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Purpose

The main purpose of the family mutual funds is to teach investing skills to all four family members. The best way to learn how to invest is to do it yourself, to be in the market with real money directly under your control with no excuses available. Having your own money at risk teaches one to pay attention, to make decisions, and to learn from mistakes. It is one thing to read about the NASDAQ going up 86% in 1999; it is another to see one's personal holdings increase by 50% or more in one year. There is a difference between reading about the NASDAQ falling 40% in 2000 (and another 20% in 2001) versus tracking the value of one's personal investments. Educators teach that people who are presented information both orally and visually learn and retain more; when an investor both observes the market and manages a real portfolio, more is learned and more is retained.

My two daughters were given control of their investments at ages 14 and 12. In the early years, only small amounts were at stake ($250 to start and $50 a month). As my daughters grew up, the value of their portfolios increased. Both of my daughters, now in their 20s, are more and more able to make wise investment decisions. Certainly both are outperforming their father, though they may never catch their mother.

My portfolio fell behind as a result of premature "bottom fishing" in an emerging markets fund in the first half of 1998. My fund went down while the others went up, leaving a gap that may take a decade to close. This result highlighted the Wall Street maxim (attributed here to Jimmy Rogers of "Investment Biker"): "Rule 1. Don't lose money. Rule 2. Don't forget Rule 1." This lesson was the basis of the year 2000 bonus offer; it served the entire family well in 2000.

One of the important lessons from this ongoing experience is the growth of the matching savings account. Saving money on a regular basis even in small amounts combined with the benefits of interest compounding eventually results in a large sum of money without any risk at all. To date, all four of us have outperformed the savings account. However, as late as the fall of 1998, two of us trailed the savings account in total value. In 2001, the savings account came within $28 of growing more than three of our four portfolios. In the decade of the 2000s, we have our work cut out simply to match the annual growth of the savings account.

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