As a woman, understanding how to invest is crucial for your future. Think about it – women tend to live longer than men. According to Scientific American, “Women outlive men by around five to seven years.” This means that by age 85, there are about six women to every four men. And yet, according to the Transamerica Center for Retirement Studies, over 45% of women aren’t too confident or aren’t confident at all when it comes to their retirement savings. Compare this to 35% of men who aren’t confident. It’s important to NOT be a Novice Women Investor.
Looking at this through the lens of statistics, this means women should take a bigger role in investing. They should try to be more knowledgeable investors so that if they happen to be married and outlive their partners, they understand exactly how to manage their cash in retirement. Obviously, to be a confident investor, you need to begin somewhere. Bellow, we listed important considerations that every novice woman investor should watch out for.
First, discover your cheapest cash
If you’re a female entrepreneur looking for financing, before opting for a bank loan or investment, consider options that won’t cost you ownership or interest, says Trish Costello, CEO emeritus of the Kauffman Fellows Program and founder of equity crowdfunding website Portfolia. Established platforms such as Indiegogo and Kickstarter can aid startups to raise financing and create a buzz around an enterprise, and they don’t come with as many strings as traditional financing sources.
Besides category-specific websites, Costello councils women to consider women-centric options. For instance, Plum Alley targets women with nonprofit, retail and artisan organizations, while MoolaHoop allows women-led local companies to raise funds from within their own communities.
Mentorship over money
Gillian Muessig, co-founder of Moz and CEO of Outlines Venture Group, explains that you shouldn’t put cash on the table and walk away. When she teaches entrepreneurs how to look for finance, she says that cash is the third most-fundamental thing. The most important agenda is to choose investors that understand and are passionate about your business.
This can be achieved through mentorship, and by using their expertise to help you expand, but also opening their contact list and providing you with some. Costello adds that, when looking for an investor, to ensure the “right chemistry” is there, and that the investor can provide real value. Also, when possible, it’s crucial to work with the investors who are already familiar with your sector. Every company founder requires relationships with investors who can commit to accomplishing its vision, not just its current goals.
Education, and then some more education
Stuffing your hard-earned money under the mattress (or any other financial storage facility) can become an expense. Yes, saving cash in a bank feels like the safest thing to do. This is because (unless you withdraw the money) the account balance never goes down. Unfortunately, if you’re only saving your cash, you may not be able to reach your financial objectives. Most of us are looking to grow the money we save in order to accomplish certain goals – the core purpose of investing. A little bit of education goes a long way.
Rather, you should be aware of the power of compounding. Here’s an example of it: Let’s say you invest $30,000 in a savings account, after 40 years of earning interest, you’ll end up with $45,000 or more, accounting for a range of many different economic scenarios. You also have a guarantee of not losing that cash. However, if you were to invest that $30,000 in a broadly diversified portfolio consisting of 55% stocks and 45% bonds, your account will grow to $65,000 or more in 40 years, under the same economic scenarios.
Do well by doing good and do good by doing well
Muessig tells that women investors are often motivated by giving back. For instance, a woman investor puts money in a company that will grow and will then employ more people, which means more children will be educated and well-fed, more people will spend their cash, and the economy will grow. In other words, leaving a good legacy.
This trend of giving back is quite visible in Australia, where women’s wealth is increasing due to rising workforce participation and inheritance as women tend to outlive men. Because of this, there has been a surge of locally-based financial services firms – whether it is an expert tax accountant from Sydney or a branding agency from Melbourne – that are working through how they can approach more women on everything from women’s financial advice, investment products to marketing material.
The basics of investing
While you don’t need to be a stock market professional, understanding the basics can aid you to communicate your objectives and comprehend what’s happening with your investments. Return on Investment (ROI) is used to determine the effectiveness of the cash invested in the market. It is determined by dividing your market gains + dividends by your total invested assets. Some of the various types of assets you can invest in are:
- Stocks – Representing part ownership in a business or corporation, and also called business equities. In essence, when a business organization performs well, the stocks tend to rise in value. Stocks are more volatile investments, meaning they bigger swings in value in the short-term but also that they can provide you with a higher return on your investment long-term.
- Real estate – Investing in property is profitable long-term, as properties have a tendency to increase in value over time, and there is a sub-group of investors who specialize in transforming property investments into high returns.
- Cash market accounts – When you invest in these types of accounts, you’re allowing the bank to make low-risk investing into government securities or certificates of deposit (CDs). The best cash market accounts tend to be low-return, yet stable investment assets.
- Bonds – also called fixed-income investments, they are one of the most popular assets for careful portfolios. While they are often more stable than stocks, they also have a smaller return potential.
Why women investors need to invest differently
The longer lifespan combined with the wage gap man that women can and have to take on more financial risk with their investment portfolio. The traditional investing model usually advises putting 70% percent of your long-term savings into stocks, 30% into bonds, and then progressively transforming the combination to involve more bonds and fewer stocks as you get closer to your financial objective, whether it’s travel money for when you retire or paying college tuition for your children.
However, women who save for retirement aren’t well served by such traditional models, which often assumes an average (male) lifespan and average (male) salary expectancy. That means women can consider keeping a big portion of their investments in the stock assets for longer. Unfortunately, there is no one-size-fits-all approach here since the right combination of investments or the right amount of risk differs a lot depending on your amount of savings, income, financial goals, and age.
Don’t wait for your knight on a white horse. Whatever their relationship status may be, women believe that somehow, someone will help them with their financial security in their golden years. This lowers their drive to proactively manage their financial future and usually creates for them vulnerable situations. Don’t fall for this stereotype. Control your own financial future – if you don’t, no one else will.