(FORTUNE Magazine) – WITH THREE children nearing college age, this family will soon hear the wolf at the door, howling for tuition. Fossel suggests a portfolio with equal weight in stocks and bonds to wring out income over the next dozen years. To take advantage of buying opportunities in coming months, he puts 20% in Treasury bills.

MY CLIENTS HAVE a big problem. And unfortunately, it's a typical one: insufficient saving. They should have started planning for college the day each child was born. Normally, for a couple at this stage of life, I would recommend a portfolio that was very heavy in equities and look ahead to retirement. Not here. What I come to now is an allocation that is 40% stocks, 40% bonds, and 20% Treasury bills. I think the market may be reaching lows in the next six to 12 months. If it does, my clients should use the Treasury bills to add to their holdings in the stock portfolio. But only if the market goes down enough. If the Dow Jones industrial average falls to 2400 they should spend $10,000, at 2300 another $10,000, and so on. If the market stays where it is, fine. They still have the Treasuries plus interest for the first child, at least. And the municipal bonds plus interest for the second. If the market goes down and rallies, they will have bought low and will be able to sell high. If the market goes down and stays down, that means that we will be in a bad recession. But they will still have the municipal bonds and very likely a nice capital gain on them. I suggest New York State municipals only because I am assuming that this family lives in New York. Other states have munis that are just as good. But you want tax-exempts. The munis I picked are yielding better than 6%, the equivalent of about a 10% or 11% taxable rate of return. My bet is that both state and federal taxes are going up. That will make these bonds look even better. Only the MTA bonds are rated AAA. The Dormitory bonds are A, and the Power Authority bonds are AA. But there is no way the politicians are going to let them default. The equity portfolio has a heavy foreign stock component. American investors are so red, white, and blue, it's just incredible. We buy Japanese TVs and German cars, thinking that they are great products. But we have a very difficult time investing in foreign companies. There are great opportunities outside the U.S. If any bank is going to be the financier of the growth in Eastern Europe, it's Deutsche Bank. Siemens, the big German electrical equipment manufacturer, is helping to put in the new Hungarian telephone system. As cellular telephones get as big outside the U.S. as they are here, Kyocera, a Japanese electronics company, should do well. Stateside, I've stuck to high-quality growth companies, but most of them have a significant international presence. Procter & Gamble and Abbott Labs have brand names known around the world. The Oppenheimer Global Biotech Fund, the one self-serving investment I chose, is obviously international too. But in something as speculative as biotech, you should diversify as much as possible. A fund is the best way. There is a distinct lack of emphasis here on companies that sell big-ticket consumer items. People are going to save more. This family certainly should. By the time the kids are through school, Mom and Dad are going to be at least 52.

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