So, you’ve finally decided to start investing…or perhaps you are already a seasoned investor? With tens of thousands of stocks to choose from, which ones are worth buying? What are good strategies for investing? Sounds too scary…you’ve only thought about it until now…well it doesn’t have to be this way! Today we are going to talk about the 5th step to financial freedom, investing.
Why is this an important concept for women to understand?
Over the last several decades women have entered the workforce in record numbers and made great strides in educational attainment. Nevertheless, when compared with men, women are still paid less, are more likely to hold low-wage jobs, and are more likely to live in poverty. As a population, women also outlive men. Unless we are well provided for, this means that we will need to invest our hard-earned dollars to make them last longer and stretch further into retirement.
So what, you say… A recent article in Yahoo Finance said Wall Street might be dominated by men, but women investors are ready to demand more from their money. Seventy-two percent of women in a survey by Fidelity Investments said they’re ready to make bolder money moves in the next six months. This includes creating a financial plan, investing more of their savings, hiring a financial planner, and selecting more appropriate investments for their goals.
Among the women who are already investing in the market, most of their money is still parked in their savings and checking accounts. In fact, only a third of their savings is invested in the stock market. Of the 56% of women who said they aren’t investing in the market, 11% is saved in cash, and a whopping 70% of their savings is still in their savings and checking accounts. Only four in 10 women surveyed by Fidelity, associated investing with growing their wealth.
Most financial advisors recommend having enough saved in your emergency fund for three to six months of living expenses. Beyond that, your money can and should be put to work. Time value of money (TVM) is the concept that money you have now, is worth more than the identical sum in the future due to its potential earning capacity but only if you put your money to work. Most women are very confident managing their day-to-day finances; however, their confidence level tends to drop dramatically when it comes to investing. This latest round of data from Fidelity shows that most women feel good about making big budgeting and spending decisions for their household, but only 15% felt confident about choosing the right financial investments for their goals.
I still don’t have your attention yet? Women make less than men so the money we do make must work harder for us! Why is that? A simple comparison between annual wages of full-time working women and men shows that women earn about 79% of what men do (Blau and Kahn, 2016). The longstanding pay gap in gender outcomes is explained by the existence of a gender gap in occupation choices and in status achieved. Women are less likely to search for or to undertake opportunities that might lead to career advancement or economic improvement. Instead, women usually choose to enter less financially lucrative or socially prestigious professions (Buser, Niederle, and Oosterbeek 2014, Goldin 2017).
As senior citizens, women need to exceed poverty-level income and most older people even need more than the maximum Social Security benefit when factoring in routine expenses like healthcare, food, and housing. The Social Security annual cost-of-living adjustment (COLA), intended to keep pace with inflation doesn’t keep pace with actual costs of living that increase over time. The future of Social Security is uncertain and proposed fixes to funding shortfalls include raising the retirement age and changing the formula by which cost-of-living increases are calculated to give seniors even smaller raises.
Women must help one another learn how to invest their money and provide encouragement along the way. I suspect most of our mothers never sat us down to explain these concepts nor has it been a hot topic of discussion during our gatherings. It’s not their fault since the women of the 1950s and 1960s probably didn’t manage the household’s finances. Let’s change how we talk about money and investments with one another and our daughters!
Key Thoughts
According to a 2020 investment analysis it is estimated the S&P 500 will deliver an average annualized total return of 6% during the next 10 years. Although every investor envisions making money, the first step to picking investments is determining the purpose of your portfolio.
- Decide what you want for your goals. Is it to supplement your income? Are you saving for your kids’ college or supplementing your own retirement? Will you be financially responsible for a parent in the future? Is your retirement far off or right around the corner?
- Identify an industry (Technology, consumer goods, energy, healthcare, financial, communications) of interest and explore the news and trends that drive performance.
- Identify the company or companies that lead the industry.
Then search the blogosphere, stock analysis articles, investment newspapers such as Barrons, Kiplinger, or USA Today, or you can easily access Yahoo Finance on the internet and read financial news releases for news and commentary on companies in your targeted industry. Check out Investment blogs or books such as the Motley Fool Investment Guide. Remember, be critical of everything you read and analyze both sides of the argument.
Three Types of Investors
Based on your circumstances and tolerance for risk you need to decide which type of investor you are.
Income-oriented investors focus on buying (and holding) stocks long-term in companies that pay good dividends regularly. These tend to be solid but low-growth companies in sectors such as utilities. Other options include highly rated bonds or real estate investment trusts (REITs).
Investors who aim at wealth preservation have a low tolerance for risk by nature or because of their circumstances. They prefer to invest in stable U.S. stock markets in the Dow or Nasdaq. There are a number of stocks available in indices you can invest in such as the S&P500. They might focus on consumer staples, the companies that do well in good times and bad. Risk-averse investors avoid new initial public offerings (IPOs) and typically invest their money in savings accounts, certificates of deposit (CDs), municipal and corporate bonds, and dividend growth stocks.
Investors who are looking for capital appreciation are looking for the stocks of companies that are in their best early growth years. They are willing to take a higher degree of risk for the chance of big gains. In investing, risk equals price volatility. Keep in mind that a volatile investment can make you rich or devour your savings.
The Diversified Portfolios
As an investor you might decide to keep a diversified portfolio by using a combination of the above strategies. In fact, that’s one of the prime motives of diversification. As a conservative investor you can devote a small portion of a portfolio to growth stocks or Exchange Fund Trades (ETFs). Exchange traded funds make it possible to build a diversified portfolio with relatively low investment amounts (as little as $500). In addition, ETFs trade throughout the day, providing ample liquidity, and many have relatively low-cost structures. As more aggressive investor you can target a percentage of your investments for solid high earning stocks to offset any losses.
Take the Next Step to Invest
Figuring out which stocks to pick can get complicated.
Fortunately, there are many types of brokers to assist you in your trades such as a full-service broker like Forex.com and Fidelity Investments, or internet brokers like Merrill Edge, Charles Schwab, Fidelity, E*Trade, TD Ameritrade, that offer varying mobile and desktop platforms for trading. Check out each carefully as they have different fees, commissions, and minimums but most online providers charge $0 for an online trade.
From these platforms you can search on the investment performance by industry, market or stock while checking out quarterly earnings and other reports. Once you’ve identified a particular investment (stocks, bonds, mutual funds, ETF, etc.) you can input that symbol and see its performance over a one day and up to a five-year trend. And, if you’re not ready to take the plunge to begin investing now you can add it to your watch list, so you can be notified when your investment reaches a certain price. While you are waiting, I strongly encourage you to explore your broker’s webpage to learn as much as possible about investing.
Rules for Stocks
Fortunately for you the strong men in my life have shared their knowledge about investing with me. I’m happy to pass this information along to you for consideration.
- Understand the 3 attributes of trading: Knowledge, Earnings, and Timing.
- Bottom fishing: One of several investment strategies that means an investor buys low-cost shares but only if they have prospects of recovery. If you don’t have a lot of money to invest this concept might be right for you.
- Buy stocks that are: Growth stocks: Revenues and earnings that show a 20% per year and up increase (preferably 50%). These are companies that increase their revenue and earnings faster than the average business in their industry or the market as a whole.
- Value stocks: Value stocks are publicly traded companies trading for relatively cheap valuations relative to their earnings and long-term growth potential.
- Exchange-traded fund (ETF): A basket of securities that can consist of stocks, bonds, commodities, real estate, or other financial assets. You can buy and sell ETFs on an exchange just as you would a stock. By design, they strive to offer liquidity, transparency, and tax benefits. For example, if you believe the future is in electronic cars you can select an ETF comprised of car battery manufacturers.
- Stocks that will split: Companies with less than a half billion shares and less than $20 billion in annual revenue although this is an infrequent occurrence.
- Stocks that are volume leaders: Most actively traded stocks by dollar volume, also known as volume leaders, are companies with the most shares traded or the highest dollar volume of shares traded over one trading day.
- Stocks that are in a market crash: When the economy or an industry turns, an asset bubble pops, or a company is consistently missing its earnings.
- Stocks that are leaders in their field but drop in price due to: Earnings loss, announced or actual, experiencing big customer losses, or big management changes have been announced or already implemented.
Generally speaking, stocks that trade for valuations below that of the average stock in the S&P 500 are considered value stocks, while stocks with above-average growth rates are considered growth stocks. Some stocks clearly fit into one category or the other. For example, 130-year-old spice manufacturer McCormick (NYSE: MKC) is clearly a value stock, while fast-moving Tesla (NASDAQ: TSLA) is an obvious example of a growth stock.
If you don’t have a large saving to invest you may want to look at “partial” or what is called “fractional shares.” Let’s say you want to invest in a company, but its stock price may be higher than what you want or can pay. Instead of buying a whole share of stock, you can buy a fractional share, which is a “slice” of stock that represents a partial share, for as little as $5. For example, if a company’s stock is selling at $1,000 a share and you were buying $200 worth of it, you would own 0.2 (20%) of a share.
Sell stocks when: They are continuously losing revenues and earnings. Analysts are down grading the stock. There is a loss of 18% or more of the purchase price or 18% when the stock was priced at its highest.
Develop watch lists of stocks that are buy candidates: This is a listing of stocks that meet general technical criteria matching your market approach. Track stock candidates on your watch lists.
Check the 5-day, 1 year, and 2-year stock price trend on your stock…let’s agree it’s been a wacky year with Covid-19.
Read daily and weekly articles on your stocks.
Bull market verses Bear market: A bull market is a market that is on the rise and where the economy is sound; while a bear market exists in an economy that is receding, where most stocks are declining in value. A smart investor can find opportunities to profit in either market.
Timing is important: Buy on bad news and sell on good news. Remember, the trend is your friend; meaning an existing trend is likely to continue and worthy of your attention.
Two emotions drive the stock market: Greed and fear.
Trading verses investing: Trading is getting in and out of the stock quickly (minutes, days, weeks). Investing is to buy and hold onto a stock for months or years to sell later. You typically make the most money when you invest for the long-term if it’s a good stock.
Has this article changed the way you view your investments? Which investment strategies offered here have you found useful? If you’re already an investor what strategies have you employed? Was this information useful? I’d love to hear your feedback. Please join in the conversation to help educate one another on investing.
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