Investing for children
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 Dear
Dr. Don,
I would like to open a savings account or get a CD for my children.
Or, I once heard about a mutual fund that is child-oriented.
Do you know its name?
-- Terri Tuition
 Dear
Terri,
Teaching children about investing can be a little easier if you can find a hook that gets them interested in the results. In the stock realm, Mattel (MAT), Tootsie Roll (TR), Wrigley (WWY) and Disney (DIS) all have products or services that children know about. Wrigley sends out free gum to shareholders every year, while Disney offers perks in the form of discounts to shareholders.
Choosing a tax-advantaged account for education expenses
might make the most sense financially, but the long-term nature
of that investment goal won't teach them the same lesson as saving
for a new bicycle or computer game. You have to decide what your
goal is for these investments. Are you trying to kindle their interest
in investing or finance your goal of college educations?
Start out by deciding between a short-term goal and
a long-term goal for these investments. If the goal is college savings,
then consider a tax-advantaged Section 529 Qualified Tuition Program
or a Coverdell education savings account. Bankrate's College
Finance
channel can help you sort through those options.
If you decide on a Coverdell account for college savings,
or a taxable account for other goals, you then get to choose among
a bank account, a brokerage account or investing directly with a
mutual fund.
Monetta has a Young Investor fund (MYIFX) that invests
half the portfolio to track the performance of the Standard &
Poor's 500 Index and half the portfolio in companies that kids and
teens know about. The annual expense ratio is currently capped at
1.00 percent until Dec. 31, 2008, a reduction of 0.43 percent.
Since junior could invest in Vanguard 500 Index fund
(VFINX) for 0.18 percent fees, it's a bit pricey to pay 1 percent
for a fund that's half indexed. The Young Investor Fund does have
a more reasonable $1,000 minimum investment, or $250 for an automatic
investment plan, when compared to Vanguard's minimum of $3,000.
Columbia Management provides a Web site, www.younginvestor.com,
that has different channels for kids, teens, parents and teachers,
but it no longer has a mutual fund for those young investors. The
Columbia Young Investor Fund was merged out of existence in 2006.
If you want a no-holds-barred review of kid-centric
mutual funds, read Chuck Jaffe's Stupid Investment of the Week column,
"Teaching
youngsters to invest is a great idea, but this one's a pricey lesson."
Keep an eye on the goal along with considering fees,
expenses and what they're going to invest in.
To ask a question of Dr. Don, go to the "Ask
the Experts" page, and select one of these topics: "financing
a home," "saving & investing" or "money."
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