How to Invest $20,000 Now to Help Pay for College

Fund, money, nest egg

Fund, money, nest egg

Written by Puja Tayal at The Motley Fool Canada

According to a 2018 RBC report, Canada’s tuition fees have tripled since the 1990s. The average student loan debt is $15,300 for college graduates and $28,000 for college graduates (according to Statistics Canada). With these escalating costs, it currently takes around nine to 15 years to pay off an education loan.

The cost of going to college

Canada’s education inflation is growing faster than headline inflation. This year, student tuition increased by as much as 12%. Someone born in 2018 will have to shell out $70,000 for a four-year program by the time they reach college in 2037. And when you add living expenses, the cost could run as high as $128,000. It goes without saying that managing student loans early will take a toll on your finances.

Pay for your studies with your own money

You can help your kids thrive by investing $2,000 annually in a Registered Education Savings Plan (RESP) for the next 10 years. You get the $2,000 tax deduction and your child gets a leverage-free education. So how can you start?

You need stocks that can beat education inflation and turn $20,000 into $70,000 to $100,000 in 10 years. To achieve this goal, your portfolio should have a compound annual growth rate (CAGR) of 20%. Here are two long-term growth stocks that could pave the way to college.

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Bearings from Descartes Systems

Descartes systems (TSX:DSG)(NASDAQ:DSGX) is a long-term growth stock at 20% CAGR. Global trade is becoming more complex every year, creating a demand for more efficient supply chain and logistics management solutions. Geopolitical tensions are reshaping the global supply chain, which could take five to seven years to adjust. Descartes supply chain solutions help companies keep up with the rapidly changing environment by offering route mapping, customs and compliance, and logistics planning.

In addition, Descartes has expanded its e-commerce offerings to enter the door delivery market. Its customers are spread across various industries such as manufacturing, retail, and transportation. All of these industries grow with the economy. When there is a pullback, there is also an equally strong bounce, making Descartes a definite buy in a dip.

The stock proved its elasticity during the past crisis. During the 2018 trade war, DSG stock fell 27% as the United States and China imposed multiple restrictions on semiconductor exports, reducing trade volumes. At the time, Descartes was seeing a significant increase in its compliance solutions, and its shares rebounded 66% in 2019. During the 2020 pandemic, local retail and manufacturing were impacted due to lockdowns. But demand for Descartes’ e-commerce solutions soared, and inventories soared 94% in a year.

Now, Descartes stock is down 35% on the sell-off in tech stocks and the disruption to the supply chain resulting from the war between Russia and Ukraine. Nations are rebuilding new supply chains and creating demand for Descartes solutions. The share price is up 16%. Book now for your shot at a 60% return in 2023 and a 20% CAGR until your child goes to college.

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sticky stock

Believe it or not, the stock of sub-prime lenders Well (TSX:GSY) is up 30% CAGR between 2015 and 2020. The company’s business model aims to provide small loans ranging from $500 to $75,000 to those unable to secure credit from traditional banks due to poor credit ratings or other reasons. With higher risk comes higher interest rates.

goeasy’s turnover depends on the number of loans granted and the profit on the number of loans repaid with interest. If the turnover is high, the profit will be small at first, but will grow later as it brings interest. This model not only generated growth in a strong economy, but also enabled goeasy to survive the 2009 financial crisis. As a small-cap stock, any economic improvement brings significant stock price momentum. Goeasy stock has a limited downside as the company reserves a certain amount for bad debt provisions.

In the current scenario, rising interest rates have made borrowing more difficult and shifted credit demand to lenders like goeasy. Lending rose 70% in the second quarter, but the stock price fell over 50% on increased risk of bad debt. If the economy recovers, the stock could soar 100% and later return to 30% or less CAGR, helping your child go to college with no credit.

How to Invest $20,000 Now to Pay for College post first appeared on The Motley Fool Canada.

Before you consider Descartes Systems Group, you should hear this.

Our market-leading team of analysts just revealed what they think are the 5 best stocks investors can buy in October 2022…and Descartes Systems Group wasn’t on the list.

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Stupid contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool recommends DESCARTES SYS and the Descartes Systems Group. The Motley Fool has a disclosure policy.


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