“The biggest risk of all is not taking one,” -- Mellody Hobson, American businesswoman and board chairwoman of Starbucks Corp. (1969 - )
BY JULIA ANDERSON
Type No. 1: Women who are confident investors, who understand investing basics like reinvesting stock dividends, interest rates and fund management fees. They appreciate investing for the long-term, managing their own money by saving and spending wisely, and they know what they are doing even when markets slide, and interest rates go up. These women have a significant and growing nest egg into their 70s.
Type No. 2: A second group of women (the majority) know they must save and invest for the future but don’t have the confidence to do it on their own. They turn to a financial adviser for help and meet with her or him once or twice a year to see how their accounts are doing. Or they may attend a once-a-year meeting hosted by their employer where they listen to updates from an outside rep from the company managing their 401(k). This group may be too cautious with their nest egg.
Type No. 3: There’s a third group that can’t be bothered with saving, either from fear or hopelessness. Investing is too complicated, they say. Besides they don’t think they earn enough for it to matter. They believe that they can’t afford to save and besides their employer does not offer a retirement savings plan.
Their mantra? “I am just going to keep working until I die.” They use credit cards for short-term purchases and save money to pay for short-term things like the next family vacation or a grandchild’s birthday. In their minds they are doing the best they can. These women don’t have a nest egg.
There are steps each of these groups can take to save and better invest money for the long-term, for their retirement. Maybe, they won’t have to bag groceries in their 70s.
Smart Women Smart Money TIPS for each type:
Let’s begin with Group No. 3: Those who are not saving and expect to work until they drop.
Tips: Lower your household expenses! Do that by sharing housing costs with someone, renting out a back room or getting rid of your car with its related expenses. Look for all the ways to reduce your ongoing expenses. Once you’ve lowered those expenses put the newly found money (however small that amount is) inside a tax-deferred saving account – an IRA or Roth IRA. You can do this on-line for free. Get someone to help you.
Some states offer programs that painlessly siphon money from your paycheck to such a state-sponsored account. If your employer has a 401(k) program save enough out of your paycheck to get the employer “matching” money.
Talk with your family about your financial future. If you have grown children, tell them where you are financially and where you want to go. They can help.
Increase your income. Look for a new job that pays more. If you need better qualifications sign-up for job-training opportunities that will give you a pay increase. Ask for a raise, ask for training on the job. Learn new skills. Put yourself first. Look for ALL opportunities to grow your income while cutting your expenses.
When you start your own tax-deferred account invest in an inexpensive stock index mutual fund. Then make regular contributions. Reinvest the dividends. Over time you will be surprised how the miracle of compound interest (dividends) will grow the value of the account. If interest rates move higher, put money into a (safer) certificate of deposit through your bank or credit union.
If you have a spouse/partner talk with them about what your financial life will be like when they die. Marrying is better than living together because Social Security will provide widow’s benefits, if you have been married for 10 years or more. This happens even if you’re divorced. Set up an online account at the Social Security Administration website www.ssa.gov. Call them, check out what your benefit will be depending on your age when retire. The longer you wait the greater the benefit up to age 70.
Group No. 2 Tips: If you need retirement saving, planning and investment advice, get help. Just make sure you know how much that help will cost. I still don’t know what the management fees were on my 401(k) account at work. If I could do it over, I would demand fee information.
When you are choosing an adviser, your first question should be, “How do you make your money, what are your fees on this account?” Anything more than an annual 0.75 percent is TOO HIGH.
When markets are going up it is easy to discount management fees because they are better disguised. But fees can reduce the long-term growth of a retirement account by thousands of dollars. Secondly, don’t let them “churn” your account by moving you in and out of investments. They may be making extra money on those transactions. (See my separate chapter on How to Hire a Financial Adviser).
Don’t let your adviser put you into an investment product that you don’t understand…annuities fall into this category for me. So does private long-term health insurance coverage and life insurance. If a return on your investment sounds too good to be true, it is.
Even though you are using someone else to manage your money, take time to track stock markets, interest rates and economic trends. You must be able to ask good questions and know where the economy is going. Read up on investing. How can that hurt?
Group No. 1 Tips: Confident investors enjoy staying up on day-to-day financial news. They enjoy checking on their investments and most of all they know that staying the course is essential to long-term rewards. Sometimes even for the most seasoned investor that’s hard to do. That is why having trusted friends might help. When the urge to SELL overwhelms you, talk to someone before pushing the button.
Avoid becoming tangled in the financial affairs of children and grandchildren. Being co-dependent is not good for anyone. Easy to say, hard to do when you love them.
If you are on your own be sure you have a will and have designated someone with power of attorney to manage your affairs if you can’t. Consider using a bank trust department to manage your money while you are still living and to settle your estate when you die. Your heirs will thank you.
No matter what type of investor you are, there are ways to take charge of your money. Who cares more about it than you do? - Julia
The Pandemic: What we learned (again)
“With women controlling more and more assets, this growing financial power represents anything but a niche market,” – Charles Schwab Asset Management
Women interested in money management, long-term investing and building a retirement portfolio should see 2020’s pandemic stock market ups and downs as a great lesson. As one analyst put it recently in the Wall Street Journal, “it felt like something different, but it wasn’t.”
He meant that when Covid-19 infections swept the world, shutting down the global economy, killing the travel industry, closing restaurants, and most everything else, it felt like something new, something awful. Panic set in, investors felt the fear and stocks sold off in March 2020 by 34 percent. That’s a bear market.
But 2020 taught us that what feels new is mostly not. Here are the lessons we relearned.
Lesson No. 1
Seasoned investors stay the course. Those who sold off stock investments in the 2020 panic were then faced with a tough decision – when to buy back in? Many did not! Several friends told me that they were bailing out of stocks. They were scared by what might happen next. As one said, “I want to be able to sleep at night.” Fear was in the air as we hunkered down, buttoned up and began hoarding toilet paper and hand sanitizer.
But what happened? This bear market sell-off was short-lived. Like other market selloffs. It ended, sooner than later as the federal government cranked up the money printing press and began rescuing the economy.
While “all bear markets are inherently different, the common thread is that they always end,” said Peter Lazaroff in a WSJ report. “Investors must be willing to lose money on occasion – sometimes a lot of money – to earn the average long-term return that attracts most people to stocks in the first place…. if you can be a buyer in times of fear, your chances of earning above average returns improve,” he said.
Starting in late March 2020, the S&P 500 began a recovery that has continued into 2021. By the end of the year, stocks were up 16.26 percent over 2019. That’s well above the annual average return of around 7 percent.
Hanging in there was among several lessons learned again by investors in 2020. In fact, buying when others are selling is almost guaranteed to reward the long-term investor.
Lesson No. 2
An emergency fund is a great idea. A survey of investment managers by the Wall Street Journal ranked putting cash into an emergency fund as a top priority money tip. An emergency fund means that the blow of an unexpected layoff can be modified. Emergency money will save you from expensive credit card debt until unemployment checks kick in and you can figure out what to do next. At least six months of cash. Everyone tells us this.
Lesson No. 3
You need at will and health care directives. At sixtyandsingle.com we have preached this forever. Since covid-19 began taking lives, it is even more clear that people need a will no matter what age they might be. A will spells out how you want your assets distributed. It makes sure your beneficiary designations are up to date on a 401(k)-retirement savings plan. A will can tell your heirs how you want your belongings distributed. This is a long-term but urgent item on your to-do list. Make a will!
Stay flexible with retirement planning.
According to Maddy Dychtwald, co-founder of Age Wave in San Francisco, an estimated 81 million Americans will see their retirement timing affected by the pandemic. In other words, they won’t retire when they originally planned. People are putting off retirement for an average of about three years, an Age Wave survey says. Working longer into your 60s is not a bad thing…more time to recover, save and invest, more time to put off taking Social Security and more time to enjoy the job. Many women I know are working because they love the action and see no reason to stop.
Markets go up and they go down. Surveys show that women can be more easily scared out of stock markets and are generally more conservative investors. They hate seeing the value of their investments decline when markets sell off. They tend to put more of their savings in low-earning money market funds at a time when they should be in equities. “A diversified portfolio that you can stick with regardless of the market environment should be the cornerstone of everyone’s investment strategy,” Jeff Mills, chief investment officer of Bryn Mawr Trust, told the WSJ.
The year 2020 taught us AGAIN that nothing stays bad forever. We learned that what might feel new and scary is really a variation on what we’ve seen before. Disciplined investors hang in there for the long haul by riding out the declines and benefitting from recoveries. The world does NOT end.
"Far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves." -- Peter Lynch
BY JULIA ANDERSON
Investors who remained in the U.S. stock market after the Covid 19 selloff in March 2020 can be happy, maybe proud of their ride-it-out strategy. Markets more than doubled since a quick 30 percent downturn before making one of the fastest recoveries in history.
Now here in the fall of 2021, investors can celebrate another 20 percent to the upside thanks to rock bottom interest rates, economic stimulus packages including cash pumped into jobless benefits and strong consumer demand for goods and services.
Can this go on? Can markets climb higher?
Headwinds are gathering but traders show no signs of abandoning ship. Analysts with a longer-term outlook expect market growth to slow from what we have experienced in the past 18 months. But no one is saying we are headed for a crash.
But at some point, there must be a correction. It could be triggered by a bump up in interest rates from the Federal Reserve Bank, a return of Covid lockdowns that pushes jobless rates up, continued supply chain choke points that stifle GDP growth or some catastrophe that we’ve not thought of.
That’s why I have devised a plan to protect my portfolio in case of a downturn as the Federal Reserve begins to look at raising rates, as stimulus money dries up and we get a little more back to normal, whatever that might be. We are getting back to normal, right?
Here’s the challenge: How do you prepare for a downturn while continuing to earn dividends and build your nest egg? This largely depends on your age.
Let’s start with those fully retired, those in early retirement and those at 60 near retirement:
Over 60? In the decade of your 60s, things change. You may retire, you may lose a spouse. You may sell your house and move. Likely you will continue to work part-time, but you may start claiming Social Security benefits and/or drawing money out of your retirement tax-deferred nest egg.
Making these moves requires planning. How will you keep growing your nest egg as you make these transitions? The stock market is still your friend offering the best returns over time.
Plenty of spread sheets will show you income curves related to types of investments – stocks, bonds, money market accounts or some combination. Don’t get too conservative. Don’t sit on the sidelines because you are afraid of seeing your nest egg lose value. Your money must keep earning money. Keep most in stocks paying dividends inside your tax-deferred account but have enough in cash so you can sleep at night if there’s sell off.
In your 70s, the IRS will require you to begin withdrawing money from your tax-deferred portfolio. These Required Minimum Distributions or RMDs will be taxed as ordinary income.
Here’s a strategy to anticipate an economic slowdown. Convert enough of your nest egg to cash to cover the Required Minimum Withdrawals for the next 18 to 24 months. Leave the rest in dividend paying stocks. That way, if there’s a sellout, you don’t have to sell anything at a discount. Meanwhile, your quarterly dividend money gets reinvested in more shares of the stocks or mutual funds that you own.
Now for the younger crowd:
If you are age 18 to 30, just keep chucking money into your 401(k) at work or an Individual Retirement Account, Roth IRA or all three. Don’t be bothered by a sell off. All that means is that U.S. stocks are on sale. Your long-term investment money will buy more shares in a mutual fund or individual dividend-paying stock than when markets were up. Count on an average 100-year stock market return of 8 to 10 percent a year. You are a long way from retirement. You will get where you need to go if you stick with the plan.
If you are 30 to 50 years old, do the same as the above-mentioned younger group. The money you are putting into retirement savings is not going anywhere. Make sure that your retirement money is not emergency money. You have that money stashed somewhere else. This is not money squirreled away for the next vacation or to buy a new house.
If interest rates go up, consider putting new cash into a money market fund at 2 percent or more outside of a deferred plan. You want to stay ahead of inflation with long-term investments. Inflation can bite. Saving is important but earning money on your savings is more important.
At 50, retirement begins to loom. Are you on track to have a big enough nest egg at age 65, 70 to live on? You may face an early buyout or a layoff. Do you still want to be in the stock market? Yes, if you are job-secure and can count on working until your mid-60s. If there are clouds on the horizon, you may need to make an early withdrawal from a deferred account. Then some of it should be in cash so you don’t sell during a market sell-off. Withdrawing money from an IRA or 401(k) should be the very last thing you do. There are penalties for that.
Meanwhile, build an emergency outside your deferred accounts with enough cash to pay your bills for a year. That way you can stay in the market with your retirement money through the ups and downs without having to sell something when markets or a stock is down.
Remember: Fear and greed drive markets. Many investors can’t stand the heat of a selloff. They bailout at or near the bottom of a market downturn and then fail to get back in time to take advantage of the eventual turnaround. Investors, especially women, “need help in developing emotional discipline,” says national financial columnist Chuck Jaffee. I agree. But how to do that?
Think about your MONEY PLAN in advance. Remain confident that doing nothing, staying the course IS A PLAN! If markets crater it is NOT the end of the world, the value of your portfolio will recover. History proves it. Have a talk with yourself in advance about how to handle a sell-off.
After a breath-taking 30 percent Covid induced decline in March 2020, the recovery began almost immediately. A year later, the Dow Jones was up 80 percent from 12 months earlier and has been hitting fresh new highs all summer. My sympathies to those investors who bailed out and are now on the sidelines wondering what to do.
What’s ahead? Most experts predict that a sell off is coming after the spectacular 2021 ride to record stock market values. On the plus side, the Fed will likely keep interest rates low in the face of the Delta covid variant. That keeps money in stock markets. The U.S. economy is in better shape that most of the rest of the world. The nation’s labor market is adding jobs. Consumers are consuming. All these indicators point to further increases in stock values if corporate earnings stay positive. Passage of a federal Transportation Bill will help.
On the negative (selloff side) markets may be “over-bought” and need a breather. A slight increase in interest rates could trigger market declines. There could be another unexpected disaster… covid variant, terrorist attack, weather-related difficulty. Supply systems could remain stuck. Computer chip shortages could mean trouble for manufacturers. Unemployment could remain elevated with slowing job recovery. And there’s a certain taste for speculation in markets with the crypto craze, high flying tech stocks and speculative Ponzi-like pressures that are putting younger investors at big risk.
There’s a lot to ponder, to worry about. Don’t ignore these worries, analyze them, and have a plan. Remember: The average annualized rate of return for U.S. stock markets is about 8-10 percent. Embrace that fact but keep some cash on the side.
"Risk comes from not knowing what you're doing." - Warren Buffett, investor.
BY JULIA ANDERSON
My parents trained me by example to manage money and think long-term. Living on a farm, they had me working little jobs (pulling weeds in the bean field) and saving for college when I was 8 years old. As a teenager, 4-H beef projects gave me early “business” experience with the basics of profit and loss, record-keeping and expense management. My seven years of 4-H beef projects paid for college.
A college degree in education and journalism gave me career opportunities that fit my interests.
Investing in dividend-paying stocks was painless. My mother began giving me small amounts of stock (10 shares of IBM) when I was in my 30s. She saw nothing complicated or mysterious about buying stock for the long-term and reinvesting the quarterly dividends. She loved seeing her net worth grow. She was a confident investor.
Early on she taught me the “Miracle of Compound Interest,” earnings from both stock investments and certificates of deposit at the credit union. Growing a long-term nest egg, saving, and investing are a key part of my financial plan. I became a confident investor by sticking to what I understood.
I never passed up free money. I made sure that I saved enough inside my 401(k) plan at work to win the employer matching money. With an eye on the long-term, I picked moderately aggressive investment funds.
I started my own self-managed Individual Retirement Account and separate stock account. I learned by doing. I didn’t wait until retirement to start managing my investments. At retirement, I moved my 401(k) money to an online self-managed brokerage account where management fees are low and there's no charge when I buy or sell something.
I sought out mentors. My mother was the first. She shopped for bargains at the store, was careful with credit cards, looked for the best CD savings rates even if it meant changing banks. She bought shares in companies that she understood (McDonalds). My mentors were themselves confident investors. Money advice came from people who were not selling me something or charging a management fee. For me, it's simple -- Reinvest earnings – dividends or interest. Don't get into something that you don't understand. Check out management fees and commissions.
When I retired, I expected to be in charge of my money. I learned the basics sooner than later so I had the confidence to manage my money and make reasonable trade-offs between risk and financial reward.
I could have planned better for unexpected challenges. I did not expect to divorce at age 60. I lived through it, kept the house, and soldiered on. It has worked out. My advice -- plan for the worst, expect the best. Have your own money. As they say at WIFE.org, "A Man is Not a Financial Plan." A spouse may become seriously ill or die. You may divorce. Meanwhile, you may inherit assets from your mother or aunt. Have a plan for how those assets will be managed. Have a plan for how you would manage on your own.
Look ahead to retirement by knowing what your expenses will be and how much income you will have. (See worksheets on this website). Don’t ignore Social Security as an important income stream in retirement. I claimed benefits at 64. That was too early.
My 80/20 (stocks vs cash) investment strategy has served me well. I continue to trust that the U.S. stock market will over time deliver an annual average return of about 10 percent. I keep management fees low. I don’t try to “time” the market by getting in and out. I don’t panic when markets sell off. The U.S. stock market and the American-based companies it represents with its regulated capitalistic environment will reward those who are patient. I believed that as a kid. I still believe it. I am a confident investor.
BY Julia Anderson
Divorce is often a financial setback for a woman. Statistics prove it.
After a divorce, women have less household income. They must juggle a job and family responsibilities, if they have children under 18. Their pay for an equivalent amount of work may be lower. They may be qualified for lesser paying jobs. All these factors make it more difficult for women manage their finances, let alone save for the long-term, for retirement.
When I appeared recently with my friend, Juliet Laycoe, on her Facebook live program, we talked about how important getting a “good” divorce settlement is and how it sets up your financial future for years to come. Laycoe is a divorce attorney, book author (Divorce Wisdom) and social media host.
She asked me as a financial guru to discuss how best to manage the early stages of a divorce.
Bottom line: Divorce is hell: Your emotions swing from grief to anger. There’s stress and deep anxiety. The tendency is to want it over as quickly as possible. A good attorney will advise you to SLOW THINGS DOWN.
You may not be thinking straight under the stress of a divorce. It is best to take a deep breath, get outside counseling and look to the long-term.
My early in a divorce TIPS:
Reminder yourself that this divorce will have a big impact on your long-term financial future. Let your attorney advise you on a long-term strategy. If your spouse is initiating the divorce, you may have more leverage. Play it cool. Ask for half of any pension payout that eventually would come to your ex-husband. Ask for half of his 401(k). Don’t count on child support. Half of divorced women are not getting child support.
Look carefully ahead at your FUTURE household budget. What will your income be, once the divorce is final? Add up your household expenses. Then look at income. Can you cover your expenses? If not, what changes can you make? Start establishing your own credit with a credit card in your own name. Get your own checking account. Keep your job skills up to date, add new job skills.
Polish up your employment resume. You are going to have to work, manage kids, pay for groceries. Can you find a better paying, full-time job. A good resume is important. Network with your friends on how to write good one. Think of yourself as an independent contractor…. with employers. What do you bring to the job they want you to do?
Get counseling, not just financial counseling. A good counselor can bring clear thinking to your future, what you want and how to make it happen. In the beginning, I was going to pack a bag and just leave. My therapist helped me realize I was just running when I needed to stay put, take a deep breath, and negotiate from a position of strength, not injury. Staying put was a GREAT financial decision.
Make saving a part of your financial plan. If you get a lump sum settlement from your divorce put the money to work for the long-term in a self-directed IRA. Make sure you are taking advantage of your employer’s 401(k) tax-deferred savings plan with matching. Build an emergency fund, so you don’t have to turn to high-interest credit cards.
Keep the faith. It may feel like the deck of cards has been thrown in the air but not yet landed. They will. Over time your future will become more clear, new doors will open, your heart will heal or at least mend a bit. Don’t try to rush through this terrible time in your life just to get away from the bad feelings, the anxiety and anger. Let it spin out slowly.
Click here to a link to a Smart Money show with Juliet Laycoe as our guest.
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!
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