Investing for Baby: Higher Risk/Higher Chance for Return

Individual Stocks
Always dreamed of being a Wall Street wheeler-dealer? This is a fun and exciting way to invest your child's education money, but it's a risky way. There are no guarantees when investing in stocks. You may come out ahead; you may lose everything.

Taking a small percentage of your money and purchasing stock is not a bad idea at all, considering the windfall you may experience. However, since those windfalls are rare, do not make the mistake of investing more than you can afford to lose.

Mutual Funds
Mutual funds fall into three main categories: money market funds, bonds funds, and stock funds. Consider mutual funds an "investment club" of sorts.

You pay to participate in a professionally managed investment coalition. You pay a fee to participate, management costs, and often a large "load" at the onset. You benefit by receiving dividends, capital gains and higher yields.

Before making the plunge into a particular fund, do some research. Look at the fund's history. Ask for references. Investigate the ventures the fund has interests in.

The cons: you are at risk because the funds do not guarantee any return, not even the return of your initial investment. The pros: they're safer then playing the stock market on your own, because the group fund is invested in more than one venture. There's a lot of money to be made if you can afford to take the risk.

Diversify. Diversify. Diversify.
The best strategy is a broad strategy, according to most financial planners. Every child should have a savings account, to teach about savings. They should also have an educational IRA or 529 account. Parents can choose to invest in riskier investments with a portion of the available funds. Diversify, following the "don't keep all your eggs in one basket" mentality.