Call it mutual fun. The new Young Investor Fund, sponsored by Stein Roe & Farnham in Chicago, aims to make investing easy for children 10 years and older by providing them with a whole load of educational materials and by putting their money into RTC companies that touch their lives, like Coca-Cola and Microsoft.
The concept is good. It's important to learn about investing because "maybe our parents don't know how to do it," said Julieanne Hersk, 10 1/2 . Besides, "it's easier to learn when you're young," said Dawn DelValle, 14.
This fund may be a good starting point. But investing is tricky, and parents should expect to be very involved in the learning process, as was made clear recently during an informal exercise with six campers at the Berkeley Carroll Creative Arts Program in Brooklyn, N.Y.
The fund is the second phase of the Liberty Financial Young Investor Program, introduced by Stein Roe's parent company in 1993. It follows a nationwide survey of 1,389 students in grades 8 through 12, in which 55 percent of the respondents said they would like to learn about investing (26 percent would not, 19 percent were "not sure").
Not surprisingly, the survey also found that older students were more interested. Nearly 90 percent of all students surveyed planned to attend college; 30 percent said they and their parents were saving money for that.
Hence, the Young Investor Fund. "We want to light up the interest and imagination of young investors and earn a superior return over time," said Kenneth W. Corba, manager of the fund. The no-load fund now has 1,029 young investors, with about half between 11 and 15.
A $2,500 investment in the new fund ($1,000 in custodial accounts) brings the young investor a welcome kit. There's a Young Investor certificate and a large poster for tracking investments -- the date shares are bought or sold, dollar amount of the sale, number of shares and so on. There is also an activity book, "You and Your Money," with mazes and other instructional activities, which is geared to kids under 7.
By far the most important tool is the "Owners Manual for Young Investors." It explains the difference between saving and investing, defines stocks and bonds and mutual funds and untangles ideas like diversification and dollar-cost averaging.
The six campers (out of 174) who volunteered for the exercise to evaluate the fund materials ranged in age from 10 1/2 to 14, and their reactions to the manual varied. Brian Oppenheim, 10 1/2 , said, "I thought that stocks and bonds were clearly explained." When quizzed on the difference between a stock and a bond, he wrote, "With a bond, the company has to pay you back. With stocks, you don't get paid."
On the other hand, three 11-year-olds said they couldn't understand most of the materials. Dawn said she found the Owners Manual easy to read and understand.
The concepts are not easy -- none of the five younger students grasped what "diversification" meant, for example. And the writing in the manual seems generally too sophisticated -- even for young teen-agers.
Stein Roe has also set up a young-investors hotline with a toll-free number. When Julieanne called, she was given a second number; they told her they would mail her some information. Ginger Norling, 11, said, "They didn't answer my question, and they said they'd mail me something."
A portfolio game that came in the packet asks the new young investors to match companies like Microsoft, Procter & Gamble and Coca-Cola with the products they make (software, soap, soft drinks); all the campers could do this.
The first issue of the fund's quarterly newsletter, a colorful four-page publication called "Dollar Digest," includes an article "How to Make More Money," a company profile (P&G;) and a "savvy consumer" quiz.
In a group interview, the campers agreed with Pauline Celano, 11, who said the newsletter would be better for "younger kids," and several said the materials encompassed too many age ranges.
The "Young Investor Fund Activity Guide" cites 17 activities to help parents and children learn about investing, ranging from having a child calculate the cost of a college education to paying family bills together to offering a matching investment program.
The fund's prospectus may be easier to read than some, but it's certainly not easy. The fund's basic description begins: "The fund is designed for long-term investors who are willing to accept the investment risk and volatility of equity-type securities."
The fund's top holdings are Motorola, Microsoft, P&G;, Coca-Cola and Carnival, the cruise ship operator.
The fund's annual expenses are temporarily capped at 0.99 percent; otherwise, they would equal 1.65 percent, compared with 1.32 percent for the average growth fund.
A less expensive way than the Young Investors Fund to have children start learning to invest is to call Stein Roe's hot-line -- (800) 403-KIDS (or 5437) -- and ask for a free copy of Liberty Financial's 50-page "Parent's Guide to Teaching Your Children About Investing."
Is the Young Investor Fund gimmicky? Sure. Will it teach children about money? Yes, if they are motivated and parents put a lot of effort into it with them. But because it's brand new, the fund's investment performance is something you'll have to take a chance on.