Efficient Portfolios for Saving for College

Abstract

This article uses 69 years of real rates of return for six types of financial assets to find efficient portfolios for saving for college, in terms of mean and minimum accumulations. Small stocks are in every efficient portfolio. For 10 and 15 year time frames, the portfolio that was the safest consisted of 89% intermediate term government bonds and 11% small stocks. A family willing to stay 100% invested in small stock mutual funds until each year's college costs must be met can greatly reduce the burden of saving for college, at relatively low risk.

JEL Classification: G12