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Prepaid tuition just the beginning of college plan
Q. I have two young daughters, and I am planning for their education by purchasing the Florida Prepaid College Plan's tuition plan, expecting that this will cover the cost of their education. I'm wondering now if I am not being realistic. Do you believe much more will be needed?
A. Yes. In fact, there's no doubt about it.
How much more you will need depends on where your daughters go to college and what kind of lifestyle they have. Generally, tuition represents about 20 percent of the cost of attending one of Florida's public universities. If you cover that with a Florida Prepaid contract, you still have to come up with the other 80 percent.
There is no way to know now exactly how much you will need because there are so many variables that could come into play. Most estimates of college costs assume that the student will not have a car, but many students expect to have one. Buying, insuring and maintaining a car can add thousands of dollars a year to the college tab. On the flip side, you can save money if your daughters continue to live at home and attend a nearby college.
The good news is that most parents do not save 100 percent of the cost of college in advance, and you don't have to either. Most people depend on a combination of resources such as savings, current earnings, scholarships, loans, relatives' contributions and the child's own earnings.
Be sure to encourage your daughters to get good grades in school so they will be able to qualify for academic scholarships.
Q. My husband left me a portfolio of 18 stocks that I rely on for income. Two have been bought out, and five others have either reduced or eliminated their dividends. I also have received small numbers of shares from some companies through stock spinoffs. I am thinking of revamping my portfolio, selling some and buying others that pay better dividends.
Is there one source that lists all companies that pay dividends and their dividend history? A friend told me to investigate the companies and their dividend history.
A. The St. Petersburg Times and many other newspapers list dividends in their stock tables. The most complete listing in the Times can be found on Saturdays. You can check for the annual dividend per share and the yield, which is the dividend divided by the share price.
Your friend is correct that you should research a company's dividend history. Even more important, though, is researching the company's financial strength and prospects for continuing to be able to pay that dividend in the future.
It is especially important to compare a stock you are considering with other companies in the same industry. An unusually high yield is a sign that investors doubt that the dividend can be sustained or that the company is facing other financial problems.
Also look at the percentage of net income that a company is paying out in dividends. If it's above average for the industry, that should be considered a red flag. Sometimes dividends are high because an entire industry is out of favor. That means you have to make a judgment about whether this is a temporary situation.
Since you are looking for income, you also might consider putting some of your money into income investments such as bank certificates of deposit and savings bonds. A dividend-oriented mutual fund also might be a good option. Whatever you do, make sure that your portfolio remains diversified so you are not putting all your eggs in one basket.
It sounds as though you are willing to undertake this research yourself. If you find the process too confusing, consider consulting a financial adviser. If you don't understand or don't trust the recommendations that you are given, have someone you trust look over the recommendations before you make a decision.
Online money map
Check out what the National Association of Securities Dealers thinks you need to know about investing (www.nasdr.com/investors.asp). Topics include understanding analyst recommendations, checking your financial adviser's background and "investor alerts" on fraud.
-- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.
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