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Investing Q & A

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Mutual Funds For Grandkids

Parent: I would like a list of mutual funds I can invest for my grandchildren. I already have Liberty-Stein Rowe Young Investor Fund. I would like another choice.

Kids' Money: Here's a list from Street Wise, A Guide For Teen Investors by Janet Bamford:

  • American Express IDS New Dimensions (ticker INNDX)
    (800-437-4332; www.americanexpress.com)
    Minimum investment: $500, or $50 a month
    Investment objective: Large-cap growth
  • INVESCO
    (800-525-8085; www.invesco.com)
    Minimum investment: $250, or $25 a month
    Investment objective: Four funds with different objectives
  • The Monetta Express
    (800-666-3882; www.monetta.com)
    Minimum investment: $250, or $25 per quarter
    Investment objective: Seven funds with different objectives
  • USAA First Start Growth
    (800-235-8377) Minimum investment: $250, or $20 a month
    Investment objective: Large cap growth

    And for those that do not already have Stein Roe:

  • Stein Roe Young Investor (ticker SPYIX) and Stein Roe Growth Investor (ticker SRGIX)
    (800-338-2550; www.younginvestor.com)
    Minimum investment: $1,000 for a custodial account, or $100 minimum with $50 per month thereafter
    Investment objective: Large cap growth

For more information, refer to pages 127-132 (Kid-Friendly Mutual Funds) of Street Wise, A Guide For Teen Investors by Janet Bamford. Available through Kids' Money Store.

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Stocks for $25

Parent: Do you know of any stock that you can buy just one share to start kids on the road to investing? Something at $25?

Liberty Financial: One way to purchase stock in a company for as little as $25 is to be enrolled in a company's Dividend Reinvestment Plan, commonly called a DRIP. DRIPs are plans offered by companies for the reinvestment of cash dividends by purchasing additional shares or fractional shares, on the dividend payment date. Many DRIPs also allow the investment of additional cash from the shareholder, known as an Optional Cash Payment or Optional Cash Purchase (OCP). The DRIP is usually administered by the company without charges or with just nominal fees to the participants, and many allow additional purchases of as little as $10 to $25. For most DRIPs, you must already be a shareholder of the company to enroll. This means that you must own a minimum of one share, but some require that you own more shares.

One of the easiest ways to obtain the first share of a company's stock, so that you may participate in its DRIP, is by going directly to the company. Companies that offer their stock for sale to the investing public are sometimes referred to as No-Load Stocks. These stocks, in many cases, can be purchased without using a broker or paying brokerage commissions.

Starting an investment program using DRIPs is quite simple, but it does require a little bit of research. Not all companies offer DRIPs or are considered no-load, so it is important to find out first if the company you are interested in offers a DRIP or allows you to purchase stock directly. Luckily, you have access to the Web, one of the best places for researching such a topic. One site that may help is Better Investing. This is part of the National Association of Investors Corporation's homepage.

If you have trouble finding out if a particular company offers its stock for sale directly to the investing public and also has a DRIP, simply call that company's Investor Relations department and ask. They should be more than willing to give whatever information you need.

Other options that you have available, with low minimum initial investments, would be mutual funds. Many mutual funds can be opened with an investment of as little as $100 or $500.

Mutual funds are a collection of investments you can buy. The investments are picked by an expert known as a portfolio manager. Stock mutual funds invest primarily in the stock of different companies. Therefore, when you invest in a mutual fund you become an investor in all the stocks that the mutual fund owns. For example, if you invest in a mutual fund that owns the stock of Coca-Cola, McDonalds and Liberty Financial, you become an owner of those stocks. One of the great benefits of mutual funds is that you don't need to invest a lot of money to get the same benefits as a millionaire investing in the same fund. You can get information about the different funds available by contacting the fund company directly or by contacting a broker. Please read the fund's prospectus before you invest or send money.

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Explaining the stock market

Parent: We are trying to find a good resource for explaining the stock market to our 10-year old. He is interested in buying shares in familiar companies and watching their progress. Any suggestions?

Kids' Money: Here's how one parent approached it:

  • Sit down with your child and the business section of the local paper.
  • Go to the listings for the New York Stock Exchange.
  • Find a stock your child is familiar with, such as Disney or McDonald's.
  • Explain that stock represents a share of ownership in the company.
  • Tell what each number for the stock you have selected means.
  • Ask if your child has any questions.
  • Suggest your child tracks the price of the stock over the next week.
  • Have your child prepare a sheet of paper or poster for that purpose.
  • Point out the stock tickers on CNN and CNBC.
  • At the end of the week, review the price changes and see what other questions your child may have.

Liberty Financial: There are many great resources at your local library that can help teach children about the stock market. Several books regarding investing have been authored specifically for children. These books are bright, colorful and easy to understand. One book that may be of particular interest to you is "The Kids' Money Book" by Neale S. Godfrey. This book, illustrated with cartoons and pictures, answers hundreds of questions about money - from when was money invented to what is the stock market. One other resource you may want to consider is the Liberty Financial Young Investor Computer Game. This PC-based computer game allows players to learn about risk, income taxes, financial planning, mutual funds, Wall Street, money and the economy in a fun interactive setting. You can get a free copy of the Game either by visiting the Young Investor area of Liberty Financial's web site or calling 1-800-403-KIDS.

How about other Kids' Money parents? Now's the chance to share your knowledge and experience in this area. E-mail your views now!

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Stocks for kids

Parent: I wanted to find out information on getting kids interested in investing without a lot of money to start with. Instead of buying young nieces and nephews savings bonds, I wanted to know if there were any programs where you can purchase a small number of share of stocks for kids. I think Disney has such a program. Thanks for your responses.

Kids' Money:Thanks for your inquiry. There's a number of ways to buy small amounts of stocks for kids and a number of perks that make it especially fun for them. An excellent resource in this area is Dr. Tightwad's Money-Smart Kids book. In particular, Chapter 7, "Investing: Raise a Wall St. Whiz Kid," has a great deal of helpful information.

Here's a few ideas from Dr. T on inexpensive ways to buy single shares of stock for kids:

  • Custodial Accounts. Cut a deal with your broker to open a custodial account for the kids. When you buy a large number of shares, see if you can register a share or two in the child's name.
  • Brokerless Alternatives:
    • The Low Cost Investment Plan of the National Association of Investors Corp. (313-543-0512). For a $32 annual membership and a $5 one-time fee, members can buy shares in any of 110 companies.
    • Moneypaper (800-592-1551). For a $72 annual newsletter subscription, readers can buy shares in stocks mentioned in the current issue for a $15 fee. Other stocks may be purchased for a $20 fee.
    • First Share (800-683-0743). A $12 membership fee allows you to purchase single shares of stock from other members.
  • Dividend Reinvestment Plans. Use dividends to purchase additional stock. Some companies even allow you to kick in extra funds.
  • Mutual Funds. Set up a program for a child. Automatic monthly investments can run as little as $25 a month.

Here are some companies that make it fun for kids to have shares:

  • William Wrigley Jr. Co. sends stockholders a 100-stick box of gum each December.
  • Kellogg sends a packet of coupons for such goodies at Pop-Tarts and Froot Loops.
  • Disney offers the Magic Kingdom Club with discounts on resorts and theme parks.
  • 3M, for a small charge, offers holiday gifts boxes of tape, Post-Its and other products.

Liberty Financial: Kids owning securities is a great way to teach them about money and investing. And many major U.S. companies have made it relatively easy for kids, or investors of any age for that matter, to invest in individual stocks by offering Direct Participation Plans. These plans allow people to invest directly in the company at relatively low minimum investments. To find out if a company offers such a plan you would need to contact that company's Investor Relations department. You can find various company phone numbers and addresses in your local library's business directories or by searching for the company on the Internet. Additionally, several books have been written on this subject, all available in your local book store or library.

Unfortunately, Disney does not offer such a program. The reason I know this, is that they provide that information on the Disney Investor's web site.

One way to get kids interested in investing is to open a mutual fund. One fund in particular that stands out is the Stein Roe Young Investor Fund. This Fund invests in companies that affect the lives of children and teenagers. Some of the companies that it owns include Disney, McDonalds and Coca-Cola. The Fund can be opened for as little as $100. Additionally, the Fund is designed to be a fun and educational experience for young investors. To this end, the Fund provides shareholders with educational materials designed to help educate young investors about investing.

To find out more about the Stein Roe Young Investor Fund, including information on fees and expenses, please obtain a current prospectus, which you should read carefully before investing, by visiting the Stein Roe Mutual Fund's web site or calling 1-800-403-KIDS.

How about other Kids' Money kids? Now's the chance to share your knowledge and experience in this area. E-mail your views now!

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Explaining the significance of a change in the stock market

Parent: What does a rise or drop in the stock market represent? What does it mean?

Kids' Money: First of all, a rise or drop is typically indicated by the change in the total share prices of a select group of stocks (such as the Dow Jones Industrials or the Standard & Poor's 500). As such, a single stock may rise when the market drops or drop when the market rises.

Individual stocks rise or drop depending upon the number of sellers compared to the number of buyers - the old supply and demand theory. More buyers cause the price to rise. More sellers cause the price to drop. Generally, people decide to buy or sell based upon the past performance of the company or the anticipated future performance.

Looking at the overall stock market, a rise represents the cumulative optimism that results in more buyers than sellers, while a drop represents the cumulative pessimism that results in more sellers than buyers. Many people look at a rise or drop in the stock market as an indication of good or bad economic times ahead.

Liberty Financial: For long term investors, the daily fluctuations of the stock market should be no more than an interesting indication of how the market, in general, is doing.

There are various measures for how the market is doing that investors can follow. The oldest and most widely used measure of the stock market is the Dow Jones Industrial Average, also known as the Dow or DJIA. You may see this average on the news every night or in the newspapers that you read. The Dow shows the action of the 30 most actively traded blue-chip stocks on the stock market. Another indicator, and probably a better measure than the Dow, is the S&P 500. The reason this may be a better indicator for some investors is that it tracks 500 different stocks of different sizes, as opposed to the 30 blue chip stocks in the Dow.

The stock market is like a supermarket for buying and selling shares in different companies. If there are a lot of people who want to buy shares in a company, the price goes up. If there are a lot of people who want to sell shares in a company, the price of the shares will go down. So the stock market, as measured by the Dow or the S&P 500, represents the average price of that index's stocks. If the index was down, then there were probably more sellers than buyers. If the index was up there were probably more people buying stocks than were selling.

As a young investor, you should not worry about whether the stock market goes up or down. Because of your young age, you have a long time horizon for your investments - that is you don't need the money for a long period of time. As a result, your investment has more time to grow - more time than some older investors who may need their money in a year or two.

How about other Kids' Money kids? Now's the chance to share your knowledge and experience in this area. E-mail your views now!

How about other Kids' Money parents and kids? Now's the chance to share your knowledge and experience in this area. E-mail your views now!

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