Can you name this fund? - The average age of the 35,000 shareholders in this unique fund is 9.
- Eighty-five percent of the shareholders are investing on a regular monthly basis, dollar-cost averaging their investments.- In the past 12 months through Aug. 1, the total performance was a 32 percent gain, making it the fourth-highest of 600 growth funds, Lipper Analytical Services says.
It's the SteinRoe Young Investors Fund, which began in 1994. It has been a winner for all investors - young and old. Most of the shareholders are custodial accounts opened by parents and grandparents.
"We like that adult involvement. We get a sense of the whole family learning together," says Kenneth Leibler, president of Liberty Financial, sponsor of SteinRoe funds.
A key reason for setting up the fund was a survey conducted by Liberty showing almost 90 percent of children get their financial information from their parents. That information largely was confined to discussions about savings and allowances, and often came from parents themselves who admit to not knowing much about investing.
"By bringing in the family, we also hope to reduce chances of these kids getting poor advice," Leibler says.
The three objectives of the SteinRoe Young Investors Fund are to:
- Provide a strong return.
- Educate young people in the basics of investing.
- Encourage a long-term outlook on investing.
"I'd say we've made a good start on all three," says Erik Gustafson, the portfolio manager. "I believe the second and third objectives are what make this fund unique among its peers."
From the beginning, Liberty Financial undertook the task of trying to better educate children and their parents in the fundamentals of investing. They published a booklet titled "Young Investor Parent's Guide."
The first chapter covers the basics - explaining what is money, inflation (the enemy of money), interest and compounding. It ends with an explanation of the Rule of 72 (see box).
Subsequent chapters include suggestions for communicating investment ideas to children, basics of financial planning and budgeting, entrepreneurial ideas to stimulate children and an excellent chapter on investment choices. There is a glossary that explains financial terms in words easily understood by beginners.
Although it is designed to help parents teach children, it is excellent reading for those who are investing for the first time. More than 200,000 copies of the guide have been distributed free. Copies are still available by calling (800) 403-KIDS.
SteinRoe did not stop with the guide. The company has made available the Young Investor's Computer Game, which covers facts and trivia about Wall Street in a format designed to be fun and educational.
The fund works hard to remind shareholders they are investing not in pieces of paper that can be bought and sold, but in companies which make products they and their families use daily.
A recent mailing featured answers by Bill Gates to some searching questions sent in by young shareholders. One 9-year-old asked how Microsoft proposed to make money on the Internet.
The fund invests mainly in companies young people can relate to such as McDonald's, Coca-Cola and Wrigley. Although that may appear to limit the selections, Gustafson says it hasn't hurt performance.
Because he believes young people are demanding consumers and focused, these companies must provide good products at the right price, have forward-looking management and good business practices - a formula for success.
Encouraging regular investing is a constant theme.
"If they absorb that lesson early they will avoid one of the most common mistakes investors make - rushing in when prices are up and going to the sidelines when the market is down," Leibler says.
To make it accessible for more young investors, the fund allows an initial investment of $100 when coupled with regular payments of $50 a month.
The SteinRoe Young Investors Fund deserves five stars - not only for performance, but for its creative and successful efforts to educate people - young and old.