Women now control about one-third of the wealth in U.S. households. While great effort is being made on an organizational level to include more women in the financial industry, day-to-day conversations about money and investing leave much left unsaid.
There is a cost for women to this “money silence”. A key factor in building wealth is to take advantage of compounding interest — make money on your money. It’s important that women recognize and debunk these five investing myths so they can build wealth and lead the way for women everywhere.
Myth #1: I can’t invest because I don’t even know where to start: Knowing where to start can be a challenge. So start at the beginning.
We tend to carry behaviors our parents had around money and interpret those as our own. Acknowledge how you feel when you make financial decisions and define your value and belief system around money. Your experience is unique, and it may be aiding you to evolve or holding you back financially. Don’t be afraid to dig in and make it fun. Explore a conversation with someone you’re comfortable being vulnerable around and see what unfolds.
Myth #2: I can’t invest because I’m not an expert: You don’t need to be a financial expert to start investing. You do need to identify your financial goals and determine these three factors:
Time horizon: When do you think you’ll spend this money? Is it within the next two-, five- or 10+ years? Be as clear as possible because with a longer time frame, you can afford to take more risk.
Financial situation: What is your current financial situation? Do you have money set aside for emergencies? Are you living paycheck to paycheck? These are critical factors in determining how much you should invest and how much risk you should take.
Risk tolerance: How comfortable are you with market fluctuations? Do you lose sleep if your accounts are down or are you more “set it and forget it”? This will help determine how much stock exposure you should have.
Once you’re clear on these factors, look at asset allocation funds that provide diversification if you don’t want to select and monitor a variety of investments yourself. Many financial institutions provide services with no minimum required to open an account and invest.
“ Get to know yourself as an investor. ”
Myth #3: I don’t invest because the stock market is too risky: Investing helps you build wealth but comes with uncertainty. Having an investment strategy is crucial to any plan.
More than 200 years of historical market data is available to develop strategies that mitigate investment risk. The S&P 500
SPX
has posted positive annualized returns in 32 of the past 43 years. While that may look good on paper, you will experience market shocks throughout the year. Familiarize yourself with how you react to these swings because you’ll be investing for the rest of your life.
Get to know yourself as an investor. Learn from what you do well and what you need to improve. Waiting until you near retirement is not the ideal time to learn about investing. Making an investment mistake once you are no longer earning income can be detrimental to your lifestyle. Having a solid investment strategy that is in line with your goals is key to your success.
Myth #4: I don’t invest because I need more money to start: Barriers to enter the stock market no longer exist. You can invest a lump sum or dollar-cost-average into an investment. Dollar-cost-averaging is when you buy an investment at the same amount at regular intervals to take advantage of the price swings. You may lower the average cost per share and decrease the impact of market volatility in your portfolio.
Myth #5: Investing is a man’s world: Change the perception by getting involved. Maybe it’s been a while since you were in school but it’s time to dust off your notebook. Whether you want to learn in the comfort of your own home or in a classroom setting, commit to furthering your financial education. If time feels like a big constraint, listen to a financial podcast or audiobook. The goal is to build on the knowledge you already have and create a clear path to increasing your knowledge base regularly. Find a group of like-minded women who are interested in learning more and help facilitate the conversations. Be part of the change you want to see in the next generation.
Investing provides an opportunity to build wealth, reach financial independence and secure a comfortable retirement. Learning about investing will empower you to take control of your financial future, regardless of your circumstances.
Shinobu Hindert is a certified financial planner and author of Investing Is Your Superpower: A Step-by-Step Guide to Creating the Lifestyle You’ve Always Wanted (Lioncrest Publishing, 2021).
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