Childhood Investments Can Build Nest Egg for Later in Life

By on December 1, 2006

(NewsUSA) – One way for kids to learn about investing is by doing it themselves, and mutual funds can be an excellent way to start.

While most funds require a minimum investment of $5,000 or more, the minimum initial investment in some funds could be as low as $250 or $1,000, making the idea of investing more welcoming for kids.

“Investing early in life is important – not only does it give young investors a head start in building a nest egg for a first home, a college education or retirement, but it also creates good investing habits,” said David Kathman, fund analyst for investment research firm Morningstar Inc.

When helping kids invest in funds, keep things simple. Focus on stock funds, rather than bond funds, as kids have long time horizons and can take on plenty of risk.

Large-cap stocks are a good option for kids, as they are more likely to hold stocks of companies with which kids are familiar.

Younger investors will usually have no need for sector funds or load funds. While some load funds have low minimum investment requirements, they are not appropriate for individuals making a lot of small purchases, as young investors probably will.

Socially responsible funds, most of which shun alcohol, tobacco and gambling stocks, may be a category that fits the young investor’s portfolio.

The Premium Fund Screener on Morningstar.com can help screen for these types of investments, along with other categories such as index or lifecycle funds.

Kids should also learn early on about the importance of fund costs. This can be tricky, as the least expensive funds sometimes have high minimum investments.

Setting up an investment plan to automatically add a certain amount, such as $50, to the account each month will allow children to start investing without a lot of money to start. It will also show them how quickly that nest egg can grow when additions are made regularly.

For more information, visit www.morningstar.com to use tools such as the Mutual Fund Screener and Cost Analyzer to determine the best fund

 

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