SOME Q AND As
Q. I am interested in making an investment for my children. Any suggestions?
A: In the mutual fund arena, the sky is the limit when it comes to opening an account for a minor. That's because you can open a Uniform Gift to Minor Act (UGMA) account or Uniform Transfer to Minor Act (UTMA) account with virtually any mutual fund around. But if you want a fund that's kid specific, check-out Stein Roe's Young Investors Fund, (1-800-338-2550).
That fund was up 17.65 percent in 1998 and for the past three years has a cumulative total return of 100.73 percent. All the literature this fund sends out is delightfully kid-friendly.
Another fund family new to hop on the kid bandwagon is the Monetta Family of Funds, (1-800-666-3882). This month they are introducing a Kids Investment Program designed to help young people develop a disciplined savings plan. And, the program allows parents and grandparents to open accounts for minors with as little as $250.
Q: I'd like to invest in a bond fund but worry about bonds defaulting. Is that something I should be concerned with?
A: One of the big advantages of being a bond fund investor is that bond funds are professionally managed. The men and women who are bond fund portfolio managers spend their days---and sometimes their nights---in bond land. So it's their job to keep abreast of what's happening with the various issuers of bonds be they corporate, municipal bond or any other type of bond in between.
For a closer look at bond default rates, looking only the issuers of corporate bonds, in 1998 in the U.S there were 52 defaults of publicly held long-term corporate bonds, according to Moody's Investors Service. The three biggest periods of default rates for bond issuers were during the Great Depression, 1970 and 1990. During the worst period, the 1930's, trailing 12-month all-issuer corporate bond default rates exceeded 9 percent. Most recently, in 1990, the default rate hit slightly over 4 percent. And in 1998, was 1.27 percent.
Q: What money market fund would you advise to invest $1000 for a year---a bank fund or a mutual fund?
A: A money market account opened at a bank is called a money market deposit account, (MMDA). One opened through a family of mutual funds is a money market mutual fund (MMMF). The difference between the two is yield---typically the money market mutual fund will offer the higher yield.
When deciding which one to invest in, there's plenty to think about. For instance, after you know how much money you've got to invest, check out the fund's initial minimum investment amount. On both MMDAs and MMMFs, minimum investment amounts can range from a few hundred dollars to a few thousand. Then there's the question of convenience. Do you prefer to do business in-person at your local bank or via the phone and mail?
After that comes taxes. Do you want a taxable or tax-free money market account? And finally, what type of securities do you want to invest your money into? There are usually a handful of choices here with the three most common being a money market account that invests in government securities, or a Treasury-only fund, or an all-purpose one.
As for which one would I advise the answer is: the one that best meets your individual needs.
To read more articles, please visit the column archive.