You’re not too busy and it’s not too complicated: 5 simple tips for investing
The stock market doesn’t care if you are a woman or a man; the rewards from investing are gender neutral, with no glass ceiling.
Yet compared with men, most women (including many women with MBAs from top schools) have a blind spot when it comes to investing. This is doubly concerning for two reasons:
As many as nine out of 10 of us will have to manage our finances and those of our family at some point in our lives, and the time to learn is not when there is is a crisis.
Since women live longer than men, we need our retirement assets working for us as effectively as possible.
Putting our money to work by investing it well gives us the power to plan our future: the ability to own a home, pay for a college education, change careers to pursue a dream, retire, and leave a legacy. If we don’t put our money to work, we will suffer from opportunity costs that will lead to opportunities lost.
So why is it that most women have this blind spot when it comes to investing for their future? In my over 20 years as a financial adviser and investment manager, this is what I know: Women think they are too busy, that investing is too complicated or boring, or that caring about it will make them seem unfeminine since it’s traditionally been the man’s job. Simply put, women don’t perceive themselves as investors; instead, they think investors are men with white hair. So women don’t invest enough, or we delegate it to the men in our lives, without understanding how our money is actually being invested.
Here’s the problem: As long as women postpone taking on this responsibility for investing and securing our financial future, we won’t be financially equal to men. And, how can women achieve full equality if we haven’t reached financial equality?
We need to and can change this. The good news is that investing done right should not be that complicated or time-consuming. Women (and really anyone) can own the power of investing with five simple rules. These rules are not rocket science (I know because my first job was working for NASA), and many people — though not enough — already follow them:
1. Invest in stocks for the long run: If your grandmother or great grandmother invested $1 in U.S. stocks in 1926, that dollar would be worth between about $6,000 (for U.S. large-company stocks) and $20,000 (for U.S. small-company stocks) today. That’s the magic of compounding and the perspective to keep in mind to get your money invested, starting now. And since this assumes you leave your money invested through the volatile times, there is no need to spend time and energy trying to jump in and out of the market at the “right” times. “Market timing” doesn’t work.
2. Allocate your assets: How you divide your money among different types of investments is the most important investment decision you will make. Asset allocation means how much in stocks vs. bonds, and within stocks, how much in the U.S. vs. International, how much in large-company stocks vs. small-company stocks, and how much in “value” stocks (those that seem like they are “on sale”) vs. “growth” stocks (that are priced higher because they are projected to grow more rapidly). Focus on these decisions to choose your “target asset allocation.”
3. Implement with index funds: Take advantage of ‘passive’ investing with simple, low-cost, and diverse funds. Trying to “beat the market” by picking individual stocks is a loser’s game. Each year, about 65% of active managers (who are paid to try to beat a benchmark) fail to beat their benchmark. And there is no correlation between the managers that beat the benchmark one year and those that do it the next year. So instead of wasting your money on active managers, use low-cost index funds instead.
4. Rebalance regularly: Sell high and buy low without much effort, to keep you on track toward your goals. Rebalance in a disciplined way, back to your target asset allocation at least once a year, or when your target asset allocation gets too far out of kilter. For example, you should rebalance when:
• You have 10% more (or less) in stocks than your target allocation suggests you should. For instance, if your goal is to have 60% in stocks and 40% in bonds, and your current breakdown is 66% in stocks and 34% in bonds, it’s time to reallocate, selling stocks and buying bonds.
• You have 25% more (or less) in any individual asset class (category of investments) than your target allocation. Let’s say you want to have 10% in U.S. small-company stocks but your allocation has fallen to 7.25%. It’s time to buy more, to bring the total back up to 10%; to finance that, sell whatever is now overweight your target allocation, or has gone up, relative to small stocks.
5. Keep your fees low: Uncover hidden fees so you don’t lose half of your wealth to Wall Street—many people do this and don’t even know it’s happening. Financial advisers are not legally required to tell you all of the fees you will be paying, especially if they are paid by commission. So ask anyone who is managing your money whether they are a “fee-only” adviser, meaning they will be paid only by their clients, to avoid conflicts of interest. Also, ask what are all the fees you are or will be paying them or anyone else to have your money managed. If you don’t get a straightforward and transparent answer, or if the fees all together will be more than 1.5% of your investments, you probably should avoid that approach.
These five rules should act as your investment foundation and touchstone. If an investment proposal or idea does not fit within these five rules, it’s not for you. For example, if you are presented with complicated investment products or products that seem like black boxes with unknown content (a la Madoff) — avoid them. Hedge funds don’t fit (e.g. because they employ active management), so don’t bother with them. Stock picking may be fun for some, but unless you are doing it for entertainment, there is no need to spend your precious limited time analyzing individual stocks — buy diversified index funds instead.
In the current political environment especially, the time is right to learn to protect yourself and start investing the smart, simple way. The Obama administration’s Fiduciary Rule (requiring financial advisers to act in their client’s best interests) was supposed to go into effect April 10, but the Trump administration has postponed the implementation of this rule that would have helped protect retirement assets from unscrupulous non-fiduciary financial advisers. Now, the rule may never go into effect to protect you. But if you follow these five rules, the lack of the Fiduciary Rule won’t impact you, since you will already be protecting yourself and your assets for your future.
It’s time that women make investing a priority in our lives—not at the expense of everything we hold dear, but in support of it.
Source: marketwatch.com
You’re not too busy and it’s not too complicated: 5 simple tips for investing
The stock market doesn’t care if you are a woman or a man; the rewards from investing are gender neutral, with no glass ceiling.
Yet compared with men, most women (including many women with MBAs from top schools) have a blind spot when it comes to investing. This is doubly concerning for two reasons:
As many as nine out of 10 of us will have to manage our finances and those of our family at some point in our lives, and the time to learn is not when there is is a crisis.
Since women live longer than men, we need our retirement assets working for us as effectively as possible.
Putting our money to work by investing it well gives us the power to plan our future: the ability to own a home, pay for a college education, change careers to pursue a dream, retire, and leave a legacy. If we don’t put our money to work, we will suffer from opportunity costs that will lead to opportunities lost.
So why is it that most women have this blind spot when it comes to investing for their future? In my over 20 years as a financial adviser and investment manager, this is what I know: Women think they are too busy, that investing is too complicated or boring, or that caring about it will make them seem unfeminine since it’s traditionally been the man’s job. Simply put, women don’t perceive themselves as investors; instead, they think investors are men with white hair. So women don’t invest enough, or we delegate it to the men in our lives, without understanding how our money is actually being invested.
Here’s the problem: As long as women postpone taking on this responsibility for investing and securing our financial future, we won’t be financially equal to men. And, how can women achieve full equality if we haven’t reached financial equality?
We need to and can change this. The good news is that investing done right should not be that complicated or time-consuming. Women (and really anyone) can own the power of investing with five simple rules. These rules are not rocket science (I know because my first job was working for NASA), and many people — though not enough — already follow them:
1. Invest in stocks for the long run: If your grandmother or great grandmother invested $1 in U.S. stocks in 1926, that dollar would be worth between about $6,000 (for U.S. large-company stocks) and $20,000 (for U.S. small-company stocks) today. That’s the magic of compounding and the perspective to keep in mind to get your money invested, starting now. And since this assumes you leave your money invested through the volatile times, there is no need to spend time and energy trying to jump in and out of the market at the “right” times. “Market timing” doesn’t work.
2. Allocate your assets: How you divide your money among different types of investments is the most important investment decision you will make. Asset allocation means how much in stocks vs. bonds, and within stocks, how much in the U.S. vs. International, how much in large-company stocks vs. small-company stocks, and how much in “value” stocks (those that seem like they are “on sale”) vs. “growth” stocks (that are priced higher because they are projected to grow more rapidly). Focus on these decisions to choose your “target asset allocation.”
3. Implement with index funds: Take advantage of ‘passive’ investing with simple, low-cost, and diverse funds. Trying to “beat the market” by picking individual stocks is a loser’s game. Each year, about 65% of active managers (who are paid to try to beat a benchmark) fail to beat their benchmark. And there is no correlation between the managers that beat the benchmark one year and those that do it the next year. So instead of wasting your money on active managers, use low-cost index funds instead.
4. Rebalance regularly: Sell high and buy low without much effort, to keep you on track toward your goals. Rebalance in a disciplined way, back to your target asset allocation at least once a year, or when your target asset allocation gets too far out of kilter. For example, you should rebalance when:
• You have 10% more (or less) in stocks than your target allocation suggests you should. For instance, if your goal is to have 60% in stocks and 40% in bonds, and your current breakdown is 66% in stocks and 34% in bonds, it’s time to reallocate, selling stocks and buying bonds.
• You have 25% more (or less) in any individual asset class (category of investments) than your target allocation. Let’s say you want to have 10% in U.S. small-company stocks but your allocation has fallen to 7.25%. It’s time to buy more, to bring the total back up to 10%; to finance that, sell whatever is now overweight your target allocation, or has gone up, relative to small stocks.
5. Keep your fees low: Uncover hidden fees so you don’t lose half of your wealth to Wall Street—many people do this and don’t even know it’s happening. Financial advisers are not legally required to tell you all of the fees you will be paying, especially if they are paid by commission. So ask anyone who is managing your money whether they are a “fee-only” adviser, meaning they will be paid only by their clients, to avoid conflicts of interest. Also, ask what are all the fees you are or will be paying them or anyone else to have your money managed. If you don’t get a straightforward and transparent answer, or if the fees all together will be more than 1.5% of your investments, you probably should avoid that approach.
These five rules should act as your investment foundation and touchstone. If an investment proposal or idea does not fit within these five rules, it’s not for you. For example, if you are presented with complicated investment products or products that seem like black boxes with unknown content (a la Madoff) — avoid them. Hedge funds don’t fit (e.g. because they employ active management), so don’t bother with them. Stock picking may be fun for some, but unless you are doing it for entertainment, there is no need to spend your precious limited time analyzing individual stocks — buy diversified index funds instead.
In the current political environment especially, the time is right to learn to protect yourself and start investing the smart, simple way. The Obama administration’s Fiduciary Rule (requiring financial advisers to act in their client’s best interests) was supposed to go into effect April 10, but the Trump administration has postponed the implementation of this rule that would have helped protect retirement assets from unscrupulous non-fiduciary financial advisers. Now, the rule may never go into effect to protect you. But if you follow these five rules, the lack of the Fiduciary Rule won’t impact you, since you will already be protecting yourself and your assets for your future.
It’s time that women make investing a priority in our lives—not at the expense of everything we hold dear, but in support of it.
Source: marketwatch.com