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Suggestions on our kid's first mutual fund?
Old 11-15-2004, 09:36 AM   #1
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Suggestions on our kid's first mutual fund?

Our kid just turned 12 and is eagerly anticipating all of the adult world's independence & privileges (of course without any of the accompanying responsibilities). As part of her personal independence campaign, she's announced that she's ready to start investing in a "real" mutual fund.

Financially she's well educated for her age, perhaps due to our overcompensation. I was raised in blissful financial ignorance and I didn't have a checking account until I was in college. I made the usual credit-card mistakes. I didn't figure out saving & investing until I was 26 (right after the honeymoon) so of course our trophy kid has been raised differently.

Or perhaps she's obsessing all by herself. One of her favorite preschool books was "If You Made a Million". On her own initiative, she's had a checking account since her 9th birthday and she balances her checkbook on Quicken. She handled the Girl Scout troop's cookie money (>$1000). She's started tracking her expenses/budgeting in Quicken ("just like Dad") and she understands CDs & 401(k)s. She also knows the basics of stocks (Disney, Petsmart, Scholastic). Her most poignant investing experience has been making 4x as much profit in 4Kids Entertainment stock (the distributor of Pokemon & Yu-Gi-Oh cartoons) than she has from trading their franchise products. Her second-most poignant experience has been learning what it really costs to bounce a check.

While she's nowhere near as financially obsessed as Warren Buffett-- yet-- she's far ahead of the middle-school peer group and she clearly understands that having money means choices. Her financial motivation is independence. She appreciates stock-picking and she also understands that it's a lot of work. She's declared that stocks are not her thing right now and that she's ready for mutual funds. But at this age it's all experiential learning and my enthusiastic investment pontificating is starting to encounter teenager glazed eye-rolling.

She has the assets for experiential learning-- overindulgent relatives have contributed to a savings-account bloat of about $500. This money is smoldering in her pocket but it did survive a DisneyWorld trip and it'll probably survive the holidays (perhaps minus a DVD player). OTOH she's ripe for one of those "But I HAVE the money, why can't I just go buy... ?!?" arguments and we think we need to strip those assets out of "gimme" reach. Correct me if there's a better idea, but it seems that the best way to avoid a spending spree would be putting $250-$500 into a mutual fund. Additional investments would be lumpy (but at least $25/quarter) and the goal would be to DCA for at least 10 years.

I think the best choice would be a stock index with low expenses and no turnover. A positive experience is paramount so I’m not sure that we want to risk Vanguard's concept of "customer service". We have the majority of our family money with Fidelity but Tweedy, Browne would probably also cut us some small-account slack. At this point I think it's more important to learn how to minimize costs (& avoid nuisance fees) than it is to learn how to choose the best fund, but we'll need to play with screening tools.

Anyone raising a kid with these passions at this age? While we'll probably go with Fidelity or Tweedy, does anyone have any ideas on mutual-fund firms that are friendly to very small investor accounts? Any suggestions on kid-friendly screening tools? Any funds that fit those (tentative) criteria?

BTW, from my discussion board experience with these subjects, please spare us the "Let the kid be a kid" advice. We're not "normal" parents and for everyone's sakes I hope she's not a "normal" kid. She's intensely curious about money management and I don't want it to end up being learned at the local shopping mall. She's directing her education program and I'm just scrambling to keep up with curriculum that will give us a positive experience!

And yes, she's car shopping too. But that's a separate post!

Co-author (with my daughter) of “Raising Your Money-Savvy Family For Next Generation Financial Independence.”
Author of the book written on "The Military Guide to Financial Independence and Retirement."

I don't spend much time here— please send a PM.
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Re: Suggestions on our kid's first mutual fund?
Old 11-15-2004, 10:08 AM   #2
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Re: Suggestions on our kid's first mutual fund?


It's a small-cap fund that invests only in socially responsible companies.

I think she's young enough to handle the ups and downs of a small-cap fund.
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Re: Suggestions on our kid's first mutual fund?
Old 11-15-2004, 05:32 PM   #3
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Re: Suggestions on our kid's first mutual fund?

i have that darn ARGFX fund in my 401K, its done well this year... my first mutual fund was the VFINX... i then decided stocks are more exciting, but now own mutual funds in retirement accounts... i like the VFINX personally
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Re: Suggestions on our kid's first mutual fund?
Old 11-15-2004, 09:44 PM   #4
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Re: Suggestions on our kid's first mutual fund?

Nords, my daughter just started a retirement plan at work. As you mentioned, nuisance fees can be significant as a percentage of assets for the little guy. You probably already know this, but one who is a Voyager or Flagship client at Vanguard is able to extend that to one's children, parents, and siblings. So my daughter encounters zero fees beyond the expense ratio, even though her balances are low. I assume Fidelity has something similar, but I don't know.
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Re: Suggestions on our kid's first mutual fund?
Old 11-16-2004, 09:07 AM   #5
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Re: Suggestions on our kid's first mutual fund?

Nords, here is what I did with my kid’s college savings: First I selected the house where their fees would be the smallest and where there suitable funds. I explained the risks and opportunities in investing. Then I gave each a list of investments to consider and told them they could make any decision they wished. The funds were all “Honor Roll” quality, the length of the list was age appropriate.

I pointed out minimums required by the funds, marked them in Forbes annual report of mutual funds and said, "What would you like to do?" Each reviewed their investment results as fit their style. One split the pool between savings bonds and equities, the other choose all equities.
Duck bjorn.
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