As many parents would attest, educating children about investing is no easy task. And getting them interested is even harder.
Wheaton, Ill.-based Monetta Family of Mutual Funds is looking to change that. In December, the company launched the
Young Investor Fund (MYIFX), a mutual fund targeted at children and teenagers to help them develop an interest in investing.
The fund invests half of its assets in exchange-traded funds that track the S&P 500. They use ETFs, says Robert Bacarella, founder, president and co-portfolio manager of Monetta funds, because they provide low-cost diversification. And over 10 years, index-based products have proved to beat active managers the vast majority of the time.
Borrowing from Wall Street legend Peter Lynch's mantra "Invest in what you know," the other half of the fund is in stocks of large-cap companies that are familiar to kids.
Top holdings include
Chipotle Mexican Grill
Dick's Sporting Goods
Bacarella says the idea stemmed from his experience trying to teach his own children about investing.
Since the fund, one of six Monetta manages, only launched in December, there isn't much track record to go by. However, according to Morningstar, the fund is down 1.61% for the year as of March 5 (thanks to the market slump), yet is still beating the S&P 500, which is down 2.78%.
The fund's fee is capped at 1%, which includes 12b-1 marketing fees, management fees and other fees. It is also a no-load fund, meaning investors do not incur a sales charge when they buy the fund.
Bacarella says his efforts at getting his children interested in investing were fruitless -- until he bought them each shares in a company that made crayons.
Shortly after buying the shares, the company sent his children an introductory package including crayons, a coloring book and some other company products. Bacarella says that was enough to entice his children and get them interested.
"I wanted to carry this theme to what we are doing," says Bacarella, who initially applied the idea to the company's flagship fund, the
Monetta Fund (MONTX). Bacarella says he started asking some of the companies they invested in to send kid-oriented products, which they would pass on to young investors.
There was a great response from investors, he says, but as the accounts grew (the Monetta Fund now has about $60 million in assets) the companies weren't able to send so many products.
"We knew we needed a program to do it ourselves," he says.
Here's what they came up with: When a child or teenager joins the fund, they are given an investment kit, which for children eight years old and younger includes an activity book, a CD with songs about money and a copy of the kid-friendly newsletter chock-full of jokes and other information that is intended to make it interesting to them.
Teenagers are offered a more sophisticated version of the kit and have the chance to enroll in a stock market game, in which they each receive $100,000 in "Monetta Bucks" that they have to use to construct a portfolio with any combination of stocks from the Dow Jones Industrial Average.
At the end of six weeks the first-prize winner gets to choose either a certificate for one share of stock or a $75 gift card to Best Buy. There are smaller gifts for other winners.
"Its all about getting the kids involved," Bacarella says, adding that the idea is to educate kids about investing while creating a level of entertainment.
"We are the only company that reaches out to the kids
in this way," Bacarella says. "We are making a valiant effort to try to get kids to understand about investing. We are teaching them how to save, how to set a goal and reward them for meeting the goal. ... We do it in a fun way, through games and activities."
There are a few other funds that are considered kid-themed including American
Century Giftrust (TWGTX),
SunAmerica Blue Chip Growth Fund (SVLAX) and
USAA First Start Growth Fund (UFSGX).
Monetta also has a program to help pay for college. Through a partnership with SAGE Scholars, which has agreements with 200 private colleges and universities, Monetta investors can earn up to 5% of their account balance in tuition credits that can be applied to any of the schools in the SAGE program.
The credits can accumulate to as much as one year's worth of tuition, though there are restrictions in how they can be used. For instance, they have to be used over the course of four years. Bacarella says the credits are not taxable and they don't affect the student's financial aid package, as they are basically a reduction of tuition.