Mutual Funds for Kids Stress the Saving Lesson
Sunday, November 4, 2007
NEW YORK -- A lesson about investing might seem as appealing to young people as eating a bowl of spinach. Mutual funds that cater to children aim to make the whole process sweeter.
While most parents want to raise children who are aware of the value of a buck, it is easy at an early age to limit discussions about saving money to how an allowance should be spent or to what to do with a birthday windfall. Backers say mutual funds aimed at kids can help parents instill lessons about the importance of saving.
"I think teaching kids about low-cost investing right off the bat is a good thing for them," said David Kathman, a mutual fund analyst at Morningstar.
Such lessons can be lucrative. Under the laws of compound interest, it's clear that the earlier someone starts saving for something like college or retirement, the better. People who wait have to set aside much larger amounts of money later on to catch up with those who invested only a little over a greater time.
To try to hold the interest of children, the Monetta Young Investor Fund tries to invest in companies that children are likely familiar with, including consumer names such as McDonald's, Hasbro and Chipotle Mexican Grill.
"The way you get kids involved is you've got to create some incentive, some spark," said Robert S. Bacarella, president and founder of Monetta Financial Services.
He tries to balance making the fund interesting to children with bringing solid returns.
"One of the major reasons why theme funds don't do well is that they're not diversified enough," Bacarella said.
To combat his concerns about maintaining an adequate range of investments, he set up the Young Investor fund so that part of the fund would track the Standard & Poor's 500-stock index.
Like many other funds aimed at young investors, the fund uses an automated investment plan in return for lower investment minimums. Under such plans, investors agree to add a certain amount each month to reduce how much must be invested to open an account.
But even with features that cater to children, parents should still evaluate such funds carefully.
"They have their good things, but you shouldn't necessarily restrict yourself to those," Kathman said.