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Growing up and growing richMutual funds, Roth IRAs are some of many teen-sensible investments
(CNNfn) -- Money talks, to teens just as well as adults. But few are willing to wait several years, much less several decades, to get the maximum bang for their buck. Patience will pay off many times over, experts say, for young people who are willing to invest money now and reap the rewards later. Even a sluggish stock market, they say, will not stop teen-agers from cashing in over the long haul.
"I think long-term investing is the way to go," said Chris Stallman, 17. Stallman should know. He began putting money into a mutual fund designed specifically for teens, as a high school freshman near Chicago. A year and a half away from college, Stallman has enough saved -- along with scholarships -- to pay all of his tuition bills.
Today's financial services environment feature more ways than ever for teens to invest their money, with programs geared specifically to their interests and goals. From specially tailored mutual funds to Roth IRAs, experts say a teen investor will be richly rewarded for putting money away now. "The earlier you do start, the more time your money has to grow and the more compounding you can get," said Doug Flynn, a certified financial planner for Flynn Zito Capital Management. "The first couple years of your working life, if you put some money away, can really carry you." And it doesn't take an economics degree or a head of gray hairs to understand the market. "They say, 'I'll put it off 'til I'm 20,'" said Stallman, the founder of a young investors Website called TeenAnalysts.com. "But the real money you make is when you start saving really young." Young people well-versed on the marketThe last few months have sapped investing's appeal to some, given the poor performance of Nasdaq, New York Stock Exchange and most other markets in the United States and elsewhere. But young investors are not as concerned with short-term hits, according to investment manager Curt Rohrman. "Kids today are more savvy," Rohrman said. "They are very aware of what money is all about." Rohrman manages a mutual fund -- an assortment of stocks, bonds and other investments offered as one complete package to individual investors -- aimed specifically at young people. His fund, USAA First Start Growth, is one of several that aims to educate teens and grow their money. "It makes sense," said David Brady, the manager of the Stein Roe Young Investors Fund. "The shareholders are young. You are educating them on money and investing. If you do a good job, chances are you're developing a relationship for life." For the $7 trillion mutual fund industry, which grew tremendously during the bull market of the 1990s but has had to reinvent itself as investment options expanded and the market slowed, young investors are a logical target. Stellman, who has been contacted by a few fund companies hoping to gauge interest in new funds for teens, agrees it’s a market that could take off. Saving for retirement? It makes senseRetirement is eons away to most teens, but experts say investing in a Roth IRA at a young age will pay off. Young people who make less than $4,400 annually investing in IRAs don't have to pay income tax unless they have a significant amount of unearned income from dividends and interest. Experts say that, contrary to popular belief, the penalties for early withdrawal are minimal to nonexistent. "They're not losing anything in the way of deductions," said certified financial planner (CFP) Frank Armstrong, president of the Miami-based firm Managed Account Services. "And their money is locked up for a long time." For instance, $2000 invested today and left to compound for 50 years grows to $235,000 tax-free, assuming a historic average annual return of 10 percent, said CFP Elissa Buie of Financial Planning Group in Falls Church, Virginia. If $2000 was invested every year for three yeas and left untouched for 50 years, a teen-turned-retiree to draw on $642,000 tax-free. "You look at the numbers. It's just unbelievable," Buie said. Not every brokerage house or fund company will set up a Roth for teens (until they are 18, parents must sign off on all their investment actions), but plenty do. Janus, Charles Schwab, T. Rowe Price and Vanguard offer the most well-known such IRAs. Guidelines for investingSome teen investors, of course, still opt to purchase individual stocks and bonds. But package deals like mutual funds and Roth IRAs make more sense to young people looking for long-term punch than those adults looking for a short-term gain. Risk, too, takes on a different meaning. "If you're saving for college -- any investment adviser will tell you to be more aggressive," said Rohrman, explaining that young people have more leeway than older investors putting everything they have on the line. Brady has noticed that many teens look beyond dollars and cents, picking investments for its social strength and innovation as much as its economic prowess. "They're interested in growth and cool ideas," he said. "They definitely want to see their stocks moving ... but if the company is giving something back, that would be ideal." And while some "industry experts" may say teens have a lot to learn about investing, Brady says that his young investors are more curious, and just as knowledgeable, as older investors.
CNNfn Correspondent Kitty Pilgrim and CNNfn Staff Writer Martine Costello contributed to this report. RELATED STORIES: Student Bureau: As easy as 1, 2, 3 RELATED SITES: TeenAnalyst.com | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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