Investing in mutual funds for kids could help boost college savings big-time. Here's how to do it
Though it seems far off, the Class of 2025 will be picking up their high school diplomas before you know it. So start saving now, but where to begin? We've got a cool (unintimidating) way for you to invest in the stock market and earn cash for your kid's education.
“Opening a mutual fund in a parent's name with a mental note of it being for the child is a good start,” says Tom Henske, certified financial planner and partner at Lenox Advisors and founder of the company's Money-Smart Kids program, which supports clients in their efforts to teach their kids about money.
For those who need a refresher in Finance 101, a mutual fund is a company that brings together money from many people and invests it in stocks, bonds, or other securities. “Mutual funds are safer than buying shares of a single stock because you're spreading out your money, which reduces your risk,” says Henske. “It's also a good message to send to your kids—don't put all your eggs in one basket.”
An example of a great kid-friendly mutual fund is the Monetta Young Investor Fund. One advantage over others is that it requires a low start-up contribution—$1,000, or just $100 if you pay $25 or more per month through an investment plan. The fund also allows account holders to opt in to a “tuition rewards” program for their child, which earns reward points each year on his birthday that can be applied to reduce tuition costs at more than 245 private colleges and universities. And the truly “kid-friendly” aspects? The fund sends your kid a piggy bank and a money-related activity book (ages 0 to 7) with simple puzzles, games, lessons, and jokes, and it invests in “cool” companies like Apple, Nike, and Disney. Meaning that Mom's iPhone, his sneakers, and Cars 2 all become fun ways to teach your kid about money.