A mutual fund targeting new investors recently launched. And in many regards, it is truly a fund unlike any other.
It has a MySpace page (with John Mayer, Cam'ron, and Nylon magazine among its top friends). It was featured in a Daily Candy email and on a billboard in Times Square. And its website displays a stylish group of young "investors" who look as though they showed up to pose for Dolce & Gabbana, not a mutual fund.
In fact, one model was so eager to be photographed that she rushed to the scene in her underwear.
Wait, did you say mutual fund?
You heard me correctly. The eye-catching GendeX Mutual Fund touts itself as "managed by young adult investors for young adult investors." And what young investor wouldn't want a beautiful-people portfolio?
Beneath all of the glamour surrounding this fund's nascence are some worrisome facts. Most importantly, it completely fails to address other aspects that new investors need to take care of before they can win on Wall Street.
First step: Run from this fund
The fund is managed by James C. Perkins Jr. -- a hip young man who himself seems straight out of an issue of GQ. He captains a Peter Lynch-like ship (investing in what he knows well), picking in-vogue stocks such as Apple
Even though he's a financial-industry veteran, two aspects of his leadership should concern potential investors.
First, the prospectus declares that he has no previous experience running a mutual fund. So he has no proven track record of success (or failure!) by which we can judge his stock-picking abilities. Furthermore, the fund's Statement of Additional Information reveals that he has a whopping total of $0 of his own money invested in his new fund.
What? You'd think the proprietor of the "Demographic Convergence Thesis" -- which predicts that fortunes will be found somewhere between baby boomers' increased health-care spending and Gen-X and Y-ers' propensity to trend-spend -- would put a monetary vote of confidence in his theory. But alas, he does not.
And neither should you
Not only is the managerial situation unsatisfactory, but the fund is also on the pricey side -- especially because it claims to be a starting point for young, new investors with little money to invest.
It charges 1.5% annually in fees, which is more than the average mutual fund. Investors with less than $2,500 invested will pay $2 in monthly maintenance fees. Plus, if you sell shares within a year of purchase, you'll be charged with a 2% redemption fee.
All these fees for a fund that predicts it will "be a relatively passively managed fund"?
You'd be better off elsewhere. In fact, the best thing a beginning investor can do is contribute to a 401(k) and invest in better, more proven funds with lower expenses. An index fund like Vanguard 500 (VFINX) is a great bet.
Forgetting the foundation
Not only does this fund present a weak case for potential investing newbies, but also, many new investors have other financial issues they should address before investing -- especially the younger crew that GendeX is targeting.
In fact, this demographic comes to the table with a lot of financial baggage.
They're contending with student loans that, in proportion to their income, are much larger than those of the baby boomers. Many are emerging from college and beginning their careers with an overwhelming level of credit card debt. Not to mention the ubiquitously rising costs of housing and health care.
Best of both worlds
I admire the entrepreneurialism of Perkins and his crew at Thrasher Funds for their desire to encourage young people to invest. In fact, the earlier you start investing, the better.
But if you're new to investing, you need to be sure that the rest of your financial life is in order while you embark on this adventure. My colleagues Dayana Yochim and Robert Brokamp, advisors to our Motley Fool Green Light service, can assist you and ensure that you're starting off your investing life on the right foot. Each month, they offer the best money-saving personal finance tips and advice for beginning investors out there. Start today by unlocking the hidden value in ever dollar earned -- all you need to do is click here to learn more.
Fool analyst Adam J. Wiederman often has to refuse requests to model for mutual funds, but owns no securities mentioned above. Microsoft and Coca-Cola are Inside Value recommendations. Time Warner is a Stock Advisor recommendation. Bank of America is an Income Investor recommendation. The Fool's disclosure policy is so eager to disclose each day that it often forgets its pants at home.
