Facebook Twitter



You don't know how many times I've heard people say they wished they had started a savings program earlier in life. Even if you started late, perhaps you can persuade your children and/or grandchildren to get a head start on achieving financial independence.

An innovative fund family, SteinRoe, has launched a mutual fund designed to encourage children to get that financial head start. The SteinRoe Young Investors Fund is designed to appeal to children by investing in stocks of companies that affect children's lives.TOYS AND THINGS. As you might imagine, SteinRoe Young Investors Fund invests in companies like McDonald's, Hasbro and Toys `R' Us. At least 65 percent of fund assets will be invested in companies that have some connection to children.

That connection may not be as direct as you might think. The Young Investors Fund, for example, invests in International Flavor & Fragrance. The connection is that IF&F produces flavors that are ingredients in many of the foods children eat.

The likelihood of the these types of kid-oriented companies doing well financially may be good. There are an estimated 25 million children in the United States who are projected to spend $89 billion in 1994. Companies that successfully cater to this large market will undoubtedly make money.

MAKING MONEY COMES FIRST. Despite the youthful investment bent, the fund's first priority is to make its shareholders money. Therefore, the fund's charter allows it to invest up to 35 percent of fund assets in companies that are not related to children.

Most of the companies that would qualify as children-related are consumer product companies. Investing 100 percent in consumer stocks would defeat the diversification goal of any diversified equity fund. Therefore, SteinRoe reserves the right to invest 35 percent of the fund in stocks, regardless of orientation.

TOO MUCH IS NOT GOOD. The remaining 35 percent is invested in companies that likely have nothing to do with children. This is a concession that enables the fund to qualify as a diversified equity fund instead of as a sector fund, which are notorious for their boom-or-bust performance.

Plus, SteinRoe's flexible attitude about what affects children, like with IF&F, gives the fund more latitude than ostensibly apparent. The ultimate goal of the 35 percent non-children companies and the flexible definition will reduce the volatility and risk of the fund.

INVESTMENT EDUCATION. Perhaps even more innovative than the investment approach is the commitment to education the fund has. In fact, the fund's charter directs the fund to provide ongoing shareholder education. Not only will your child or grandchild learn to make mutual fund profits, he or she will also get an investment education in the process.

SteinRoe will achieve this education goal by starting with an easier to understand prospectus and a simplified account application. New shareholders will receive a welcome kit that includes a workbook and activities that both the child and the custodian can work on together.

SteinRoe will follow up each quarter with a shareholder newsletter with articles and games tailored for a younger audience. The ultimate purpose of all this education is to produce a more informed and educated investor who SteinRoe hopes will remain a loyal shareholder as an adult.

WILL IT WORK? I've seen a lot of these types of gimmicky funds come and go in the past. The problem lies with restrictive investment charters that tie the portfolio manager's hands. Allowing a manager to invest in anything but his or her best ideas is generally a formula for mediocre performance.

SteinRoe seems to have at least partially addressed that problem with the unrestricted 35 percent of the portfolio.

The education objective is admirable and a welcome development. The sooner young people learn about no-load funds, the faster they will achieve financial security. SteinRoe deserves a pat on the back.

If you would like more information about the SteinRoe Young Investors Fund, call 1-800-338-2550.