next 12 years. Assume the contributions occur at the beginning of each year including the first year.

Assume the investments return 7% per year for each of the 17 years. Also assume that Martha and Jack are using a tax deferred investment account.

Which option will lead to the highest value at the end of 17 years when Max is ready to start college?

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Doug's Quiz Corner college savings

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