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Women and Investing...Mar 16 '01 Write an essay on this topic.
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The Bottom Line Be an active participant in your financial future...it's about time women felt in control of their lives!
Hot on the heels of my most recent article which dove into the depths on annuities, my curiosity was sparked even further to learn more about the investment arena. More and more women are living longer, making larger incomes, and getting intimately involved with investing their own money…and why not? It’s not that women aren’t physically, mentally, or emotionally able to manage their investments, it’s simply a matter of a lack of information. Millions of women across the nation are currently making their money work for them by means of such investments and are making their statement on a previously male engendered arena. I figure, it’s my turn and I’m going to give it a shot. Investing: According to the web site Cassandra’s Revenge (www.cassandrasrevenge.com), investing is defined as “a system of purchasing assets which, over time, you believe have a reasonably good chance of providing you with some future income.” These investments can come in various forms such as stocks, property, IRA’s, bonds, or annuities. That sounds easy enough…it’s a way of saving for something in the here and now that you believe will someday be worth a greater amount of money in the long run. However, from what I learned in my basic research, it isn’t quite as easy or simplified as it may sound. Investing involves a great deal of time investigating, crunching numbers, gauging timing, and delving into intensive research if you go into this arena with even the slightest expectation that you will succeed overall. Diversification: In every single article and web site I came across while doing this research, the single common thread that tied together each and every successful investor was a diversification of their portfolio. Diversification basically means that the money you invest is spread out among the various forms of investment categories as opposed to placing all of your money into one area such as stocks or bonds. By diversifying your investments, you are protecting yourself from an overall loss of your money in the event that your single chosen investment should fail. Success usually happens when people take the time to mesh together various types of programs that will ultimately fulfill the goals they are trying to reach with those investments. Before You Begin: The first step you need to take before deciding to jump into the speculative world of investments, is to take stock of what you have in your own life. It is imperative that you make a budget sheet, indicating all of the money coming into your household (credits) as well as all of the money leaving the household for bills or necessities (debits) in order to determine your own state of financial affairs. If you find that you do have money left over in your account after all of your debts have been satisfied, then you begin to start saving bits and pieces of what you do have into a savings account or a money market account (which is, in a sense the same thing as a savings account but with a higher rate of interest return on your money). Look at your budget and your lifestyle and see if there are any ways that you can cut corners or pinch pennies…for instance, is it that crucial that you have the most expensive brand of toothpaste or toilet paper? One of the most important things to take into consideration is whether or not you have credit card debt. Several different financial analysts made mention of the fact that it is retro-active and ultimately self-destructive to begin investing at all when you have credit card debt for the simple fact that any rate of return you will get on an investment will NEVER equal the 15 to 20% interest you will pay on that credit card…so get those paid off first. And finally, keep your financial records in order so that you can easily keep track of your progress from time to time. Risks: When you finally decide to take the plunge into investing and making your money work for you, you need to understand that there are various risk factors to any and every type of investment you will look into. The greatest portfolios can fail at any time if the individual is unable to manage, handle, and even guess at the different obstacles that arise within the investment arena. There are four main risks that have been identified when referring to investments: 1. Market Risk- the risk involved with the daily fluctuations of the stock market. 2. Credit Risk- the ability of the government or company to repay the amount loaned to them through a bond. 3. Political Risk- the risk imposed by legislative or governmental establishments, primarily on interest rates or global type investments. 4. Interest Rate Risk- which is largely determined by the length of inflation over time. Setting Goals: Okay, so now that you’ve got your financial situation squared away, a little bit of money set aside, and you’re somewhat aware of the risks involved in investing…what’s next? Well, most advisors will tell you to think about what you want out of your investments? Are you looking to set up a fund for retirement or to send a child off to college? Make a list of each of your goals that you have with your money and realize that these goals and/or needs may change over time as different stages of life or extenuating circumstances arise such as marriage, children, medical emergencies, or even death. After those goals have been thoroughly explored, then we can move on to the four basic types of investments. Types of Investments: Stocks- Stocks are probably the most common form of investing in the market today. When you purchase a share of stock, you are essentially becoming a part “owner” of a particular company. This includes not only the assets it has in its coffers currently, but also the amount of wealth it will accumulate and/or generate over time. The basic mathematical concept regarding stocks is fairly simple to understand: when business increases for a company, the value of the shares of stock also increase (this is called capital gains). A company might not always do well in the stock market, but it is somewhat guaranteed that you, as the investor, will not lose your initial investment into the said company. Bonds- A bond is when you, as the investor, actually lend a certain amount of money or make a loan to somebody for a particular period of time. Usually, the “somebody” you are loaning your money to is the federal government, the state, the city municipality, or an individual company. When you purchase a bond, you know that after a certain time frame, that bond will mature (or become due and payable) and you will get back your original investment plus a set amount of interest on that money. The borrower is always obligated to pay you, as the bond owner, first before all other outstanding debts…therefore you have a lower risk of default than with any other kind of loan. With a bond, the face value is termed “par,” the interest rate on the bond is called the “coupon,” and the “current yield” refers to the coupon interest rate divided by the current price worth. Mutual Funds- Mutual funds are another popular way for people to invest money. A mutual fund is a group of many different securities that are chosen by a single, large, professional brokerage firm. This firm buys and sells stocks, bonds, or a combination of stocks and bonds as a part of their fund. When you place money into a mutual fund, you are actually purchasing a part of the firm, not a stock or a bond. These are a good way to invest money for those individuals that have only small amounts of money to invest overall, because then their money can be spread into a number of different stocks and bonds…all the while the professional brokerage is doing all of the research and calling the shots. Shares can be increased or cashed-out at any time. REITs- An REIT, or real estate investment trust, works almost exactly like a mutual fund. A professional company will manage a large amount of diverse investments, although in this case the investments will be in real estate property as opposed to stocks and bonds. Investors who put money into an REIT are once again, purchasing a part of the company rather than actual real estate. Examples of such real estate investments would be shopping malls, parking garages, theaters, office buildings, and apartment complexes. These investments usually provide a return of between 7 and 10% on your original money and allow you to diversify a minimal amount of money into a variety of investment arenas within the real estate sector. The down side of these, however, is the need to carefully watch the real estate market for any large fluctuations in value. Conclusion: So, in this tiny article, we have both discovered a plethora of information involved in beginning investing for women. So many times women have the responsibility for duplicate roles in their lives, such as wives, mothers, housekeepers, teachers, and friends…and we rarely have time to think about doing things for ourselves such as relaxing and healing, let alone delve into the concepts surrounding basic investments. However, I think that we need to take a more pro-active role in our money to prepare for the future and all of the unknowns it may hold for us. I know I’m definitely more appreciative of the knowledge I’ve recently accumulated and intend to take a greater amount of control over my financial future. For your information, there is a fountain of information on the internet designed specifically for women investors that can be found through any search engine by typing in the key word “women” and “investing.” I hope, in some way, this information has helped you as well. Thanks again for reading! ***Disclaimer: This information is provided as an Epinion for this web site, and constitutes my own research and opinion. I could not have offered the wide array of facts and statistics without the help of various sources including Suze Orman’s fantastic book “The Courage to be Rich,” the financial wizards at the Motley Fool web site (www.motleyfool.com), the web site of Cassandra’s Revenge, and the web site of the Women’s Financial Network (the latter two designed specifically to target women and investing). This information is in no way intended to take the place of a professional financial planner.  |
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