Women Aren’t Investing? Come On, Ladies!


This month’s Money magazine features a cover with five women dressed in black, looking aggressive and ready for business battle, with the title “The Investing Gap.”  The article then goes into The Debt Gap, The Pay Gap, and The Investing Gap between women and men.  I must confess that I get confused when articles talk about women’s money and men’s money, women’s investing and men’s investing, or women’s retirement savings and men’s retirement savings.  When we were married, my wife and I became one, which means that there is no mine and hers.  Her salary is my salary.  My debt is her debt.  Her home is my home.  My retirement accounts are her retirement accounts.  Her investments are my investments.

The person earning  the bigger salary (or the only salary) is only able to do so because the other person is there to make sure the kids are safe, are getting what they need in terms of education, healthcare, and social activities, and being taught important lessons on how to be successful and contribute to society.  One person takes the majority of the load of doing or hiring home and auto repairs, running errands, and doing other things needed to maintain a household so that the other person can be a better employee and earn a higher salary.  (We share the cleaning and yardcare tasks.)

This means that everything earned, saved, and borrowed belongs to both, not 50-50, but 100% for both people jointly.   This makes a lot more sense to us than both trying to do everything and thereby being lousy workers and lousy parents while our home and cars fall apart from neglect.  It is more effective for each to focus in on certain areas, knowing that the other person will focus in on other areas.  I don’t ask her for rent each month from her earnings and I don’t expect her to tell me, “Sorry, this is my IRA.” when the time comes for retirement.  We’re married, not roommates with kids.

So I don’t know if the article was looking at married women and men as separate entities (which is ludicrous), or looking at young single men and women, or perhaps divorc’ees and windows/widowers when drawing their conclusions.  Regardless, one item that was particularly troubling for me, because I spend so much time writing articles such as this one to teach people how to invest and handle their finances, was the Investing Gap mentioned.  The article stated that women are more likely to have savings in cash because they are less confident to invest (although they tend to be better investors than men when they actually do invest).  To that, I say, “Come on, ladies.  Get educated and get over it.”

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If you think that cash is safe, think again.  Every second that your money sits in some bank CD or, heaven forbid, a savings account, you are losing money.  Inflation is taking at least 1%-2% per year, meaning that you will lose one-quarter to half of your money over a working lifetime.  I can’t tell you what the return will be from an investment account, but I can almost guarantee it will be positive over a working lifetime (civilization collapse or take-over by a communist regime excluded).  I can guarantee that you’ll have less purchasing power in a bank account in 40 years than you had when you put the money in there.

Now I know that there are a lot of women out there who are fearless, confident investors that will be retiring with seven-figure portfolios.  But if you are worried about investing because you don’t know enough about it (whether you’re a woman or a man), I’m taking away that excuse right here, right now.  Here is everything you need to know about investing to be successful and get a better return than 90% of the people out there, mutual fund managers included.  It really doesn’t take more than about 300 words.

1.  You need an account with one of the major mutual fund companies.  I would recommend either Vanguard or Schwab since they have a great selection of low-cost funds.  (Low-costs are the key, which is why you invest in index funds.)   You can set these up online in about 15 minutes.  To purchase funds, you can do this online through their website (for free) or call them (usually for a small fee).

2.  For retirement investing, start with your work 401k up to the company match provided (this is free money), then go to an individual IRA at Vanguard or Schwab, then finish with your company 401k.  You’ll want to be putting between 10 and 15% of your salary away into retirement, not counting any company match.  If you have no 401k option, maximize your IRA contributions ($5500 per year right now), then save the rest in a standard mutual fund investing account.

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3.  Start funding the accounts and make contributions regularly, ideally with automatic drafts.   If you sign-up to have an amount automatically transferred each month from your checking account, mutual fund companies will often lower the minimum investments they require to start an account and waive other fees.  Autodraft will also make sure you actually put money away, rather than just intending to do so.  Whether you choose to autodraft or just send in a check or e-check each month, you will want to invest regularly to get better prices on your purchases, rather than saving up and dumping money in all-at-once.  This is called dollar cost averaging.

4.  Diversify your investments into low-cost index funds in different segments of the market.  Sometimes large stocks do well, other times small stocks do well.  In general, they will all be rising over long periods of time.  Diversification makes sure that you’ll always have some money in the segment of the market that is doing well at any given time.    Buy index funds since they will have the lowest fees.  To get proper diversification, buy a 1)Large-Cap or S&P 500 index fund, 2) Small-Cap index fund, 3) International stock fund, 4) REIT fund (real-estate fund) and, if you’re over 50, 5) a total market bond fund.  Just go to the website for your mutual fund company and look for funds with these names.  Then, check the fund objective in the prospectus and verify that their goal is to try to match an index, rather than having a manager pick stocks.  Fund costs should be 0.50% of assets or lower (0.05% is possible).   Do this in both your retirement accounts and personal investment accounts.

Invest your age minus 10% in the bond fund (if you’re over 50), put 20% into of the remaining funds into the REIT fund, then split the money evenly among the other funds.  This means that your target percentages, if you’re under age 50, are 20% REIT, 27% Small Cap, 27% Large Cap, and 26% International.  If you’re over age 50 this means you should put your age minus 10% in bonds (for example, 40% when you’re 50 years-old), then divide the rest of the money the same way as before.  A 50-year-old would therefore have target percentages of 40% in bonds, 12% in a REIT fund, and 16% each in a  Small-Cap fund, a Large-Cap fund, and an International fund.

When you first start with personal accounts, you may only have enough money to buy into one fund.  If this is the case, pick the Small Cap fund to start, then start building up the other funds as you gain enough cash.

5.  Rebalance your funds once per year.  You should not make changes often, but it is useful to sell shares in funds that perform well and buy those that perform poorly over any given period of time to maintain your target percentages.  In your 401k and IRAs, you can just use the tools provided by the fund companies to reset your accounts each year.

6.  Avoid selling or exchanging funds in your personal accounts.  You’ll need to pay taxes on profits made in your personal accounts if you sell them, even if you immediately invest in another fund.  You’ll therefore want to limit your selling in these accounts, so rebalancing by selling shares in one fund and moving them into another fund is not tax-efficient.  Instead, direct new cash to underfunded accounts.  For example, if you are supposed to have 20% of your portfolio invested in the REIT and you’re only 15%, start directing all of your new contributions to the REIT fund until it catches up.  Another option is to shift some funds in your retirement account to make up for imbalances in your taxable account.

Within your retirement account, you can just shift money around as desired since there are no taxes until you withdraw the money, at which time it will just be treated as income.  If you do need to sell shares in a fund to raise cash for something, try to sell positions in which you have a losing position to offset those in which you have a gain.  This will probably not be possible if you’ve had the account for a long period of time since every fund will have gains.

7.  Don’t forget your investment gains outside of your retirement accounts when tax time comes.  You’ll need to pay taxes on capital gains, interest, and dividends for investments outside of your retirement accounts.  (Those inside retirement accounts are tax-free if you have Roth accounts or taxed as regular income when you withdraw the money, provided this is done after you reach retirement age.)  Your mutual fund company will send a 1099 form each year listing the dividends and interest you have had.  You should keep track of your cost basis (when you bought new shares and for how much) since you may need to figure out capital gains yourself.

8.  Start reading The Small Investor regularly to become smarter about investing.  I’ve only covered the “what” to do with this article.  Keep reading if you want to know the “why.”  These are also just the basics, so you can fine-tune things to get even better returns with a little more knowledge.  This is the 90% solution at this point.

So there you go ladies (and men).  You now have no excuse for not getting into the markets and killing it.  I don’t want to hear about any investing gap in five years.

Have a burning investing question you’d like answered?  Please send to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Is Stock Market Investing Gambling?


 

Every so often I’ll be with someone who will talk about investing in the stock market and how it is just really gambling.  I usually nod along and smile, not really wanting to get into a big debate.  I guess that you can use the stock market to gamble, but stock market investing is not gambling.

When you gamble, the odds are not in your favor.  When you plant some seeds in your garden with the intention of watering them and taking care of the plants as they grow, it really isn’t a gamble whether or not you will have fresh vegetables later in the summer.  When you buy a home, it really isn’t a gamble whether or not you’ll have some equity built up and the home will have appreciated at least at the rate of inflation in 30 years.  Bad things can happen.  There are some extreme occurrences, but most of the time, things will work out in your favor, at least to some degree.

Now you could turn these things into gambles.  You could just throw some seeds down and do nothing else, seeing if they will grow or if the birds will eat them before they sprout or if the rains will come at the right times.  You could buy a house for a year, then sell and buy another one the next year, continuing this for twenty years, and see what you end up with at the end.  In both these cases, the odds are not in your favor.  This is not because of the seeds or the houses, but because of your actions.  You weren’t doing what was needed to put the odds in your favor.

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Investing in the stock market also isn’t a gamble, if you actually invest.  You could just pick a stock or two and then plan to sell them at the end of the week or the month.  Chances that they would be up are about equal to chances that they would be down.  If you really invest, however, you put the odds in your favor.  There is a chance that things won’t go well – a very slim chance – but most of the time things will work out and you’ll end up with a decent return when compared to other things like bank CDs and even real estate.

So how do you invest, as opposed to gamble, when investing in the stock market?  Well, there are a few things that you do to put the odds in your favor:

1.  Plan on staying invested for a long time.  I can’t say whether the market will do well over the next year.  But I can say that the markets will increase over the next twenty or thirty years.

2. Stay the course.  You never know when the big market upturns will be, but if you buy and stay invested, you know that you’ll have your money in the right place when those big moves up do occur.  Most investors lag the returns of the markets because they get scared and sell out at just the wrong time, then they get overexcited and buy just at the wrong time.  Accept that you cannot predict short-term movements of the markets and stay the course.

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3.  Buy index mutual funds.  Diversification – owning a lot of different investments – ensures that you’ll be invested in whatever is doing well at any given moment.  Index mutual funds allow you to spread your money across dozens or hundreds of companies and do so with very low costs.

4.  If you buy individual stocks, pick companies that look good long-term and plan to hold onto them.  It is nearly impossible to predict which companies will do well over the next year for the same reason that it is impossible to predict how the markets will do.  It is possible, however, to pick companies that will do better than the markets over long periods of time since some companies are clearly stand-outs from the pack.   If you want to try to buy individual stocks to increase your returns, give them time to grow rather than selling them right when they start to perform or when they drop a bit in price.  Buy the business and be more concerned with how the company is doing than how the price of their stock is doing.  Plus, put the bulk of your investments into mutual funds, just in case you aren’t a great stock picker.

5.  Add to your positions regularly.  It is very unlikely that you’ll buy in at just the right time, but if you buy in regularly over a long period of time, you’ll get a good cost basis.  It is just the way that the math works since you end up buying more shares at lower prices than you will at higher prices.  Set up your accounts to regularly send in a monthly investment to your mutual funds and then just forget about it.  Your investments will take care of themselves.

Have a burning investing question you’d like answered?  Please send to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Start to Invest in Three Easy Steps


Last school year, my son started an illicit chip business.  No, he wasn’t selling pirated computer chips he’d imported illegally from Asia and snuck in without paying tariffs.  He was selling potato and corn chips out of his jacket at school between classes.  As is always the case when you have an over-oppressive government regulating the goods that can be sold, a black market forms.  In this case, Michelle Obama’s plan to make high school juniors eat like a bunch of 40-something women created an opening for an enterprising young person to create a business selling full-fat junk food and sugar.  My son was just the guy.

It was a great experience for him to learn how to run a business.  He would go to Wal-mart and buy the jumbo variety packs of chips.  He later started buying chocolate bars as well and keeping them in his pocket along with a small ice block to keep them cool.  In general, he would double the Wal-mart price, so if he got the chips for $0.50, he would sell them for $2.  Chocolate bars went for $1.50 each. By the end of the school year, he was going to Wal-Mart a couple of times per week to stock up.

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In addition to trying to get a little extra spending money, he wanted to gather some money to start investing.  When I started investing back in the 80’s, I put $250 from my bank account into 15 shares of Tucson Electric Power at $15 per share.  I therefore paid about $225 for the shares and $25 for brokerage commissions.  That 10% fee, due to the small amount I was investing, was fine for a one-time investment to get some stock but was pretty steep to do on a regular basis.

When my son had finished off the year and was ready to invest (he didn’t continue the business this year), we looked first at Vanguard to find an index fund.  Unfortunately, all of the funds there had at least a $3,000 minimum, which was way out of his league.  We then went to Schwab and I was amazed at what we found.  They actually have several index funds that you can buy with just $1 to start!  (While this may seem like an ad for Schwab, believe me, I am receiving no remuneration from them. )  We set up an account (which took maybe 15 minutes online), sent in a check, and then made the purchase online.

We put $391 into their small-cap index fund.  Before the pull-back last week, it had risen to about $450.  I think he is about $20 up now, after the correction we’ve seen.

 

Want all the details on using Investing to grow financially Independent?  Try The SmallIvy Book of Investing.  

I was really amazed at how easy it was to start investing, compared to how difficult it was before.  There is no big minimum. (I think a standard brokerage account has a $1,000 minimum, or $0 minimum if you elect for regular payments into your account from your bank account.  For my son, I think because it is a custodial account, there was no minimum.)

So, if you were thinking about starting an investing account or an IRA, why not do it tonight.  You could have the account setup in 20 minutes and then start investing in a few days (after getting money into the account).  Here are the three easy steps:

  1.  Go to the Charles Schwab website (www.schwab.com) and set-up an account.   You’ll need to give info like social security number, address, phone number, and beneficiary information.
  2. Fund the account with whatever you can.  If you have $1,000 saved up, send it in and start things going.  You can send in a check or send in money electronically.  There are probably other ways to send money – I’m sure they can help you if needed.  If you don’t have at least $1,000, set up regular payments from your bank account for whatever you can afford, whether it’s $500 or $50 per month.  Really, you should set up automatic drafts regardless since regular investing is the key to building up a portfolio.
  3. Choose an index fund to invest your money in.  I would recommend any of these funds to start, and then slowly building up a portfolio including all of these funds in roughly equal amounts:

Large Cap:  Schwab Total Stock Market Index Fund (SWTSX) or Schwab® S&P 500 Index Fund (SWPPX)

Small Cap:  Schwab Small-Cap Index Fund® (SWSSX)

Mid Cap:  Schwab® U.S. Mid-Cap Index Fund (SWMCX)

International:  Schwab International Index Fund (SWISX)

If you don’t like market fluctuations, or if you will need to start accessing the money from your account within about 15 years, you should also mix some bonds into your investment mix.  These will smooth things out a bit, although over long periods of time they will reduce your returns.  To add bonds, just buy:

Bond:  Schwab® U.S. Aggregate Bond Index Fund (SWAGX)

A good rule-of-thumb is to put your age minus 10% into bonds.  If you are fifty, put 40% into bonds, for example.

If you start an account and begin to invest, be sure to let me know.  I’d love to hear about your progress.

Have a burning investing question you’d like answered?  Please send to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.