MONEY-SMART KIDS Kid-Friendly Mutual Funds by Janet Bodnar
How can I find mutual funds that will let my kids personally invest in their own accounts?
Aloha from Hawaii! My toddler often receives money for her birthdays and special holidays, and it's starting to accumulate. We're new to investments for children so we're not sure if we can open a custodial account for her. We already have a college fund set up, so this will be her money to use when she gets older. Where should we start?
I'm only 12 years old, but I'm into investing. I just wanted to know some good funds that are directed toward kids.
First off, let me make it clear that a kid can personally invest in any mutual fund. If a child is under 18, you, as a parent, would have to set up a custodial account (easily done) with an adult as custodian. After that, kids can contribute their own money from gifts or earnings, or you and other family members can invest on their behalf.
Of the thousands of funds available, only a half-dozen or so have actually marketed themselves directly to kids. And that was primarily during the heyday of the '90s bull market, when every fund was a winner and expansive management companies were willing to spend money on kids.
With tighter times on Wall Street, they're less willing to be so generous. And the funds themselves haven't performed particularly well. Most mutual funds aimed at teaching kids about investing received a failing grade when Standard & Poor's examined them in 2003. Through the first seven months of 2004, the same group of funds had declined by 3.6 percent, versus a decline of just 0.92 percent for the S&P index of 500 stocks.
The lesson: Don't pick a mutual fund because it's aimed at kids, but because it's a good fund. For children, look for funds that invest in a broad array of growth-oriented companies and have performed well over time.
An excellent choice would be Vanguard Total Stock Market Index fund (800-635-1511), which invests in companies representing the entire stock market. Another broad-based fund is T. Rowe Price Spectrum Growth (800-638-5660).
To avoid high minimum investments ($3,000 for Total Market Index, $2,500 for Spectrum Growth), teens with income from a job may open a Roth IRA, for which minimums are considerably lower. You or your kids can avoid minimums entirely by investing $50 automatically each month.
GETTING STARTED
