Whatifi.com Zeroes in on Savvy Young Online Investors By John Spence September 6, 2000

San Francisco-based whatifi.com is urging younger investors to ask themselves, "What if I. . . ?"

The new investment site has partnered with Barclays Global Fund Advisors to offer five index funds with an initial minimum investment as low as $100 a month. This could be the low-cost mutual fund exposure that many online investors have been waiting for.

There is a common perception that indexing is a pastime mostly enjoyed by the elder ranks. However, this stereotype is crumbling as a growing percentage of investors in the 25-to-34 age range are setting aside money to invest in low-cost mutual funds, and many prefer the ease of online trading.

"Having spent our careers in the business, we are well aware of the fact that mainstream, non-affluent investors simply don't have the wealth needed to attract traditional agents or advisers," said Harris Fricker, CEO of whatifi.com.

whatifi.com has launched a fund that tracks the S&P 500, one that tracks Wilshire 4500, one that tracks MSCI EAFE, a money market fund, and a bond fund that tracks the Lehman Brothers Bond Index. For all Whatifi funds, investors must make a minimum initial investment of $100 a month, or $100 with a minimum balance of $1000 within 30 days. All of the funds have a net expense ratio of .55%.

Fricker says that whatifi.com is aware that there are a growing number of young investors who want to invest in index funds, but feel like they've been ignored by traditional advice providers. The site features lots of advice for inexperienced investors, and Fricker says his company plans to focus on the 25-34 age bracket with guerilla marketing and email campaigns to increase its mainstream visibility.

Online Investors are Smarter

whatifi.com is an early mover in a niche that could soon explode as mutual funds scramble to attract online investors.

A recently published Investment Company Institute study based on data collected in June reports that more Americans are investing in mutual funds, with the greatest increase in fund ownership coming from the 25-to-34 age group.

According to the study, 50.6 million U.S. households own mutual funds, up 4.5% from 1999. The number of Americans investing in mutual funds has increased by almost 5 million since last year, up almost 6%.

These statistics shouldn't come as any surprise, says Paul B. Farrell of CBS.MarketWatch.com, who has written several books about online investing. In recent years, mutual funds have been endowed with huge advertising budgets in an effort to target mainstream and younger investors. Don't believe it? Just count the number of mutual fund ads during a round of play when Tiger Woods stomps the competition at the upcoming PGA Tour Championship next month.

In his analysis of a recent survey published by the Vanguard Group and Money Magazine, Farrell discusses the new trends in mutual fund investing - more Americans are investing online, and they're getting younger (for a detailed description of the survey, check out our article on the Vanguard/Money Magazine quiz). This also should come as no surprise, as twentysomethings are quite used to purchasing music, groceries, books - and now mutual funds - via the Internet.

On the whole, test scores for investing knowledge are down, but this might be expected as the number of inexperienced investors increases as new vehicles for investing, mainly Internet-based, become available to the masses. The good news is that online traders outscored everyone else. Online investors scored 47% out of a possible 100% on the quiz, compared to 33% for investors without Internet access. According to Farrell, the reason for this gap is that online investors have access to a wealth of investment information, and self-teaching is a natural consequence of sorting out information that an online investor is bombarded with by investment websites.

Although many money managers may shudder at the thought, the individual online investor is here to stay. According to Farrell, there are close to 10 million investors with online accounts today, compared to 100,000 in the early 1990s. Many industry experts predict that by the year 2010, a large majority of investors will be online investors.