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Start Investing Early
by Linda Brown
We've been told how
important it is to start saving early for our retirement. Those of
us who are really disciplined put funds into our IRA accounts monthly as
part of our budget.
| With the surge in the stock market
over the last few years, it's exciting to see our investments
grow quickly. It certainly encourages us to continue investing.
How long does it take us to learn
to save? Most of us started as children when we saved our
allowance for that shiny new bike. It sure seemed to take
a long time to save up that much money, didn't it? But
saving toward a goal is a valuable lesson to be learned. |
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How are you passing along that lesson to
your kids? With the dominance of Nintendo and Game Boy, it's tough
for kids to save their money today. Probably just as tough
as it was for us when we were kids wanting to buy those bubble gum
cards!
Here's an idea that might get your kids interested in saving at least
some of their money. Why not introduce your child to the stock
market?
This doesn't have to be as overwhelming as it seems. Mutual funds
make it relatively painless to get started. Many funds accept a
smaller initial investment for a minor account, often as little as $500,
sometimes less. Additionally, mutual funds offer many choices
without the level of risk that individual stocks hold. I used some
low-yielding savings bonds I had put aside toward my daughter's college
education to start.
Don't make the decision where to invest the money solely on your own
opinion and experience. This should be an adventure to share
together with your child. Depending on the age of your child, you
might want to explain in very broad terms how mutual funds are
"families" that own the stocks of many companies. Then
you can provide several mutual funds with which you are comfortable.
Examine them with your child, offering explanations of their holdings
when necessary. If possible, provide mutual funds that hold stock
your child is familiar with. The Kiddie Fund, for example, holds
stock in McDonald's, Disney and Coca Cola. Apple Computer is held
by many mutual funds, and what kid in this computer age hasn't heard of
Apple?
Before making the final decision on a mutual fund, you and your child
should also examine the fund's past performance. You can get a wealth of
information via the Internet by accessing www.morningstar.net.
Information is available there on virtually every current mutual fund.
Once you've agreed on a fund, be sure to keep your child informed of the
progress his investment is making. This is a wonderful opportunity
to add small amounts to the fund on a regular basis. Remember, you
want to set a good example for your child to follow. He will be
able to see how those small deposits can really add up, especially if
you have invested in a fund that is performing well.
If your child has invested in more than one fund, you might want to
utilize a spreadsheet or a program such as Quicken to track the total of
the funds. Having a "portfolio" makes investing even
more exciting.
Your child should receive statements from his mutual funds at least
quarterly. You can review them together, seeing how well his
predictions have worked out. You can do a simple calculation
showing the percentage the fund has grown that quarter. Better
yet, use this as a real-life math lesson, teaching him how to perform
the calculation himself.
You might want to take this a step
further. If you have invested $1,000 in a mutual fund of your
child's choosing, calculate how much that $1,000 would be worth if it
had been put into a savings account, or just left in a piggy bank.
Compare that to what the mutual fund is worth now.
I started my daughter's investment journey only a year ago. She
eagerly awaits her fund statements each quarter so we can compare how
each has done. Although she is only 10 years old, already she has
definite opinions on which companies will do well, and which funds she
wants to invest mo e money in. She enjoys being allowed to make
the decisions herself. Perhaps she's on the way to becoming
another Warren Buffet?
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