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5 Simple, Life-Changing Rules of Investing for Women

By Alice Finn, a YPO member since 2006

The power of investing can fortify almost everything we value. Putting our money to work by investing it effectively gives us the power to plan our future. It enables our ability to support our families the way we want to, to change careers to pursue a dream, to retire with the life we want, to pursue charitable goals and to leave a legacy. If we don’t put our money to work, we will suffer from opportunity costs that will lead to opportunities lost.

Despite the awesome benefits of investing, women (including those with MBAs from top schools) appear to have a blind spot when it comes to investing their money.

As a 20-year financial advisor and investment manager, I find this oversight doubly concerning for two reasons:

  • As many as nine out of 10 women will have to manage their finances and those of their family at some point in their lives, and the time to learn is not when there is a crisis.
  • Since women on average live longer than men, they need their assets working for them as effectively as possible.

I started my company, PowerHouse Assets LLC, and wrote the book “Smart Women Love Money: 5 Simple, Life Changing Rules of Investing” to focus women on investing for their future.

Women who lag in their investment literacy have tended to do so for pragmatic or psychological reasons. Pragmatically, women think they are too busy to focus on investing in addition to all else they are doing, or that investing is too complicated. Psychologically, many women feel investing is boring, lack confidence in their financial abilities, or think that caring about investing will make them seem unfeminine since it’s traditionally been the man’s job. In fact, studies show women picture an investor as a man with white hair, rather than realizing that they must be investors to live the life they want in the future.

With these reasons put together, too many women don’t think of themselves as investors, even though anyone with a 401(k) or IRA account is an investor. So, women don’t invest enough, or they delegate investing to the men in their lives without really understanding how their money is being managed.

Simplifying the investment mystique

We need to change this, and we can. The good news is that investing done right should not be that time-consuming or complicated. In fact, if it is, you are likely doing it wrong. Women (and men too!) can own the power of investing with my “five simple rules.” These rules are not rocket science (I know because my first job was working for NASA), and many people already follow them, but not enough:

Invest in stocks for the long run: Stocks do much better than bonds in the long run. If you invested USD10,000 in stocks in 1973, in 2013 its value would have grown to more than USD2 million (vs. bonds that would have only grown to less than USD13,000). That’s the magic of compounding, when you get the power of investing working for you, and it’s the perspective to keep in mind to motivate you to invest. Moreover, since this assumes you leave your money invested through the volatile times, there is no need to waste your precious time and energy trying to jump in and out of the market at the “right” times. In fact, trying to do “market timing” like that is usually counterproductive.

Allocate your assets: How you divide your money among different types of investments is the most important investment decision you will make: Asset allocation means deciding how much in stocks vs. bonds, and within stocks, how much in your home country vs. internationally, how much in large company vs. small company stocks, and how much in “value” stocks (those that seem like they are “on sale”) vs. “growth” stocks (that are priced higher because they are projected to grow more rapidly). Focus on these important decisions to choose your “target asset allocation.”

Implement with index funds: To invest according to your target asset allocation, rather than trying to pick individual stocks, take advantage of “passive” investing with simple, low-cost, and diverse index funds. Index funds buy the whole basket of stocks in each category (or “asset class”) you want to invest in. Trying to “beat the market” by picking individual stocks is a loser’s game. Each year, about 65 percent of active managers (who are paid to try to beat a benchmark) fail to beat their benchmark. And there is no correlation between the managers that beat their benchmark one year and those that do it the next year. So rather than wasting your precious time trying to pick individual stocks, or wasting your money on active managers, use low cost index funds. There are index funds for basically every asset class you want to invest in.

Rebalance regularly: To keep you on track with your goals, sell high and buy low without much effort by rebalancing your portfolio. Sell some of the asset classes that have done the best and use the proceeds to buy more of what has not done as well recently. Rebalance in a disciplined way, back to your target asset allocation, at least once a year, or when your asset allocation gets too far out of kilter compared to your target.

Keep your fees low: Don’t lose as much as half of your wealth to Wall Street with unnecessarily high fees — many people do this and don’t even know it’s happening. Uncover hidden fees by asking anyone who is managing your money what are all the fees you are or will be paying to them or anyone else to have your money managed. If you don’t get a clear answer, or if the fees all together will be more than 1.5 percent of your investments, you probably should avoid that approach.

These five rules can be your investment foundation and touchstone. If an investment proposal or idea does not fit within these five rules, it’s not for you. For example, if you are presented with complicated investment products or products that seem like black boxes for which you don’t know what’s inside (à la Bernie Madoff) — avoid them. Hedge funds don’t fit because they employ active management and have exorbitant fees, so don’t bother with them. Stock picking may be fun for some, but unless you are doing it for entertainment there is no need to spend your limited time analyzing individual stocks — buy index funds instead.

It’s time women make investing a priority in their lives — not at the expense of everything they hold dear, but in support of it. The sooner you start, the longer you will have to benefit exponentially from the power of investing. So, start now!

Alice Finn is is a wealth management expert. Featured as “The Giant” by “Barron’s” in its inaugural list of the Top 100 Independent Financial Advisers, she has appeared as a top financial adviser on CNBC and been named repeatedly by “Worth” magazine as one of the Top 100 Wealth Advisers in the United States. She is the CEO of PowerHouse Assets LLC, a firm she founded to help women become more engaged in their important financial futures. Among other outreach activities, the firm hosts “PowerHouses,” woman-to-woman educational discussions about investing to plan for their financial future. Finn is a Certified Financial Planner (CFP®) professional, received her AB from Harvard University, has a MALD from The Fletcher School at Tufts University and a JD from Harvard Law School.    

Connect with Alice Finn

With more than 26,000 members in more than 130 countries, members of YPO are peers who share in common the achievement of success at an early age; a commitment to learning as a lifelong adventure; and a desire to connect authentically in an environment of trust and confidentiality. If you are a member interested in contributing, please email blog@ypo.org.