The TradeKing promotion has been extended through the end of this month. For some reason, TradeKing likes to run thier promotions in the fall of each year.  Last October Tradeking ran a $50 bonus promotion and despite the turmoil of the stock market had a lot of people sign up to try out their online brokerage.

This year the market has a lot more positive momentum than it did last fall and some of the people that were sitting on the sidelines are getting back in.  TradeKing is offering a $50 bonus if you open a new account and try out their stock trading platform.  You can read more about pros and cons of the online brokerage in this TradeKing review.

I had forgotten that they extended the promotion by a month last year until I recently got an email from TradeKing announcing they were pushing the deadline out a month.  They didn’t push it any further last year so if that’s any indication then this month will likely be the last chance for the bonus in 2009.

There is no TradeKing promo code necessary simply signup here and you get your $50 bonus after you fund your account with at least $2,500 and make your first trade.

Variable annuities are probably something you’ve never even considered investing in if you’re under 50 years young.  However, I’ve had people write me whose parents are getting pitched fixed annuitites and variable annuities as they are getting closer to retirement. To give an idea of how variable annuities work, Victor wrote up the following overview. [Editor’s Note].

What is a Variable Annuity?

Like a fixed annuity, a variable annuity is an insurance product. The difference between the two is the opportunity for more growth and risk. In a variable annuity, an investor’s funds can be invested in mutual fund-like products wrapped inside the annuity. The value of the annuity fluctuates daily based on the performance of the chosen portfolio.

Many annuities now offer certain guarantees. An investor can purchase principal protection where they are guaranteed every penny they put in. Some also offer guaranteed growth. They will have an offer that states the investor will receive 5% or the market performance of the portfolio, whichever is higher. Both of these options are nice to have, but an investor must realize that they pay for this. These are “riders” that are added to the annuity contract and have fees associated with them.

Liked fixed annuities, variable annuities have the same type of surrender schedules. A portion may be taken out without being charged a fee, but be aware that if you have not reached 59 ½, you may be subject to an IRS penalty of 10%. All growth is tax deferred in a variable annuity.

In a variable annuity, the funds are passed directly to the beneficiaries without going through probate. In the case of a spousal beneficiary, if the option is chosen, the spouse can continue the contract as if it were theirs. These annuities, again like their fixed counterparts, can be funded with a lump some or through periodic payments.

Typical Investor

In most cases, the typical investor of a variable annuity is retiree or a person with retirement on the horizon. Some annuities don’t even allow you to purchase them unless you are 45-50 years old. For some people, these newer annuities that include so many guarantees seem too good to be true.

Make sure you know how much it will cost to get all of these “guarantees” in an annuity. You will also want to know what kinds of investments are available inside the annuity and the health of the insurance company that is selling the annuity.

An annuity can be a very confusing thing. Annuity contracts are long and filled with “legalese.” Make sure you understand everything or speak to a financial professional and have them explain it to you before you put any money into it.

Here is a Smart Money article that takes a look at the downsides of variable annuities such as the average annual fees & commissions they charge, surrender fees, taxes on gains, and estate planning concerns.

Resources

• SEC – Variable Annuities Overview
• Kiplinger – Variable Annuities With Guarantees
• Boston.com – Variable Annuities Better Deal for the Seller

Bond funds probably aren’t the investments that you spend hours investigating and researching when building your portfolio or 401k.  Typically individual stocks or equity mutual funds are the primary investing focus and bond funds are an afterthought if they’re included at all.

However, bond mutual funds and their fixed income can be just as important a piece of any portfolio as equities. Although you can get more bang for your buck with stocks, bonds can help you level off the volatility of the stock market. If invested wisely, an investor can use bond funds to not only increase the cash flow of their portfolio, but also see some growth.

Bond Mutual Funds

So how do bond mutual funds work? Similar to stock funds; portfolio managers buy an assortment of bonds based on the objective of the fund and what is available in the market.

Most bond mutual funds pay off a monthly dividend. That dividend can be paid out to your brokerage account in cash or re-invested by buying more shares of that particular fund. Please be aware the even if you re-invest the dividends, they are taxable in non-IRA accounts.

Bond Fund Categories

Like stock funds, there are many different types of bond funds, and investors have the same ability to diversify. There are bond index funds, government bond funds, state specific bond funds, corporate, international, etc.

Bond funds can be based on the average length of maturity of the bonds in the portfolio (short-term, long-term, etc.), the average bond rating (AAA rated, junk bonds), or other specific objectives of the fund (strategic income, diversified portfolio, emerging market).

Bond Fund Analysis

When it comes to picking a bond mutual fund, an investor must go through the same type of due diligence they would for a stock fund.

• Does this fund fit my objective?
• Is it to aggressive or conservative for my liking?
• Does it invest in the types of bonds I want to own?
• What is the history of the fund, the manager and the company?

Rather than give you specific bond funds as a suggestion, I’m going to finish this article by discussing the two best bond managers in the business (in my opinion). Between the two of them, they have over 90 years experience in the bond market and have been successful year after year.

Bond Investor – Bill Gross

You may not know the name Bill Gross, but if you have a 401k or ever watch CNBC, you may be using his funds and have seen him on TV. Mr. Gross is the founder and managing director of PIMCO. He manages over $800 billion (yes, that’s a B) in fixed income assets.

His PIMCO Total Return Bond Fund is one of the most popular bond funds in 401k programs across the country. He has been named the Morningstar Fixed Income Manager of the Year three times and is a “go to” person for many different news publications and media outlets for his opinion on the bond markets.

Bond Investor – Dan Fuss

Dan Fuss is the Vice Chairman of Loomis Sayles & Company. He was named to the Fixed Income Analyst’s Hall of Fame in 2000 and is one of the most brilliant minds in the business today.

The equity side has Warren Buffett and the fixed income side has Dan Fuss. He has made a habit over the last 20 years of creating stock-like returns in his fixed income portfolios. In a previous life, when I was a financial advisor, every single portfolio I ever developed had his Loomis Sayles Strategic Income Fund in it.

Mr. Fuss is a much more aggressive investor than Bill Gross. I often used the two of them together almost as a yin and yang for bond portfolios. These men will bring a tremendous amount of knowledge and experience and proven to success to any portfolio. As always though, make sure the investments you choose fit your objectives, time tables and risk tolerance.     

Hopefully this look at bond investing will give some good food for thought as you plan out your portfolio.  For more on bonds, you can also read up on bond investing terms and some bond investing strategies.

Would you pay someone to make your investment decisions for you?  Sure, most of us have some money invested for us by mutual fund managers but would you outsource your investing choices to someone that simply had a good track record of earning in the stock market?

A company called kaChing that runs a virtual stock trading website has added the capability to allow you to automatically invest your money in the exact stocks that the best investors on the site have in their virtual portfolio.

Site members that have maintained a virtual stock portfolio for at least a year with positive returns are eligble to become what the site calls an investing “genius”.  To qualify they have to get a certain score on an InvestmentIQ test and sign regulatory documents regarding securities laws.

Investing Your Money

KaChing’s philosophy is transparency you can see the holdings, trading history, and research of everyone on the site.  You can also see what stocks they’re watching and a peformance analysis of their investing.

If you find an investor whom kaChing has qualified as having an acceptable track record & sufficient investing knowledge and you want to mirror the stock trades they make then you can sign up to do that with kaChing.

kaChing opens an brokerage account for you at Interactive Brokers and will use your money to perform the same buying and selling of stocks as the investor that you chose to follow. The investor you’re following will charge an management fee that ranges from 0.25 percent to 3 percent of each trade. KaChing keeps a quarter of the fee, and the investors get the rest.

A Different Investing System

The thought behind the kaChing system is that mutual funds charge fees that are too high and they are not transparent enough with how they’re investing your money.  The founder, Dan Carroll, felt he could offer a better system and started kaChing to address some these concerns.

kaChing is attempting to let past performance help you find investors that you would feel comfortable “managing your money” for you.  Of course they don’t directly manage it, they simply buy and sell their virtual holdings and you mimic them in the real world.

kaChing Investing

One thing that’s good to see is that at the top of each investor profile they indicate whether the investor has some of their own money invested in the funds so at least you can see if they have skin in the game.  They also display how much money in customer assets is actually mirroring the trading moves of the investor.

Of course neither of these things will tell you if the person’s stock choosing ability will be successful and consistent. The way I see it, the big question is whether the qualifications kaChing requires are enough to make you feel comfotable investing your money with these investors.

I hate it that they call the qualified investors “geniuses”.  It seems dangerous to me, both for the investor and the people matching their trading moves.  You certainly don’t want the investor thinking they are a genius and feeling as though they can’t go wrong. You also don’t want people to put their faith in an investor simply because they’ve been labeled as an investing “genius”.

Something else to consider is that even if you did invest money through kaChing you’d have to watch the investing strategy of each investor and how it fit into your overall investment portfolio. For example, the investor with the top returns at the moment invests only in the healthcare industy. The intro to his nvestment strategy on the site is:

“My portfolio aims to produce returns from small to mid-cap companies in the biotechnology and pharmaceutical sector. I focus on discovering significantly undervalued companies with encouraging drugs and opportunities for significant gains.”

Would You Use kaChing to Invest Your Money?

I don’t think I’d setup my investments to be automatically made to mirror kaChing investors. It certainly wouldn’t hurt to open a virtual account and start following the moves of the top investors; picking their brains to see what moves they make and why. I’m sure you could learn a lot about the market and try out what you learn with your virtual account.

It is interesting how technology is being used to enable individuals to perform some of the functions that we’re used to depending on big financial businesses for.  Companies like Prosper and Lending Club have created a whole new marketplace for peer to peer lending where individuals can lend money to others, cutting out the banks and the fees they charge.

Now kaChing is offering an alternative to having mutual fund companies manage investments for you. Instead you can choose to follow the investments of skilled individual investors. Who knows, maybe it’s the investment model of the future but right now it’s not for me.

Fixed annuities have caught the attention of some investors who have taken a pounding from the world of stocks over the last few years and started looking for something a little less volatile. This type of investment, though it brings a much lower return on investment, does provide more stability. Are the lower returns and usually high exit fees worth the added security?

What is a Fixed Annuity?

A fixed annuity is an investment product where an insurance company guarantees a certain rate of return for an investor’s money. This guarantee is backed by the full faith and credit of the offering company (fixed annuities are not FDIC insured). The return on a fixed annuity is comparable to the rate of a Certificate of Deposit at the time the annuity is purchased.

Most companies offer an incentive where a bonus rate is added for a certain period of time. For example, XYZ insurance company offers a fixed annuity with a current rate of 4.00%, but if the investor deposits an initial investment of $100,000.00, they will receive a premium bonus of an additional 4.00% for the first year. The investor will receive 8.00% the first year and 4.00% the following years.

There is a “surrender schedule” attached to annuities, in which withdrawals during this time will incur a “surrender fee.” This fee is calculated based on how long the annuity has been owned (surrender fees are waived in the event of the death of the annuity owner).

In most cases, 10% of the principal or the interest earned can be redeemed over a twelve month period without incurring these penalties (please check your annuity contract before making any withdrawals). It is important to remember that annuities grow tax-deferred, so any distribution of earnings will be taxed as income.

Types of Fixed Annuities

Generally, annuities fall into two categories: immediate and deferred. These terms are based on the income stream options of the investment. In an immediate annuity, the investor deposits their money and immediately starts taking an income stream from the investment. On a deferred annuity, the funds are left in the product to grow at the fixed rate stated on the contract of the annuity.

The “pay out” from an annuity can vary based on the length of time the payments will occur, the value of the annuity and the age of the annuitant.

Typical Investor

Fixed annuities have always been popular with retirees looking for guaranteed income and other types of investors seeking security have started using them as well.  The “pay out” phase of the annuity can be set for a specific range of time (10 years, 20 years, etc.) or for the lifetime of one or two annuitants. If a person wanted to make sure that certain bills would be covered at all times regardless any other outside factors they might choose to invest in a fixed annuity.

A CNN Money article titled the trouble with annuities talks about the major disadvantage of fixed annuities as being opportunity cost.

“With such high exit fees, it’s prohibitively expensive to back out of a contract. So you could miss the rise in interest rates and improvement in market conditions that many experts are predicting.” Worst case: Your money ends up lagging behind price increases. “In an inflationary period, having 4% fixed in long-term money could be devastating,” says Salt Lake City financial planner Ray LeVitre, author of “The Retiring Boomer’s Financial Handbook.”

The Money article suggests that short- to intermediate-term high-quality corporate and municipal bonds could be an alternative to fixed annuities if safe growth is the objective. The argument is that they have fewer restrictions and can offer higher yields than CDs.

Of course, everyone’s situation and risk levels are different so if you’re not sure whether fixed annuities are for you then talk with a financial professional about how they fit into your investment strategy. Look for a financial advisor who doesn’t make a commission off of selling you annuities since that can present a conflict of interest.

What do you think about fixed annuities? Do you have any money invested in annuities?

Bond investing strategies to help you decide how to invest in bonds are the next topic to cover now that we’ve talked about bond investing basics and some bond investment terms.

Bond Ladders

Bond ladders are a strategy where an investor purchases bonds with different maturity dates. It is the fixed income equivalent of dollar cost averaging. Let’s say for example, an investor wants to spread out the maturities of their bonds, but keep an average weighted maturity of 5 years. They can purchase five bonds with maturities of 1, 3, 5, 7 & 9 years. As the bonds mature, the investor will continue to purchase bonds at the longer maturity.

This helps the investor manage interest rate risk. When interest rates are rising, they can purchase into those bonds with the higher yields. If the rates are dipping, the investor will still purchase the bond and take advantage of the yields of the current bonds they own.

The further the maturity the date, the riskier the investment can be. Most bonds are issued with a maturity date 30 years out. If an investor has a longer timeframe, they can push out the maturity dates of the ladder for a possible higher yield.

Bullet Bond Strategy

This strategy is great for an investor who has a specific target date. For example, a child will be attending college in 15 years. The investor does not need the principal of their investments until that time. Bonds of different varieties and lengths, but with maturity dates around the same time 14-15 years out, can be purchased and held until maturity. There is no interest rate risk because the funds are not being used to purchase new bonds.

Another way to do this, or combine with the bullet strategy is to purchase zero-coupon bonds. These are bonds that are sold at a deep discount, but do not pay any interest. An investor can purchase these bonds and hold them until maturity and take advantage of the discount they received.

Barbell Bond Strategy

With a barbell, the investor purchases bonds with a short-term maturity date and then others 20-30 years out. You create an average weighted maturity somewhere mid-term. In this case, the investor is hoping to take advantage of the inverse relationship of price and yield. If the yield of the longer term bonds drops, the price of the actual bond on the market will go up. The investor will then sell those bonds and realize the gain in principal. They use the shorter term bonds for the interest.

All investment strategies have risks, but this one can hit you on both ends. The yield of short term bonds can drop and long term bonds can rise. If this happens, the barbell strategy becomes a loser for this investor.

Bond Diversification

One final strategy is to treat your bond portfolio as you do your stocks. Think of the maturities and credit ratings of bonds the way you do market cap for stocks. You can purchase a mixture of bonds based on industries, maturities, credit rating and geographic location. We won’t go into the details here because this takes a bit more work, and is not for the novice investor. It can have a rewarding effect on your portfolio though.

As with any investment, each of these strategies comes with varying degrees of risk and different tax implications so make sure you consult a financial professional before making any decisions.

Bond investing terms can be confusing for someone who’s never been around the bond market. I remember the first conversation I had with a bond investor; I knew he was speaking English but his talk of yield curves and zero coupon bonds made it feel like a foreign language.

If you don’t know the bond investing basics jargon, you could easily get left behind, or worse, make a poor decision. Here’s a quick list of terms to help as you navigate investing in the bond market:

Accrued Interest – The interest that has been earned, but not paid out to the bondholder. Bond interest accrues equally every day and does not compound.

Call Date - Some bonds have a provision that give the issuer the ability to redeem the bond early. There is usually one call date per year. The list of dates is called the “call schedule.”

Call Premium – The payment by the bond issuer if the bond is called before the maturity date. This is the incentive that makes bond investors look at callable bonds compared to non-callable ones.

Coupon Payment – The actual dollar amount paid to the bondholders at each coupon date.

Coupon Rate – The annual interest rate paid to bondholders. Rates are generally fixed, though variable rate bonds are available.

Current Yield – The annual interest payment divided by the current market price of the bond.

Discount - This is when a bond is sold at a discount to its face value.

Face Value – Also called the principal or par value of the bond, this is the amount that will be repaid when the bond matures.

Maturity Date – The day in which the last interest payment is made, and the face value of the bond will be repaid.

Real Rate of Return - The combination of the interest earned and the market value of the bond.

Term to Maturity – The time left until the bond matures and the principal is repaid.

Yield to Call – This is the calculated yield from the current time until the call date. It is assumed that the bond will be called at the next call date.

Yield to Maturity – The compound average annual expected rate of return if the bond is purchased at its current market price and held to maturity. It is assumed in the calculation that the interest payments are reinvested for the life of the bond at the same yield. This is also called the internal rate of return of the bond.

Yield to Worst – This is a “worst case scenario” in terms of yield on a bond. It is the lowest yield possible for a bond.

This is certainly not an all-encompassing list, but I do hope it helps you the next time you hear investors talking about the bond market on television or if you’re looking up a bond quote  yourself.  For an intro to bonds you can check out the bond investing basics post; next time we’ll take a look at some bond investing strategies.

Bond Investing Overview

Bond investments should probably be a part of most portfolios; across all ages, investing goals, and levels of risk tolerance.  The problem is many people spend their time learning how to invest in stocks and aren’t aware of the benefits that investing in bonds can offer.

In general, investors spend very little time investigating the opportunities in bonds, and because of this can leave money on the table. Over the course of the next few articles, I’m going to share some details on the different types of bonds, some bond investing terms, and finally some bond investing strategies that you can implement in your portfolio.

Bond Definition

Let’s start at the very beginning. A bond is a debt security. When an investor purchases a bond, they are lending money to the issuer of that bond. In return for the cash, the issuer gives you a document, or a “bond,” stating that they will return your money to you at a certain date, either the maturity of the bond or when it is “called.”

You will also receive a specific rate of interest for the life of that bond. Like stocks, most of them are traded electronically now, so you will not receive an actual “document,” but you will receive all of this other information.

Types of Bonds

There are many different types of bonds. They each have their own features and benefits. Which ones fit into your portfolio depend on what you are looking for.

Municipal Bonds – These are bonds that have been issued by states, counties, local municipalities and other government entities. They are used to finance the building of hospitals, highways, schools and other public projects that help that community.  Many of these bonds offer both state and federal tax exempt income for residents of that state. For example, if you lived in Texas and purchased a San Antonio Hospital bond, the interest you earn from that bond will be tax-free. Not every bond offers this, so make sure you know what you are purchasing or consult a professional.

U.S. Treasury Securities – These encompass T-bills, T-bonds & T-notes. TIPS also fall under this category. These are securities issued by the U.S. Treasury and are backed by the “full faith and credit” of the U.S. government. These are considered to be the safest investment and have no “credit risk” in that the chances of not receiving your interest or principal back from the government are extremely small (trust me, if you don’t get paid, we all have a LOT more to worry about at that point).

Corporate Bonds – These are bonds that are issued by companies to help finance expansion other capital investment or cash flow. Investors have a much wider range of possibilities here, but also more risk. Whenever you invest in a bond, you always take on the chance that the company could go bankrupt or fold. It is important to know the credit rating of a specific bond and that company before you purchase the bond.

Mortgage-Backed/Asset-Backed Securities – When an investor purchases one of these, they receive a stake in pools of loans or other financial assets. As the loans, or other assets get paid off, the investor receives interest. These securities have come under considerable fire over the last two years. With the housing bubble and the implosion of several major financial companies, these types of investments were used too often, and in ways they were not made for.

These are the four major categories of bonds. Inside each of these are many more varieties of bonds and other debt securities. As always, make sure you do your due diligence when purchasing bonds. They have more moving parts than a stock. I’ll go over those moving parts in the next article on bond investing.

A 529 college savings plan is another way for U.S. families to prepare for the high costs of college. Named after section 529 of the Internal Revenue Code, this investment vehicle has some similarities with and differences from the Coverdell ESA.

A 529 plan is another tax-advantaged plan that is designed to give incentives for education planning. Like the ESA, there is one custodian and one beneficiary for each account. The beneficiary can be anybody, even yourself (yes, you can go back to school for that degree you’ve been thinking of AND take advantage of the 529 for yourself).

State 529 Plans

Each state manages their own 529 plan and usually offers incentives for its residents to utilize the in-state version. Some states offer state tax deductions for contributions to residents. If you feel the tax deduction is not as important as performance, you can do the research and pick a better program and invest in that plan.

There are two types of 529 plans: the prepaid tuition program and the savings program.

529 Prepaid Tuition

The pre-paid plan gives you the ability to purchase future tuition at today’s prices. It generally covers all state and community colleges and may encompass private schools as well. It is best to confirm if your state offers this program and what the rules and limitations are. In this program, all funds are pooled together and invested to cover the increase in tuition over time (or so they hope).

Many of these pre-paid plans require that the beneficiary be 15 years old or younger. The tuition can be purchased in a lump sum or paid through monthly installments. Be aware, having a pre-paid tuition plan does NOT guarantee that the student will be accepted to that school.

529 Savings Program

The savings plan works much like a 401k does, in that the custodian has the choice of choosing the different mutual funds offered in the plan to invest in. In most cases, the “age-based” portfolios are the most popular. There are generally some kind of maintenance fee associated with the plan, and if the plan is bought through a financial advisor, mutual fund-type commissions. Each state offers different options and must be researched before you make a decision.

529 Contributions

Currently the contribution limits follow the rules for gifting. $13,000 may be contributed per beneficiary per person. This means mom & dad can put $13,000 each in for little Johnny or Suzy. There is a 5-year “pay-forward” in which you can put up to five years worth in at one time. This works out well for estate purposes; Grandma & Grandpa can each contribute $65,000 and remove the funds from their estate for tax purposes.

There are no income or age limitations to the savings plan. Anybody can contribute and take advantage of the opportunity. Like ESAs, 529 plans are also not factored in when applying for financial aid.

529 Distributions

Like the ESA, qualified withdrawals are federally tax-exempt, and in most cases, state as well. Unlike the ESA, 529s can only be used for secondary education. These funds can be used at any accredited college or university in the US, and in some cases, abroad as well.

If the beneficiary does not go to college or receives a scholarship, there are options to do something with the funds. One alternative is that they can be transferred to another member of the beneficiary’s family. If the funds are withdrawn for an unqualified reason, the earnings (but not the original contribution) would be subject to both federal and state taxation as well as a 10% penalty.

College Savings Plan

It is estimated that for children born this year, the average cost of a four year college education will cost over $250,000. Sure, that number is intimidating but it will be less so if you start saving now, even if it’s only one dollar at a time.

Coverdell Education Savings Account History
Years ago, there used to be an account called the Education IRA. It was created by the government to help parents prepare for the costs of schooling for their children. This account was not that popular, because at the time, it had a $500 annual contribution limit. I remember clients telling me back then that the low limit “just wasn’t worth it.”

In 2002, like any smart company would do when their product isn’t getting used, Congress went back to the drawing board. It was re-branded as the Coverdell Education Savings Account or ESA (named after the main sponsor, Paul Coverdell, R-GA). The new & improved product took care of the biggest flaw by raising the annual contribution limit to $2,000.

Coverdell Account Contributions & Limits

That ESA limit is the same today, but it is subject to income thresholds.   The person funding the account (whether it is a parent, grandparent, uncle, etc.) must have an AGI below $95,000 if single and $190,000 for anybody filing a joint return. These limits are phased out for income between $95,000 – $110,000 and $190,000 – $220,000 respectively. One way you can avoid this issue is by gifting the money to the child so that they make the contribution it to the ESA.

Contributions can be made until the beneficiary reaches the age of 18. The account must be depleted by the time that person reaches the age of 30 to avoid tax penalties. The custodian for the account can also appoint another eligible beneficiary.

Coverdell Investing Options

Unlike a 529 plan where you are limited to the investments of the specific sponsored plan, ESAs have the ability to invest in stocks, bonds, mutual funds, etc. Like the 529 plan or any other custodial account, the custodian has the authority to run the account and make investment decisions. However, those decisions must be based on the minor’s situation. For example, a 17 year old high school senior should not have their account invested in aggressive stocks if the money is to be used the next year for college.

Coverdell Distributions

All withdrawals for “qualified expenses” are tax free. “Qualified” is a broad term in this case for the IRS. All room, board & tuition, books, etc. qualify for the tax-free treatment. However, if your child wants an apartment off campus, the rent for that apartment is NOT qualified. The biggest difference between the ESA and a 529 is that the ESA allows you to use the funds for primary and secondary school expenses. 529s only allow the use of the funds post-high school graduation.

College Planning

Keep in mind the money inside an ESA is not factored into financial aid analysis because technically the funds are not owned by the beneficiary. Hopefully this info on the ESA gave you some things to consider when you look into investing in your child’s future. Some people may choose an ESA over a 529, others may choose both. Either way, use something, it will certainly be in your and your child’s best interest to do so.