On those occasions over the past three years when my kids wondered why their mutual funds had hit the skids, I always rolled into my pat response.

“The market always fluctuates up and down, like a roller coaster,” I’d explain earnestly. “You have to be patient. Stick with it for the long term.”

I don’t know whether the three kids ever really listened to my voice of reason, especially the part about showing patience. They only seemed interested in knowing how much their funds had been ravaged.

Still, I’m not going to alter my patented speech, even though the numbers in the latest batch of fund reports look downright delightful.

It just points out the need for young investors to keep the market’s twists and turns in perspective.

“It matters little how your investments perform over one day, one week, one month or even one year,” said Michael Stahl, a college student and investment book author from Leawood, Kan. “All that matters is how they perform … until you intend to use the funds.”

Young investors can learn other valuable lessons from the stock market’s recent performance. Lessons like developing and sticking to long-term goals, such as saving for college or for a first home, and following a disciplined approach to investing.

How can parents help?

I wouldn’t expect most kids, especially preteens, to know much about the stock market, so if you try to teach them, don’t get too complicated.

Whenever the opportunity arises, explain that investing in stocks is a risky business and you can lose big. But also point out that kids have time on their side – perhaps 50 years or more to recover when stocks get dragged through the mud. Over time, investing in stocks – particularly growth stocks or growth funds – will generate better returns than most alternatives.

“If you look at the performance of the American stock market for the last 200 years, you’ll see it’s dependably returned 7 percent after inflation,” said Paul McWilliams, a Kansas City, Mo., area financial consultant who teaches a class to high school students called “The Minimum Wage Millionaire.”

“In my classes there is often someone who asks about the risk of the market collapsing,” said McWilliams. “I always answer the same – young people should throw a party because they will buy more for less while the market is down and, if history is any gauge, they will end up with more later.”

The boom and bust nature of the stock market since early 2000 reinforces the need for both novice and experienced investors to have a disciplined strategy with goals in mind. I’m a big fan of dollar cost averaging, which calls for investing money in equal chunks on a regular basis, such as once a month.

The advantage is that when the price of the stock or fund is down, you can buy more shares for less money. Likewise, as prices rise, you buy less, but are keeping your overall investment costs down.

If your kids are not quite ready for the woolly-bully world of Wall Street, try easing into it by playing a game. Encourage your kids to pick a company or two and follow the stock price in the paper for a few months or more. I tried this a year ago with my family, and turned it into a yearlong investment contest.

Michael Czach is one youngster who has the right idea about investing in stocks.

Michael, who is from California, took first place among seventh and eighth graders in an annual essay contest sponsored by Liberty Funds.

Here’s an excerpt from his essay:

“Stock market fluctuations are very difficult to predict with any consistency. If you were to keep $10,000 in the S&P 500 from 1980 to 2002, your investment would have grown to $170,000, but if you pulled out and missed their 10 best days, you would have $100,000. If you missed their 50 best days, you would have $30,000. Even if you were able to guess when a market correction would occur and sold your investment at the right time, it’s unlikely that you would know exactly when to buy it back.”

Michael offers this final advice: “Before investing in anything, especially in stocks, make sure you do your homework first and plan your course of action so that you can make the right choices, which may eventually help you score your goal. Even when your stocks are performing their worst, stay calm and patient, for they will rebound, and sooner or later your patience will be crowned with success.”

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Helpful sites:

www.younginvestor.com: This Liberty Funds site has everything from articles on money and investing to games and calculators on how to figure out an allowance. A redesigned site is scheduled to be unveiled this fall.

www.teenanalyst.com: Started by three teen-agers from Illinois, the site includes a large list of articles on investing. Topics include mutual funds, bonds, economic concepts and strategies.

www.drivingyourfuture.com: The site includes a section on picking stocks and mutual funds. Other topics covered are earning money, managing your money, and spending and credit.

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(Do you have a question or column idea? Call Steve Rosen at (816) 234-4879 or send an e-mail to srosenkcstar.com.)

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