A Woman’s Guide to Start Investing
If I were to mention the word “stock broker” – who would you envisage? Perhaps an older, suited gentleman yelling about some ‘Dow Jones’ on the finance segment of the news? This association is quite typical, and actually – quite accurate.
Research shows that ‘female financial advisors represent only 15-20% of all advisors’. This means that it is so much less likely for one of our gal pals to work in the industry than it is for males, to open up a forum for us to discuss, be educated and share insights with.
Having raised the topic with my female counterparts, the general consensus was that they felt that the topic of money was intimating, jargon heavy and something that they would turn to their fathers or partners for assistance with.
So why do we feel so separated from this world? A large factor that might be perpetuating this issue is the fact that we simply aren’t talking enough. The topic of money for women is almost ‘taboo’, while men seem to discuss it openly… to what seems like the point of them actually bonding over it.
The first thing we need to understand about investing, is that financial literacy is equally important, as well as attainable for females as it is males. In fact studies have shown, female investors actually perform, on average, better than men!
We don’t need a female’s guide to investing, we simply need… a guide, as do all beginner investors. Let’s discuss!
Firstly, why invest?
Investing is essentially, placing money aside with the hope of turning it into more money. Investing aids us in achieving financial security, and can also help us to reach our financial goals.
Thomas Pikkety illustrates in his graph titled ‘The Transformation of the Top 1% in the United States’, a dramatic difference between wage income and total income. He explains, ’The difference between the bottom line (wage income) and the top line (total income) is accounted for by income from capital—dividends, interest payments, and capital gains’. This essentially means that a lot of the wealth enjoyed by the one-percenters, has been accumulated from… wealth.
What exactly is the stock market?
The stock market refers to the collection of markets and exchanges, where investors collect and sell investments. It sounds more confusing than it is – find a detailed explanation here.
How to invest?
There are a number of ways one can invest and the avenue you choose has a number of determinants. Think about your risk tolerance, the timing of which you hope to see a return, as well as how much you are willing to put on the line.
A low risk investment will generally be a small percentage of your money, that is invested across a diverse range of assets and that will need to be held for a long period of time, e.g. a couple of years, minimum. A high risk investment would be something like the opposite of this.
Below is a list of investments seen generally as least, to most risky.
If the thought of investing is that bit too daunting and you want to maintain complete control of your cash while still turning a (slight) profit, then consider keeping your money in a high interest savings account. Many exist and all with different terms, something to consider might be a Term Deposit or Certificate of Deposit (CD). This will mean that the bank will borrow your money for a certain period of time, and while you would not have access to that amount for at least a few months, you will earn a portion of interest on that sum. A competitive savings account will return around the 2.0% mark, compared to the 0.0% – 0.5% of most transactional accounts.
The downside to keeping cash is losing buying power with the risk of inflation.
A bond can be thought of as a loan or an ‘IOU’. The issuer (borrower) will owe the debt to the creditor (lender) and is contractually obliged to pay interest (the coupon) and repay the principle at a later dated (maturity). The term can be for any length of time, from one year to thirty years.
Bond repayments take priority over stockholders, and government bonds are seen as particularly safer than corporate bonds. This is due to the latter coming with the risk of default. This means that government bonds are a pretty difficult form of investment to lose money on, though never an impossibility.
One downside, is that coupon rates on bonds are generally only marginally higher than the interest rates of savings accounts.
Mutual funds are designed for the more passive investor. Those who are more likely to set their money into an investment, and forget it for a period of time. Mutual funds are a popular inclusion in retirement plans. Mutual funds offer the opportunity to purchase into a diverse portfolio of investments made up of a range of stocks, bonds or other securities.
Professional fund managers generally manage mutual fund portfolios. The downside to this is that the management of such a portfolio may be costly, as mutual funds charge annual fees and in some cases, commissions.
Indexes are, put simply, a theoretical portfolio of big name companies e.g. Google, Amazon, Facebook, whose performance is tracked as a whole. This is the aforementioned, ’Dow Jones’. The value of this index is determined by the prices of the underlying holdings. It is often used as a guide for overall market performance.
An index fund is a portfolio of assets that mirrors the securities of a particular index. It is an inexpensive way of gaining exposure to a wide and well-performing segment of the market. Again, one to consider as a long term investment.
Warren Buffet, one of the most successful investors of all time, argues that index funds consistently outperform actively managed portfolios. This does, however, also come with the cost of management by a professional.
Exchange Traded Funds (ETFs)
ETFs are similar to an index fund. The difference is how they can be traded. ETFs can be actively traded, with their price fluctuating throughout the day – much like a stock. Indexes and mutual funds are priced once at the end of the day. All sorts of ETFs are available, ranging from bonds, industries, commodities and currencies. Trading ETFs is simple and most major banks have their own trading platforms that offer you the ability to manage your own portfolio.
ETFs also sometimes offer dividends and interest, which means you have the potential to earn while you hold, as well as when you sell. A great option for passive investment, that also avoids fund manager fees.
A stock is an investment in a single company. When you purchase a stock, you are purchasing a small share of the company’s earnings and assets. Stocks are often issued by companies to raise wealth to fund growth, products and other initiatives.
The ways in which one can make money from stocks are through buying them at a certain price and selling at a higher price, as well as via dividends.
Stocks are often volatile and unpredictable and something to keep in mind is that when an investment offers large and quick returns, it is often a sign that a significant amount of risk is involved.
Anyone interested in investing in a single stock should have a thorough understanding of a firms current and projected performance. Things to assess are price-to-earnings ratio, beta, dividends and stock charts. Stocks, like ETFs, are easily traded through online trading platforms offered by most major banks.
So what now?
A starting point might be that we think about our goals for investing. Is it to save enough money to buy a car next year? To save for a house in 10 years? Or for our retirement?
We can then look at our current financial position, and how much we might be ok with not having access to for a while. We can also think about how we would feel if we lost a certain portion of money all together.
Answering these questions will help us to determine an investment strategy that is right for us. Ultimately, the best time to start investing is as soon as reasonably possible and there are many options to help us get our foot in the door – you can even start with loose change.
This guest post was authored by Stephanie Schiafone
Stephanie Schiafone is a Business Development Professional in the legal sector. She obtained her Business degree, majoring in Marketing and has developed a passion for the Professional Services industry. Her next goal is to live and work abroad.