Retracing the Highs and Lows of a Successful College Savings Plan
May 17, 2017
It’s that time of the year to celebrate a job well done—not just by students graduating from college but by their parents, too. A graduation marks parents’ accomplishment: their planning, commitment, saving, and sacrificing were what made it possible.
The parents of the Class of 2017 persisted through one boom, two crashes and two recoveries. How did they hang in there?
Your clients who are on the front end of the college savings process will surely face different challenges. But it can be instructive to retrace the highs and lows of a successful college plan culminating this year.
Where to Invest?
First, there’s the selection of the funding source. Parents who used the lower-volatility equity Calamos Growth and Income Fund—I Shares (CGIIX)
captured a significant amount of upside during bull markets and limited losses when markets plunged. By keeping drawdowns to a minimum, CGIIX was able to recover sooner, enabling the invested balance to continue to grow. Most important: the absence of dramatic declines kept parents invested and focused on the end goal.
The hypothetical illustration below demonstrates the path of a $10,000 investment in CGIIX 1995 to 2017 compared to the Standard & Poor’s 500.
Since 1995 (2/1/1995), the Growth and Income Fund (CGIIX) outperformed the S&P 500 Index with a beta of 0.71 and alpha of 3.55% (11.33% I shares vs. 9.65% for the S&P 500 Index).
The College Savings Plan
Next was the investment plan, including how much and how often.
Below is a hypothetical illustration that we highlighted in a recent post, which demonstrates how five annual contributions of $5,000 into Calamos Growth & Income Fund (A Shares at NAV) from 1995 to 1999 would have been enough to cover college expenses of $30,000 a year from 2013-2016. Even after those four withdrawals, $24,822 remained in 2017.
In other words, almost $25,000 (almost as much as the initial investment) was left over—whether for the parents to reward themselves for a mission accomplished or for a new set of wheels for the graduate.
It’s been our pleasure to play a role in helping the Class of 2017 parents fund their children’s academic dreams, and they (and their financial advisors) have our hearty congratulations.
Advisors, for thoughts on building a lower volatility plan for your clients’ up and coming scholars, talk to your Calamos Investment Consultant at 888-571-2567 or [email protected].
Performance data quoted represents past performance, which is no guarantee of future results. Current performance may be lower or higher than the performance quoted. You can obtain performance data current to the most recent month end by visiting www.calamos.com. Calendar year returns measure net investment income and capital gain or loss from portfolio investments for each period specified. Average annual total return measures net investment income and capital gain or loss from portfolio investments as an annualized average. All performance shown assumes reinvestment of dividends and capital gains distributions. Class A shares load-adjusted returns are adjusted for the maximum front-end sales load of 4.75%. The Funds also offer Class B and C shares, the performance of which may vary.
Performance shown reflects an expense reimbursement that improved results. As of the prospectus dated 2/28/17, the gross expense ratio for Class A shares is 1.12% and for Class I shares is 0.87%.
Calamos Growth and Income Fund risk include: convertible securities risk consisting of the potential for a decline in value during periods of rising interest rates and the risk of the borrower to miss payments, synthetic convertible instruments risk consisting of fluctuations inconsistent with a convertible security and the risk of components expiring worthless, equity securities risk, growth stock risk, small and mid-sized company risk, interest rate risk, credit risk, liquidity risk, high yield risk, forward foreign currency contract risk and portfolio selection risk.
S&P 500 Index – Is generally considered representative of the U.S. stock market
Standard Deviation is a statistical measure of the historical volatility of a mutual fund or portfolio. Sharpe ratio is a calculation that reflects the reward per each unit of risk in a portfolio.
Alpha is a measure of performance on a risk-adjusted basis. Alpha, often considered the active return on an investment, gauges the performance of an investment against a market index used as a benchmark, since they are often considered to represent the market’s movement as a whole. The excess returns of a fund relative to the return of a benchmark index is the fund's alpha.
Beta is a historic measure of a fund’s relative volatility, which is one of the measures of risk; a beta of 0.5 reflects 1/2 the market’s volatility as represented by the Fund’s primary benchmark, while a beta of 2.0 reflects twice the volatility. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost.
Unmanaged index returns assume reinvestment of any and all distributions and, unlike fund returns, do not reflect fees, expenses or sales charges. Investors cannot invest directly in an index. Important Risk Information.
An investment in the Fund is subject to risks, and you could lose money on your investment in the Fund. There can be no assurance that the Fund will achieve its investment objective. Your investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. The risks associated with an investment in the Fund can increase during times of significant market volatility. The Fund also has specific principal risks, which are described below. More detailed information regarding these risks can be found in the Fund’s prospectus.
Hypothetical Report Disclosure Statement
This is an illustration of a simulated investment that assumes the portfolio holding(s) were purchased on the first day of the period indicated. Sales and tax charges, including those required in the event of transfers between assets, are taken into account at the rates shown and may be higher or lower than what an investor would have actually paid had the investments been purchased then or now. The performance data represents past performance and is not indicative of future results. Principal value and investment returns will fluctuate, and an investor's shares/units, when redeemed, may be worth more or less than the original investment.
The underlying holdings of the portfolio are not federally or FDIC-insured and are not deposits or obligations of, or guaranteed by, any financial institution. Investing in securities involves investment risks including possible loss of principal and fluctuation in value.
The investment returns do not reflect active trading and do not necessarily reflect the results that might have been achieved by active management of the account. The investment returns of other clients of the advisor may differ materially from the investment portrayed.
The information contained in this report is from the most recent information available to Morningstar as of the release date, and may or may not be an accurate reflection of the current composition of the securities included in the portfolio. There is no assurance that the weightings, composition and ratios will remain the same.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
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