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Ten Mutual Funds for Christmas


These funds make great gifts for newbie investors.

Don't expect him to receive this gift with anything other than a grimace but, many years from now, the kid will thank you.

As Christmas approaches, boys and girls are drawing up their wish lists of toys and treats, with few of them fantasizing about investment opportunities -- we hope. But the gift of investment is a smart one, and one well worth considering for the youngsters in your family.

If you're looking to give a low-maintenance investment to a newbie, then a mutual fund is a smart choice.

Before gifting assets, a quick reminder on some basic tax rules at work here: For 2009, you can gift $13,000 each to any number of lucky recipients without having to pay gift tax, according to the IRS. Give a gift along with your spouse, as a couple, and you can gift $26,000 to each individual each year and avoid the gift tax.

For help in deciding which funds, in particular, make sense as gifts for first-time investors, we consulted fund gurus at Morningstar and Lipper to help us create a list of credible candidates.

Of course, this is just a starting point: You should do your own research to find out which funds you think could blossom into a nice-sized nest egg.

But the funds listed here all boast tested track records of at least five years, with proven, experienced management teams. They require minimum investments of between $1,000 and $2,500, are open to new investors, and they don't charge a sales load.

Potential funds to consider include Vanguard Star (VGSTX). One-stop shoppers have ample reason to consider this fund, writes Morningstar analyst William Samuel Rocco.

He notes that this fund of funds invests in 11 Vanguard funds to build a diversified portfolio. The goal is a stable asset allocation of 62% stocks, 25% intermediate- and long-term bonds, and 12% short-term bonds.

"This fund is a terrific option for investors who believe in active management and are seeking lots of diversification in one package," says Rocco.

VGSTX has earned top-quintile three-, five-, 10-, and 15-year returns and suffered only average volatility along the way, due to the overall quality of its lineup, the analyst adds.

For those investors just starting out, Morningstar also likes Ariel Appreciation (CAAPX), where managers employ an Oracle of Omaha-style value strategy to mid-cap stocks.

Fund analyst David Kathman also points out that the fund is quite friendly to new investors.

"Not only does it have a low $1,000 minimum investment, but you can start an automatic investment plan with no money up front, as long as you agree to contribute $50 each month to your account," he writes. "You can also set up an IRA for $250 to start and $50 a month after that."

Other candidates that Kathman highlights: Harbor Bond (HABDX), a fund that's sub-advised by PIMCO and managed by bond guru Bill Gross; Scout International (UMBWX), serving investors as a top-notch core foreign-stock fund; and Oakmark Global (OAKGX), a global-stock fund that has beaten 99% of its Morningstar rivals over the last 10 years.

Additional options to consider if you're hunting for money-making mutual fund managers with strong records: Heartland Value (HRTVX), which analysts emphasize is one of the oldest and best micro-cap funds out there.

Manager Bill Nasgovitz has captained the fund since its inception in 1984. We recently spoke to Nasgovitz, where he outlined his investment strategy and process and a few stock picks he likes right now such as The Ensign Group (ENSG), InterDigital (IDCC), and China-Biotics (CHBT).
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No positions in stocks mentioned.
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