Women-Focused Investing 101
Contrary to women’s own perception, we may be better investors than we think. According to Fidelity Investments, who analyzed more than 8 million of their accounts, women outperformed men when it came to investment returns. Not only do women have higher investment returns over time, we save more. Statistically, women make better investors because we are more inclined to do more research, plan with an objective, trade less often, and tend to stay calmer during market upheavals in comparison to men. So why aren’t more women investing? Many feel they lack necessary investment experience and knowledge, or simply because of the complexity investing may present. If you aren’t sure where to start you have nothing to fear. We’ve compiled an agenda every prospective investor could benefit from. “… women too often underestimate their strengths as savers and investors,” added Alexandra Taussig, senior vice president of women investors at Fidelity.
According to A Secure Life, women live an average of five to seven years longer than men do. Their money must last longer than it does for men. On average, women earn 76% of what men earn, which can result in an earnings difference of as much as $250,000 over a lifetime. Women are more 13% more likely to have a part-time occupation where they would not be eligible for retirement benefits. In the United States, almost 30% of non-married women over the age of 65 live at poverty rate, widowed are at 21%, divorced at 19%, married at 12%, according to a report by the National Institute on Retirement Security. Social security benefits (earnings made in a lifetime) are significantly less than men because on average women are out of the workforce for 12 years. Usually on the account of raising children or taking care of loved ones. It’s clear how important it for women to invest in themselves and their financial security.
Investing can seem like an intimidating endeavor at first. Don’t get overwhelmed. Take one step at a time. You don’t need to know everything about investing, however, you do need to be well informed. According to Edward D. Jones, there are a few first steps every beginner investor should take: grow to be a saver, enroll in your employer’s retirement plan, open an IRA, learn the terminology, outline your goals, and incorporate the assistance of a financial advisor.
Learning to save is a first step in setting your investment plan into action. It provides a safety net for emergencies or unexpected expenses. Regularly saving helps to build financial discipline that can be applied to the way you manage your investments in the future. You grow accustomed to not having or spending the money you set aside. Another benefit of becoming a disciplined saver is the deferral of impulse purchases. There is a misconception that saving and investing are the same. Saving is the act of economizing a portion of your income for future use. “Investing is using your money to potentially create more money over a period of time”, according to Edward D Jones, a financial advisement firm. Personal finance expert, Suzie Orman, suggests stop spending money you don’t have. Make a budget and stick to it. “Get as much pleasure out of saving as you get out of spending”.
Enroll in your employer’s retirement plan. Find out what type of plan your employer offers, most common being a 401(k). Become well informed about the benefits offered. Take full advantage of employers who offer a 401(k) match plan. Meaning they match contributions you make towards your account up until a certain percentage. This is basically free money. According to a survey by Better for Business, an average of 23% of employees are not taking full advantage of their companies 401(k) match program. Know the highest percentage your employer is willing to match your contribution and max that amount. Already enrolled in your employer’s retirement plan and looking to further contribute to your future financial success, consider opening an IRA. An IRA, or Individual Retirement Account, is a savings account that allocates money for retirement that offers several tax advantages such as “tax-free growth or on a tax-deferred basis”. There are two major types of IRA’s, Traditional IRA and Roth IRA. The most significant difference being the tax benefits offered. Traditional IRA’s are tax-deferred, and you pay taxes on your money upon withdrawal. Roth IRA’s allows your money to grow tax-free because you are putting money into this account you have paid taxes on beforehand. Granted you follow all conditions, upon withdrawal, your earnings will be tax and penalty free.
Learn the basic investment terminology. This can help reduce some of the intimidation factor beginning investors may experience when coming across investment jargon. Here is a compendious list of what I think are the ten investment terms every beginner should know.
- Asset – something that has the potential to earn you money.
- Bonds – an investment that represents what a company owes you. You “loan” money (principal) to a company or government. When the bond matures, you get back your principal plus interest.
- Stocks – Also known as equity, represents ownership in a company.Ownership is divided into shares. The number of shares you purchase denotes the level of ownership.
- Asset Allocation – investment strategy designed to balance your risk and rewards.Through a balanced portfolio, you put your money to work in the best way possible.
- Mutual Fund – investment program that invests money of its shareholders in a usually diversified group of holdings and is professionally managed.
- Expense Ratio – the measure of what it cost an investment company to operate a mutual fund.
- Price-to-earnings ratio – the dollar amount an investor can expect to pay in the current price for stock shares for each dollar of earnings.
- Portfolio – investments that are owned by a person or organization such as stocks, bonds, mutual funds.
- Bear/ Bull Markets – Bear Market, is a market in which prices are failing. A Bull Market is a market in which prices are rising.
- Diversification – portfolio characteristic that makes sure you have more than one type of asset (investment), potentially earning higher returns and lowering risks.
Have clearly defined goals. By doing so you are more likely to achieve them. Investing is a long-term, on-going process. It is not a get rich quick plan of action. Think what are your financial goals five to ten years from now. What are you saving and investing for? For many, it could be to pay for a child’s college education, taking care of aging family members, saving for retirement, for a substantial future expense such as a house, or perhaps just investing in general. Make note of what your goals are and set a time frame for when you want to achieve those goals individually. You are more likely to save and succeed with goal-based wealth management when you adhere your potential outcome with your motive for saving.
Enlist the help of an investment manager or financial advisor. Financial advisor also referred to as financial planner, wealth manager, or a money manager, “help you invest your money to reach your financial goals”, according to Forbes. Your financial adviser should guide you through diversified investments and the methodology behind why you should make those investments. Advisers can also help with other aspects of your financial life such as estate planning and debt reduction. This is a business based relationship, so it is important you wholly trust your advisors’ guidance. Hire a financial advisor who understands your goals and best outlines the various channels in which to invest and how to best make them grow. According to the Wall Street Journal, choose a financial adviser who is a certified financial planner (CFP), which means they are licensed and regulated. Evaluate the advisors pay structure. Typically, their compensation is an hourly or flat rates or from commissions. There is also the option to pay a onetime flat fee for a financial plan.
Additionally, take advantage of available resources that can assist you in becoming the investor you never thought you could be. Commit to following through with your goals. Know the status of all your accounts. Don’t be afraid to ask questions, it is in your best interest to be on the same page with family, spouse, about your goals and responsibilities.