MONEY SMART KIDS Kid Friendly Funds by Janet Bodnar
What mutual funds are appropriate for young investors?
Almost by definition kids are investing for the long term: They have time to ride out
stock-market downturns and reap the superior returns stocks offer. If you are investing on
behalf of a child, focus less on single-year performance than on fund quality in general.
About a half-dozen companies earmark one or more of their funds for kids by spelling
out a distinctive investment philosophy, setting a low initial minimum for custodial
accounts or providing educational materials for young shareholders. These kid-oriented funds are:
Liberty Young Investor ($1,000 minimum for a custodial account, or
$100 with an automatic investment plan of $50 per month; 800-426-3750). The fund is committed to investing 65% of its portfolio in stocks that affect the lives
of children and teenagers.
USAA First Start Growth ($250, or $20 a month; 800-235-8377). The
newest fund to be directed toward kids. The fund's prospectus
requires it to steer clear of alcohol, tobacco and gambling stocks.
American Express IDS New Dimensions ($2,000, or $50 a month; 5% load;
800-437-4332). Not strictly a kid-focused fund, New Dimensions already had a 30-year track
record when American Express chose it two years ago as the flagship of its Kids, Parents
and Money program. "We needed a long-term investment as the foundation, and we went
with the fund that had performed well through thick and thin," says Jan Holman,
vice-president of investment services for American Express.
Like Young Investor and First Start, New Dimensions leans toward big, well-known
companies. New Dimensions comes with
educational materials for kids, including a quarterly newsletter.
Invesco ($250, or $25 per month; 800-525-8085). As part of its Driving
Into Your Financial Future (DIFF) program for kids, Invesco makes special low minimums
available on custodial accounts in four diverse funds. The one most directly comparable to
other funds in the kids' niche is Blue Chip Growth.
Invesco doesn't send educational materials to young shareholders.
Monetta. The seven Monetta funds have minimum initial investments of
$250 for all accounts, not just those for kids. But participants in the youth-investing
program, called Monetta Express, still get some special perks. If you open a custodial
account and sign up for at least $25 per quarter to be invested automatically, you receive
Steady Eddy, a plush bean-filled engine and the first of eight train cars in the Monetta
Express (the other seven represent each of the company's funds).
Among Monetta's funds, the most comparable to others in the kids' niche is Large-Cap
Equity. Monetta's is the
only youth program that offers a money-market fund, Government Money Market (for information, call 800-666-3882).
Royce Giftshares. Strictly speaking, Giftshares (800-221-4268) doesn't
fit this category: Its minimum initial investment ($2,500) is too high for most children,
and it doesn't publish educational materials or focus on stocks of interest to kids.
Giftshares is an option for parents and grandparents who want to attach strings to a
financial gift. Your contribution is set up as a trust that lasts as long as you stipulate
(a minimum of ten years or until the beneficiary reaches the age of majority, whichever is
longer). If you're concerned about teenagers squandering college money, for example, you
can arrange for the trust to pay their tuition directly, or limit kids' access to all or
part of the assets until they're past college age.
Be aware, however, that donors' options are restricted as well. Once you've put money
into the fund, you can't get it out.
GETTING STARTED
