|
![]() "Trying to predict the direction of the market over one year, or even two years, is impossible." Peter Lynch, investment fund manager, (1944 - ) BY JULIA ANDERSON Investor confidence is a must for women if they want to ever stop working, but it is in the area of investing that women say they are least comfortable. A business-owner friend of mine said that she just “can’t get her head around it.” It being the stock market, stock mutual funds, how publicly owned corporations are required by law to operate and even how quarterly stock dividends are paid and reinvested. Yet, understanding these the basics of investing is the way to successfully accumulate and grow savings for the long-term. It is especially important for women get in the game since they live longer and need more money in retirement. The only way to accumulate that kind of money is to be an investor. As Warren Buffett says, “this is not rocket science.” If you are late to the party and interested in becoming an investor, here’s how: 1 Start early, start small. These days there are several online brokerage firms that require zero or low minimum deposits to open an account. Their fees on transactions are usually 45 or less. And they offer zero expense ratios on index mutual funds. And you can move money electronically from your bank account to an investment account with one click. Among those online brokerage firms are: Ally Invest, TD Ameritrade, Fidelity, Vanguard, Charles Schwab Merrill Edge and E-Trade. Nerdwallet says the best online account for beginners is Ally Invest. 2. Do your homework. Read a few books that will give the big picture and not try to sell you anything. My two favorites: Burton Malkiel’s “A Random Walk Down Wall Street” and “One up on Wall Street,” by Peter Lynch. These two books will give you everything you need to know about big-picture, time-tested investing. Written in plain English, you find out how to determine if a stock is worth buying, what to stay away from and how to manage your fear. These books are a bit dated in terms of details, but the fundamentals haven’t changed. Do some reading. 3. Buy something. Inside your new Individual Retirement Account on line fund, buy something. If you are “risk-averse” as brokers like to say, start out with a stock index fund. That means your money (and your risk) is spread over all of the stocks held inside the fund. An S&P 500 index fund owns ALL the 500 largest publicly traded U.S.-based companies. According to historical records from 1928 forward, the S&P 500 has enjoyed an annual average return of about 10 percent. That doesn’t mean we won’t see swings. In 2017, the value of stocks in the S&P increased by 21 percent. In 2018, they dropped an overall 4.3 percent. But let’s say you want to buy stock in individual companies paying a good dividend of around 3 percent, which is 1 percent more than the average 2 percent a year inflation rate. Online research is at your fingertips, unlike the old says when you had to rely on a financial adviser with an office and all the data. Now you can look up a company, find out everything you need to know to make an informed decision: profitability, dividend rate, share price to earnings ratio, revenue growth and share price track record. All that may take 30 minutes online. Then push the buy button with the idea that you could own this stock for a long time, maybe a life time. 3. Give yourself permission to make (a few, small) mistakes. Those mistakes include selling too soon. I made that mistake when I sold O’Reilly Automotive (ORLY), retail automotive parts chain, because I saw that an analyst had “down-graded” the company’s stock rating. After I sold, the O’Reilly share price jumped. Despite a downturn, the share price is still up 31 percent from a year ago, when I sold. I should have looked at the company fundamentals and made my own informed decision. Mistakes are part of the learning process. I have learned to buy blue-chip (nationally recognized, well-established and financially sound) company. In my blue-chip portfolio, among others, are a couple of drug companies, an oil company, several big banks, utility companies, a coffee retailer and a consumer products company. All pay a good (3 percent) dividend. My losers include a capital venture company, a start-up computer chip company and an international drug company hurt by the changing currency values between Europe and the U.S. 4. Don’t panic when markets go down. I rolled my 401(k) into an Individual Retirement Account at the bottom of the 2008-2010 Great Recession. Since then I’ve doubled the value of my nest egg even though I’ve been withdrawing some of the earnings in that account. Fear is all around us all the time in this 24/7 world. Just remember the long-term nearly 100-year track record of the U.S. economy. When markets go down, stocks are on sale. Your reinvested dividends buy more shares at the cheaper price. How did I become a confident investor? Easy, no one ever told me that investing was complicated. I learned from my mother who was an enthusiastic investor. A child of the Great Depression, she was careful with money, paid off debt including the farm mortgage and lived with my father within her means. With just a high school education, you might think she would be intimidated by the investment world. Not so. She only bought shares in companies that she understood…utilities, consumer companies, businesses that made sense to her. She had me investing when I was in my 30s because she wanted to share her interest in the economy, in successful businesses. She loved McDonald’s hamburgers, so she bought shares in the company and let the dividends reinvest. She bought, Exxon and Merck and let the dividends reinvest. At the end of her 40 years of investing she had a $1 million portfolio. This is not rocket science. 5. Look into management fees and upfront trading commissions. It’s one thing to put money into the stock market, it is another to find out what management fees and upfront commissions are being charged against your investments. If you are in a 401(k), find out what the management fees are for those funds. Anything more than 1 percent is too high. You would do better with your own IRA at an online brokerage firm in a zero-fee index fund. The same goes for commissions on specific products sold by financial advisers where an upfront commission may be as high a 5 percent or more on the money you are investing with them. That’s it. Investing 101. As my readers know, I am passionate about financial literacy for women. Movies such as “The Big Short,” (2015) and “Wall Street,” (1987), “The Wolf of Wall Street,” (2013) and even “Trading Places,” (1983) give us the idea that the stock market is one big game for crooks. Meanwhile, with the fall of the Iron Curtain, the villain in move after movie is the corrupt and evil corporate tycoon who is either poisoning the world or stealing us blind. Why wouldn’t we be afraid to invest. Let’s not forget the Tulip Bulb Craze in Holland in 1593 that really happened or the Enron market manipulation disaster in 2000 that really happened. It's OK to be realistic and maybe a bit scared but not scared out of the market. In reality, modern markets, while still driven by the basic human emotions of fear and greed and occasionally abused by real crooks, are governed by rules, by reporting requirements and by the incentives of regulated capitalism. A sensible investing strategy means understanding risk-return trade-offs. Remember, the more glittery the investment, the higher the risk. I’ve learned that lesson more than once. Remember that past records are a good indicator of future performance. and remember that there’s a difference between investing and trading. “If you know you will either win or at least not lose too much, and if you index at least the core of your portfolio, you will be able to play the game with more satisfaction,” says Burton Malkiel, in “A Random Walk Down Wall Street.” My mother, the investor, stuck with blue chips, put money into businesses that she understood, reinvested the dividends and never lost her resolve. Her investing philosophy continues to guide my thinking. Thanks, mom. For more: U.S. NEWS. Stock market 101: Everything you need to know about buying, selling and trading, https://money.usnews.com/money/personal-finance/saving-budget/articles/2017-01-20/stock-market-101-everything-you-need-to-know-about-buying-selling-and-trading Stocks for Beginners, Motley Fool. https://www.fool.com/retirement/2018/04/27/stocks-for-beginner-investors.aspx 5 Easy Ways to Start Investing with Little Money, Money Under 30. https://www.moneyunder30.com/start-investing-with-little-money Comments are closed.
|
Julia anderson
I meet women all the time who face job and money transitions and who want to do them right. It’s about building confidence and taking charge of the future. This is your money. No one cares more than you do! Archives
February 2024
Categories |