Developing a plan to fund your child's education is one of the most significant financial decisions you will make. According to the College Board the average annual cost of attending college, including tuition, books, room, and board, is $11,338 for an in-state public college or university and $24,996 for a private college or university. In recent years, college costs have risen 4% to 5% per year. 

While a variety of options-including scholarships, grants, work-study programs, and loans-are available to help defray some of these costs, most families will still need to rely on a college savings plan.

 Creating an optimal investment plan for your child's education will depend on several factors:  

• whether you are saving for a private or a public education,
• the number of years before your child will begin college,
• the amount you can invest now,
• the amount you can add periodically to your investment,
• and your personal risk tolerance.

The longer your time horizon, the more aggressive your investment portfolio should be. For example, a family beginning to save for a newborn's college education might invest heavily in stocks or stock mutual funds in an effort to outpace inflation and maximize the growth of their investment. Stocks expose investors to greater risk than bonds or money market accounts, but have traditionally offered the highest return over time.

As your child gets older and your time horizon decreases, you'll want to adjust your asset allocation in order to conserve your principal. This means that you'll shift the focus of your portfolio toward more conservative investments such as bonds and cash equivalents, which tend to offer greater stability but lower returns than stocks.