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ASK KIM

Teach Kids the Value of Investing

Your children can see how their money will grow by picking stocks and funds that don't cost a lot to buy.

I have two kids, ages 11 and 9. They have savings accounts for money accumulated from allowances, but I want them to own stocks or mutual funds so they can see how money grows through investing. I'm looking for investments that don't require a lot of money.

You're a great dad. It's hard to imagine a better gift than teaching your kids about investing and the power of compounding.

Speaking of families and investing, consider the Hodges Fund (symbol HDPMX), which is run by a father-and-son team and lets customers start with as little as $250. The fund, which invests in companies of any size with above-average growth prospects, has been the top performer in its peer group over the past five years, with an annualized return to December 27 of 19.6%.

A good choice if you'd prefer a less-risky investment is Homestead Value (HOVLX). It returned an annualized 9.6% over the past decade. A more adventurous choice is Excelsior Value & Restructuring (UMBIX). The fund, which gained an average of 13.8% per year over the past decade, invests in companies that are restructuring or that are in industries undergoing consolidation. Homestead and Excelsior each require $500 to start.

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Individual stocks are riskier than diversified mutual funds. But hundreds of companies that sponsor dividend-reinvestment plans allow investors to buy initial shares directly from the company. Two promising prospects with kid appeal are Hershey (HSY), with a $250 minimum investment or $25 a month through automatic investment, and Nike (NKE), $500 minimum or $50 through automatic investment.

Note to college savers: If you're saving for your kids in a 529 account, you have just a few days to make 2006 contributions that could get you a state income-tax deduction. See our 529 Map for more information about each state's plan.

Got a question? Ask Kim at askkim@kiplinger.com.