Investing is the "in" thing to do!
Kids today have lots of money to spend. LOTS of money. In fact, last year alone, teenaged kids spent over $140 billion on clothes, entertainment, CDs, videos, and more. So the power of spending is in their hands. But do they also know about the power of investing?
For today's kids, the answer is a resounding "YES!" In fact, for many of them, investing has become a regular pastime. With money they receive for birthdays, holidays, or odd jobs, many youngsters are "playing the market" instead of video games—and finding that the benefits of long-term investments include higher returns for the future.
Where are kids investing?
Where are the kids putting their dough? According to the Mutual Fund Education Alliance, there are many no-load mutual funds geared to kids. Brokerage firms are visiting middle schools to talk to students and parents about investing, and promoting stock-picking contests. Some of the kids are paying more attention to online stock quotes than to chat rooms or instant messages.
Other places where kids are investing? Many go for stocks of companies that make the products they use, including those of fast-food favorites, video game manufacturers, and soft drinks. Internet savvy youngsters are also buying mutual funds that include stock in the high-tech companies that make components for their computers and cell phones. Others are choosing environmentally friendly stock funds, or funds that are heavy with corporations which produce educational materials.
Where should your kids invest?
Of course, that's up to you. A financial advisor might be able to help. But, you'll want to sit down with your children and talk about it so you make sure they have a say. And you'll want to do some research—on the Web, in the library, or in newspapers. It's a great way for the whole family to learn about what's out there in the business world. Most companies have their own Web sites that include their annual reports—a great place to find out how they did in the previous year and what they've got planned for the future.
Get 'em started while they're young!
Naturally, you'll want to have a regular savings program for your kids in savings accounts or certificates of deposit. But you don't have to wait until your children are in their teens to get them started with investing, too. One of the best ways is to explain to them how, once they buy stock, they actually "own" a piece of the company. Imagine a youngster's delight in holding a "piece" of his favorite theme park in his hand (the stock certificate)! Or knowing that the next time he bites into his favorite fast food snack or drinks a cola, he's helping to support the companies that he's a part of.
Some companies offer their young stockholders other "incentives" to buy their stock. For example, a corporation that makes chewing gum sends a large sample of their product to stockholders.
Mutual Funds make investing easy.
So get your kids started now. Give them a "nest egg" to invest. For those of you who don't want to invest in single stocks, the best way to get into the stock market is through a mutual fund. Many of today's mutual funds have lowered their initial minimum investment (usually $10,000) to $1,000 or less for custodial accounts. Adults can establish these custodial accounts—which the kids own and can tap into when they reach the appropriate age—but anyone can contribute to them, and some of the funds let your kids invest as little as $20 to buy more shares.
What are the costs?
All mutual funds cost something. "No-load" funds charge no fee up front to buy in, but do charge administrative fees that are automatically deducted. "Load" funds charge a fee up front, but have lower administrative fees. And, of course, there are "transaction" fees to make the trade (or buy) the fund. These depend on how you make the trade. If you buy Online, the transaction fee will be less than if you talk to a registered broker on the phone or see one in person.
If you are buying separate stocks, or equities, the transaction charges are usually set as follows: you pay a set amount for the purchase of any number of shares up to 1,000, depending again on what channel you use (Internet, phone, or face-to-face from a representative). After that, you pay a certain amount per share (usually a few cents per share-again, depending on the channel you use to buy the stock).
Bottom line: Ask for a prospectus before you buy a stock or mutual fund. Ask your financial representative about what he or she charges. And always read the fine print to find out what the transaction fees will be before you buy. Many so-called "bargain" Internet brokerage sites charge low fees only when you make a certain minimum number of trades. And don't be afraid to ASK if you don't understand.
How much risk should you take?
First of all, when investing for yourself or your child, make sure you balance your portfolio. You might want to opt for certificates, such as Navy Federal's EasyStart Share Certificate, for a guaranteed investment. But mutual funds and stocks should definitely be part of your diversified picture.
As with any investment in the stock market, there's always some risk. And the caveat, "previous performance is no guarantee of future success" certainly applies. But the great thing about getting your children interested in investing at an early age is that time is on their side. And, over time, the stock market has proven to be one of the best ways to increase savings.
Where do you go to get started?
One of the best ways to get your child started on investing is to ask a financial representative for help. Navy Federal Financial GroupSM, Navy Federal's wholly owned subsidiary, has representatives who will help you decide what investments are best for you and your family. Whatever you decide, do it NOW! Your kids have the best investment strategy of all behind them—the time to make their money grow.