Investments for kids depend on many factors

Motley Fool

Q: Are stocks, bonds or CDS best when I’m investing for my kids? — H.S., Fort Wayne, Indiana

A: It depends on factors such as their ages and your goals. Are your kids still very young and more than a decade away from college? Are they 16 and headed to college soon? Are they 21 and hoping to buy a home in a few years?

For long-term money — funds you won’t need for at least five to 10 years — consider stocks, which have outperformed just about all alternatives over long periods. A low-fee broadmarket index fund, such as one that tracks the S&P 500, can be all you need. You might also invest in shares of a few companies that your children know and like and then follow them together.

With shorter term money that you’ll need within a few years, look for less volatile investments, such as bonds, CDS or money market accounts. Remember, though, that inflation has averaged 3% annually over long periods, so if you’re earning only 1% or 2% in interest, you’re probably losing purchasing power over time. Consider Series I Savings Bonds, as their interest rates account for inflation. Learn more about them at www.treasurydirect.gov.

Fool’s school: Where to invest

You’re familiar with stocks and mutual funds, and you want to invest to build savings for retirement. Should you park your hard-earned dollars in stocks or in funds?

Mutual funds, featuring the pooled and professionally managed money of many investors, are appealing — but they come with fees. They also aren’t likely to perform as well as the best individual stocks. Netflix stock, for example, has averaged annual growth of more than 36% over the past 15 years. That’s hard for any fund — and most stocks — to beat.

But investing in individual stocks requires you to have the time, interest and skill to study companies, looking for the ones that are healthy and growing at a good clip, yet are undervalued. You’ll need to know the difference between net and gross profit margins and be able to calculate or understand metrics such as return on equity, return on assets and return on invested income.

If all this doesn’t sound like you, you’re probably better off sticking with mutual funds — index funds, in particular. The stock market has returned an average of close to 10% annually over long periods, and relatively few mutual funds top that.

Name that company

I trace my roots back to the 1922 opening of a beauty salon. Over time, that turned into a chain of affordable salons in department stores. In the 1950s, my salons began to move into stand-alone stores in malls; today, they’re all over. I’m based in Minnesota and have a market value recently of over $670 million. My empire spans more than 7,800 franchised, owned or partly owned locations globally, with brands such as Supercuts, Smartstyle, Mastercuts, Sassoon, Cost Cutters, Roosters and First Choice Haircutters. With my Empire Education Group, I’m also in the cosmetology school business. Who am I?

Last week’s answer

I trace my roots back to Dallas in 1927, when my founder started selling basic goods from the dock of an icehouse. (Business improved after Prohibition ended and I could sell beer.) By the 1940s, my many stores were open 16 hours a day, and I changed my name to reflect that. In 1963, I experimented with staying open 24 hours a day every day. I was the first to sell coffee in to-go cups and to offer a self-serve soda fountain. I trademarked the term “brain freeze,” too. Today my name is on more than 68,000 stores in 17 countries. Who am I? (Answer: 7-Eleven)

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