Cutting Edge: How NOT to Invest in a Mutual Fund

I never quite understood how subprime lending was able to ravage so many communities until recently. I attended an investing workshop in Brooklyn, New York. The presenters were from a company called Goal Mine and, along with teaching about how to invest, they used us as a focus group for an investment product not yet on the market.

The beginning of the workshop went smoothly. After we received hearty slices of pizza, the presenters passed out little cut-outs that resembled AMEX and VISA gift cards that you can purchase from CVS pharmacies. The offer: What if these cards were sold at a cost of about $3.75 and redeemable for $25 to put toward a mutual fund?

“So you don’t need a bank account to set up an account or invest in mutual funds?” I asked.

“NO!” replied the young female presenter excitedly, and then explained that this was the “beauty” of the service. Even if you didn’t have a bank account to transfer the money from, you could simply purchase one of these redeemable cards to put toward the investment.  My first thought: If you don’t have a bank account, you should not be investing in mutual funds. In order to invest, it’s important to first understand the fundamentals of money and money management, something most people gain an appreciation of through maintaining a bank account.

“Many people in impoverished areas are called ‘unbankable,’” says Dorethia Conner, a personal finance coach out of Warren, Michigan. “These are people who do not qualify for conventional lending and end up paying much higher interest rates when they are approved for loans. They may not have bank accounts, may operate cash only, or use Rush Card [prepaid debit card] types of services.” The unbankable segment of the population is especially attractive to certain lenders and institutions.

Conner urges anyone thinking about investing to first start with the basics.  If you don’t have a regular savings account because of monies owed, “pay the bank off so you can open an account.”

With the service Goal Mine would provide, customers would be able to go online, create a profile, and establish a savings goal (e.g., a vacation, car, home purchase). Then Goal Mine would match you

(Continued on page 2)