Investing young, but wisely
Tess Vigeland: Remember getting your first credit card? What? Plastic that lets me buy anything, and a Visa T-shirt? I’m in! But you probably don’t remember your first 401k asset allocation. That’s because most young people, well, they’re not exactly thinking about retirement. But these days, mutual funds are doing everything they can to ease young investors into building a sound portfolio. Investors like Alex Schmidt.
Alex Schmidt: My 27th birthday was in February. I didn’t keep track of how much cash I dropped that night partying at a bar. But apparently, people my age should have one eye on the register.
Here’s Steve McLain, from American Century Investments:
Steve McLain: At the 27-age point, they really start to understand that they need a plan for the future, and establish some key goals and start to go after them.
Mmm, not so much in my case. My parents really never talked to me about investing. So, I have goals. Like, I want a house someday. But I’ve really never thought about the money it’ll take to get there.
Still, lots of funds these days are trying to tell me I can get ahead by investing. And they also want me to know how, like, super-duper quick and easy it is for a young person to get started. There’s the 15-minute IRA from Charles Schwab, the SimpleStart IRA from Fidelity. And, yes, American Century Investments has one, too: The My Whatever Plan. That’s . . . what it’s called.
My Whatever Plan Promo:So here’s the deal. My Whatever Plan makes it super easy to get started. Get a plan for the things that matter to you now. A new car, your first house, travel, whatever.
The My Whatever Plan pictures its target audience — me — as follows: I’m young, just starting out. So I have some cash, but not a lot. Retirement seems like it’s really far away. And I feel like maybe I should invest, but I’m hazy about how.
Their answer: a fund with a low=minimum investment — only $500, compared with $3,000 the grown-up funds require. And the site has big text and graphics.
Steve McLain again:
McLain: We really believe that making it simple for them is key. If it’s too difficult or too intimidating, we really believe it will turn them off.
Thanks for the vote of confidence, Steve. But I don’t want it so simple that the site leaves out key information.
I had Meir Statman, an economics professor at Santa Clara University, inspect the seemingly simple My Whatever Plan site.
Meir Statman: I had to scroll down to read to the small print to find those expenses.
And there are expenses. No transaction fees, as the site claims. But there are maintenance fees, and they’re as much as 1 percent.
Statman says mutual funds teach people to save. And that’s good. But they have to be forthcoming.
Statman: The question is, is it presented properly with full, frank information for young people to make decisions? And especially for young people who are less sophisticated, it is really important for mutual-fund companies to be paternalistic.
OK, yes, a parental figure you can trust is key. But these sites aren’t that. You can log on, and start up a fund without asking one question, or getting a single piece of advice. Not exactly model parenting.
Steve McLain, from American Century Investments, claims young people ask the questions they need to. But do they?
I’ve come here, to the very same kind of bar where I had my birthday, to find out what other people my age are doing.
Young Investor 1: I think I have some stocks, from my Bar Mitzvah.
Young Investor 2: Actually, my mother-in-law used to work with CDs and stuff, so she just said that was the best way to go.
Schmidt: And when you picked your CD, how’s you know which one to pick?
Young Investor 2: Oh, she picked it for me.
Young Investor 3: In reality it’s kind of like picking out of, it’s just like, you know, picking from a picture book, it’s just like what looks good. I don’t really know what is what.
Schmidt: Are you worried that like, you know, these funds and things that you’re invested in are taking high fees from you, how much they’re charging you, do you know?
Young Investor 3: I actually don’t know.
So here’s my assessment: A lot of people my age don’t think about investing. And the ones that do aren’t doing all the research about what it takes to start a fund.
Meir Statman again:
Statman: One of the things young people have to to learn is to be smart shoppers in everything, including financial products. And one of the things to learn about financial products is that they come with fees, and those fees vary from fund to fund.
Even the most forthcoming funds won’t tell you to price shop. And that’s not their job. That is Mom and Dad’s job.
So consider this a PSA, to all parents and kids: talk to each other about investing. If you don’t, don’t expect a mutual fund website to do it for you.
In Los Angeles, I’m Alex Schmidt for Marketplace Money.
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