Daily stock market swings don’t matter when you're saving for college
When the Dow dropped more than 1,100 points in August, investors were in a panic. My daughter, who was only a month old at the time, actually cracked a smile.
That day, I used the market decline as an opportunity to buy some heavily discounted stocks for her Education Savings Account. She's just a baby but already is earning dividends and capital gains.
This past week, when the Dow lost more than 700 points and had the worst week since 2008, I bought more.
Some people thought it was strange that I opened up her education fund when she was barely a week out of the womb.
The fact is, I started saving for college more than a year before she was even conceived. That's because the earlier you save, the less you have to save due to compounding.
The impact of that compounding can be tremendous.
I aim to contribute $2,000 to $2,400 per year to her education fund between various accounts.
If I can earn a modest 6% return on her funds, that will give her $84,000 to put toward college when she's a senior in high school. If times get better over these next 18 years and I can manage an 8% return, that gives her $105,000.
Here in the South, that can cover a large portion of tuition and living expenses at a good public university.
But I can possibly boost those returns by buying when the market is down. So when there's a major market plunge, I pick up a few shares of a solid dividend-paying stock for her account.
Verizon (VZ) is one of her three holdings. It currently pays a 5.6% dividend, which is such a great yield that it helps buffer any declines in value.
There have been some dark days on Wall Street lately, but you always have to keep things in perspective.
Why should I care if the market tanks tomorrow, next month or even next year? She's in diapers and can't even crawl yet.
I'm not thinking about where the market is going to be next month or next year, I'm thinking about where it's going to be in 2029.