Investing in My Children’s College Funds: A Costly Mistake


While I’ve spent countless hours reading and writing about dividend investing I’ve been making a costly mistake when it comes to investing in my children’s college education.  With my eyes focused on my retirement accounts I’ve been blind to what’s been happening in my kids’ Educational Savings Accounts (ESA).  Recently, I woke up from my ESA slumber and made some changes for the better.

Years ago, I opened Coverdell ESAs for my kids with USAA.  Why USAA?  Because that’s where I kept my checking, savings, and insurance products.  I guess I was being lazy because it was convenient to keep my money at a one-stop shop.  Until recently, I never realized how subpar the investing options were with USAA.  Almost two years ago I discovered better brokerage services for my Roth IRA when I stopped funding my Roth with USAA and opened an account with Optionshouse.  What I failed to recognize at the time was that my ESA accounts I had for my kids could also do better outside of USAA.  Well, better late than never.  I recently found a better ESA option by switching to Charles Schwab.  Schwab has some great fee-free investment options that easily outperform the USAA mutual funds I was invested in.  Also, the available USAA funds that were performing well had investment minimums which prevented me from putting my kids’ college investment in any of the decent USAA mutual funds.  Luckily, I found Schwab and the minimum investment barriers were knocked down to a $1000 minimum.

Let’s compare the mutual fund I was using at USAA to the Schwab mutual fund I recently transferred my kids’ ESAs to.


USCRX (USAA Cornerstone Moderately Aggressive Fund) : 5y = 2.45%, 10Y = 3.35%, Expense = 1.18%


SWPPX(Schwab S&P 500 Index Fund): 5y = 10.92%, 10y = 6.87%; Expense = .09%

Not only has the Schwab S&P 500 fund more than doubled the 10 year performance of the so-call moderately aggressive USAA fund, the Schwab fund’s expense is 1.09% less than USAA’s fund.  A mistake like this could result in thousands of dollars of missed opportunities over time.  Please learn from my mistake and do your homework when shopping ESAs.

4 thoughts on “Investing in My Children’s College Funds: A Costly Mistake

  1. Over 1% is quite pricey for an expense. Glad to see you made the switch to something less expensive and better performing. As you know, I have gone the route of individual stocks fore my child. I’d say I’m looking for creating a passive income stream for him more so than just growth. Thanks for sharing.


    • In addition to the ESA, I have my kids invest a portion of their money (chores, gifts, etc) in individual stocks using Loyal3. Most of the stocks they pick pay dividends but I let them pick what they want for the most part.


  2. Hi DD,
    Glad to hear you have accounts for your kids (and less expenses.) I have them but stopped depositing to them when I realized I didn’t have the money too. I have since turned to saving for my retirement so I don’t have to depend on my kids when we are older. I also like your Loyal3 comment. I had a similar idea (and costs are 0).


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