American Century Investments is aiming lower: lower age investors, lower minimum investments and lower-cost financial goals.
So, as their competitors continue to cater to the close-to-retirement Baby Boomer crowd, the Kansas City, Mo.-based shop is looking at those just beginning their careers through its new "My Whatever Plan" campaign.
"When it comes to the whole concept of retirement, while they understand it's important, it's so far away," said Donna Byers, senior vice president of direct service and sales.
The My Whatever Plan philosophy encourages young investors to use mutual fund products to save for goals that might not be so far away, such as a new car, a home or a trip abroad.
"This is about breaking it down into simple, easy steps," Byers said.
It's also about developing brand loyalty and customers who will, the company hopes, continue to turn to American Century throughout their investing lives.
"Everyone is focused on the Boomers," said Byers. "We want to make a more intuitive connection to this generation."
The web-based program will allow investors to choose from American Century's proprietary LiveStrong target-date or One Choice target-risk funds-of-fund products.
These products are especially well suited to beginner investors, Byers said, because they require virtually no research or rebalancing. Ads for the campaign will reach consumers in January.
Although these products are typically thought of as retirement planning made easy, the My Whatever program casts them in a different role. "It helps set relevant, concrete goals in a simple, tangible way," she said.
While many companies require an initial investment of as much as $2,500, the My Whatever program allows investors to contribute as little as $500 to start, and requires investments of $100 per month until the account reaches $2,500. The hope is, however, that once young investors get in the habit of contributing $100 each month, they will continue to do so even after crossing the $2,500 threshold, Byers said.
The online portal includes a calculator meant to help users better plan for "whatever" goal they chose. The minimum time frame is five years.
"I love the idea that people are saying, Let's help,'" said Tom Roseen, a senior analyst at New York-based Lipper. "We need to educate investors on how to save, rather than being just a debtor society," he said.
It's not that young people aren't interested in saving, according to a two-year-long study conducted by American Century. Of those between 18 and 26 years of age, also known as Millennials, two-thirds had savings accounts of some sort. Moreover, only 25% said that they spend as much as they earn, compared to 34% of Generation X, the generation that immediately precedes this demographic. Such statistics suggest that this generation of investors can afford to invest. They simply need to be shown how.
Although 14% also owned mutual funds in one form or another, most respondents were woefully uninformed about the most basic principles of investing. In fact, in a financial literacy quiz administered to 342 Millennials, the average score was 35.8%, or fewer than four out of 10 questions correct. Only 56 of the 342 correctly answered eight or more, while 70 correctly answered only one, and 47 botched all 10.
"We see part of our role as helping with education," Byers said.
Much of that education will have to be lessons in the virtue of patience, Roseen said. The danger of new investors is that they can be fickle, and when the market goes down, they want to sell off rather than buy more. For American Century, that means running the risk of having the idea of a long-term relationship backfire if unprepared investors are suddenly caught off guard by market swings.
But the fact of the matter is, over the long term, the market has historically outperformed any other savings tool. "They have to be willing to ride the storm out," Roseen said. "That's the thing we need to educate investors about if they're going to capitalize on this."
Another thing novice investors need to understand is about taxes. If the "whatever" goal is something other than a tax-sheltered product, investors will be subject to dividend and capital gains taxes they may not expect. In some cases, those taxes can trump even the expense ratios, and the unsuspecting can be easily turned off.
Such scrutiny typically comes with time and education, just as more seasoned investors are more likely to pay attention to vetting their portfolios of any overlapping securities, or the actual composition and costs of the lifecycle and target-date funds they buy. But for now, Roseen said, programs like the My Whatever Plan will help provide the economic and financial literacy and guidance young people do not get in school or anywhere else.
And that's the whole point, said Byers. "It's very important for the future," she said, "ours and theirs, frankly."
(c) 2006 Money Management Executive and SourceMedia, Inc. All Rights Reserved.