July 16, 2012

Recently I was at a women’s networking event and I overheard a few women say how glad they were to have switched their 401k investments to cash because they couldn’t bear to lose any more money due to the recent market volatility. These women were still in their 30′s or 40’s, with retirement a good 20 years plus away. Unfortunately for these ladies, having long term retirement money in cash is actually not the best idea, even with all the recent market volatility.  It got me thinking, is this how most people invest their assets for the long run?  By timing the market and trying to figure out the best time to sell out and switch to cash?

Market volatility is a normal occurrence when investing in the stock market, yet as much as you know it to be true, it can be tough to handle when it’s your own money at stake.  Famous business tycoon (and billionaire) Warren Buffet says it best, “It won’t be the economy that will do in investors; it will be investors themselves.”  History shows that markets go up and down, but you shouldn’t react to short term fluctuation, even the huge dips.  I know you are thinking, “I’m still not ready to play fast and loose with my hard earned money!” However, historically the markets tend to rebound and reward those investors who stick it out and stay the course.  And while no investment strategy ensures a profit, it’s good to keep in mind some helpful tips when investing for the long term.

Tip 1- Diversify, diversify, diversify.

Diversification is one of the key ways to handle market volatility.  That’s because different asset classes (i.e. stocks, bonds, cash, real estate) often perform differently from one another, so spreading out your money between them all can potentially help reduce your overall risk.  If one of your investments declines, another may perform well, balancing out your overall portfolio risk.  Although diversification cannot eliminate total market risk, it helps smooth out the ride.

Tip 2- Don’t let your emotions get in the way.

This tip is easier said than done.  Usually people react to market volatility by making emotional decisions; however, our emotions usually lead to irrational and impulsive decision making that can potentially compromise the long term performance of your investments.  Uh oh. People tend to buy high and sell low (which is the exact opposite of what you want to do) because their emotions get in the way.  Keep in mind that the media also loves to invoke fear and anxiety in its audience.  It’s no secret that they tend to spin stories to get the best possible headlines.  They have their best interests in mind; not yours

Before you decide to react to the market volatility, take a minute to review your financial plan and goals.  If your goals have changed you may need to tweak your investment strategy. But if your financial situation is the same and your goals are the same, then you need to stay the course and ride the waves. Be strong!

Tip 3- Market timing doesn’t work.

During volatile markets you will be tempted to pull all your money out of the stock market and invest in lower risk investments, such as cash. Don’t do it! You have to remember those less volatile investments also have less return over time.  They may seem like the better option when your investments are in the negative territory, but remember, it is taking on the negative returns that allows for a higher average return potential over time.  Basically, more risk = more return potential.  If investors were not rewarded for the extra risk they took on by not knowing what their return is going to be in any given year, then no one would invest in the stock market.  Investors who stay the course have been historically rewarded for their patience, but many people, including the women I mentioned in the first paragraph, think they can shift their investments to and from stocks to cash, thereby avoiding market downturns.  By trying to time the market like that, they often miss the market’s best returns. If timing the market were possible, every investor would be rich. Guessing when to get out and get back into the stock market is a game you don’t want to play.

You can see in the chart below that even missing the top 50 days in the stock market can dramatically affect your overall performance. *Keep in mind, past performance is no guarantee of future results.

Tip 4- Focus on dollar cost averaging.

Dollar cost averaging is one of the easiest investment strategies to implement.  It’s simply deciding to invest a specific amount into the market at regular intervals over time.   Most individuals do this within their 401k plans at work.  For example, if you are placing 7% of your salary into your 401k, every month that 7% gets invested regardless of how high or low the stock market is.  Over time dollar cost averaging helps you buy more shares when the stock price is low and less shares when the stock price is high, resulting in a lower average stock price over time. Sweet!

One little note on this tip: dollar cost averaging involves continuous investment in securities regardless of their fluctuation in price.  As an investor you should consider your ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

Tip 5 – Have faith in the future.  

Nick Murray, one of the financial industry’s premier speakers and the author of eleven books for financial services professionals, makes it pretty simple when he says, “have faith in the future.”  By this he means, when you are investing in the stock market, you have to have faith that even during the hard times, things will get better.  He even created a mantra you can say daily as you grow as an investor: “I don’t know exactly how things will turn out all right; I just know that they will turn out all right.”  I agree with this 100% because at the end of the day, you have to have faith that we will all continue to be resilient and find solutions to our problems, making the future—and our troubled economy-- better.

To recap, here are some common investment “no-no’s” to avoid:

  1. Making investment decisions based on emotions and not on facts.
  2. Choosing investments that are not suited to your goals or personal timing.
  3. Failing to diversify, i.e. putting all your eggs in one basket.
  4. Reacting to short-term events and not to long-term trends.
  5. Trying to time the market.
  6. Buying “hot” investments with no sound basis for your decision.
  7. Allowing fees, expenses, and/or commissions to become the major factors in making an investment decision.
  8. Allowing fear or greed to drive your investment decisions.

Remember to work with your financial professional during these difficult times to ensure your short term and long term investments are in alignment with your financial goals, needs, and risk tolerance.

For further information I invite you to check out my blog www.Financiallywisewomen.com or email directly at This e-mail address is being protected from spambots. You need JavaScript enabled to view it


 

 

Published in Personal Finance

May 7, 2012

You have worked hard to establish a great career--no small feat during an economic recession--and now you are ready to put your money to work for you. But where to begin? Should you hire a financial broker, or become an independent investor? Play it safe with bonds, or play the stock market?  Before you resort to stuffing cash under a mattress, take these five steps toward investing…straight to the bank. 

1. Get Financially Literate. Some investment terms you should know include:

Stock/ Equities - If you own a stock, you own part of the company. A stock is evidenced by a paper certificate.

Securities - Includes stocks, bonds, and bank deposits. 

Bond - A bond is a debt investment in which an investor loans money to a corporate or government entity that borrows the money for a defined period of time at a fixed interest rate. The main categories of bonds are corporate bonds, municipal bonds, and U.S. Treasury bonds.

Market Capitalization - Also known as “market cap.” It is calculated by multiplying the current price per share of a stock with the number of shares outstanding.

Mutual Fund - An investment company that combines the money from a large group of investors to buy stocks and other investments.

Dividends - A portion of a company's profits that is paid out to shareholders on a quarterly or annual basis. 

These are the most commonly used terms in investment and knowing what they mean will help you understand stock roundups in The Wall Street Journal, Yahoo Finance and Dow Jones. When I first tried to calculate a company’s market cap it took me two hours, simply because I didn’t know what it meant. Now that I know the lingo, I can look at an analyst report and easily follow the progress of a stock. I’m no expert, but I know enough to play the game. 

Photobucket  Photobucket  Photobucket

After brushing up on your fiscal vocabulary, read Lois P. Frankel’s Nice Girls Don’t Get Rich: 75 Avoidable Mistakes Women Make with Money.  I love the advice she offers women about diving into investment and not waiting on “Prince Charming” to take care of their finances. Use the workbooks and self-evaluations in the book to establish and monitor your progress toward financial goals. 

Another great read is Douglas R. Andrew’s Millionaire by Thirty: The Quickest Path to Early Financial Independence. Andrew claims that young professionals can achieve financial independence at an early age by investing. He suggests alternatives to the traditional 401k to make the dream of early retirement a reality.

The Richest Man in Babylon uses parables and layman terms to deliver investment basics and emphasize the importance of growing your money. My dad gave it to me when I was only seven and I often revisit the principals outlined in this book. The common sense advice helps keep me in check when I’m tempted to splurge during a sale at H&M.

Also, get in the habit of scanning Investors Business Daily, The Wall Street Journal and Yahoo Finance for the latest news and market trends.

2. Do Your Research. Before you invest in anything, do your homework. Publicly traded companies want your money, so they make it easy to find pertinent information. Check out their websites to find earnings reports, mergers and acquisitions news and stock quotes. Knowing everything you can about a potential investment is crucial to making a wise decision. Supplement your research with facts from Hoover's Company Profiles. This is an invaluable web resource that offers additional material about company management and executive profiles. 

3. Stay Connected. Once you have done your research and decided which companies you want to invest in, it is smart to stay in touch with an online financial community. Social media is a great tool for networking with investment pros and getting the inside scoop on smart buys. Try Stocktwit, a social networking platform where you can “share ideas and learn from passionate investors and traders.”

4. Don’t Invest What You Should be Saving. Investments should be a part of your overall financial strategy; however, it is important to establish good saving habits first. Create an emergency fund, open a retirement savings account and pay off outstanding credit card debt before playing the stock market. Pay yourself first and you should have extra money to invest in no time. 

5. Diversify Your Portfolio. Once you have savings and understand your investment options, it is important not to place all your eggs in one basket. Diversification is the practice of spreading money among different investments to reduce risk. A well balanced portfolio of investments is more likely to withstand fluctuations in the volatile financial market. The U.S. Securities and Exchange Commission offers great advice on steps you can take to diversify your investments for maximum returns. 

Investing is key to financial independence. You want the freedom to travel, buy a home or retire early, but savings alone won’t get you there. The average annual percentage gain for a high-yield savings account is one percent. Compare this to the average 10 percent earned on stocks. When you save, your money doesn’t work for you and you will only have as much money as you set aside from your salary. When you invest, your money grows by earning interest. So, determine your financial goals, study up and take your first steps toward a wealthy future.

Published in Personal Finance
Monday, 19 December 2011 07:20

Home Buying | Home is Where the Money Is

December 18, 2011

It's there, in the back of your mind. And it's growing every day. It's the desire to have something to call your own. To walk into your own house every night, to remodel it to your liking, to feel the sense of accomplishment that comes with buying a home. But if you've been alive during the past couple of years, you've heard that there's more to buying a house than signing on the dotted line. Lenders are stricter than ever, buyers are expected to come to the table with a stack of cash, and banks are now property owners.  All of this madness can be daunting, especially if you're among the rising number of single, female first-time home-buyers.  But the best way to combat fear and uncertainty is always with knowledge. You can enter this new market--and without regret. You'll just have to do your research. And, of course, weve consulted a few good women to help you on your way. These ladies agreed to share their experiences to help us all navigate this new housing market, and avoid the pitfalls that trip up many of us first-timers. So whether you're planning on buying a house this year or further down the line; whether you're going it alone or buying with your man, you need to read this!

Why Buy Now?

As Made Women, most of us would rather pay our own mortgage than someone else's.  Yet according to Rosetta Broomfield, that's precisely what we're doing when we rent.  Rosetta, an independent broker, has also been a financial consultant for over twenty years, hosting financial freedom seminars and helping her clients create short- and long-term financial plans.  So why does she suggest to buy now? "Simply put, real estate is at a discount. Everywhere. I always like to use the analogy of going shoe- or dress -shopping. The best time is always to buy when things are on sale." Makes perfect sense to me!  

But what about those who have watched what's gone on over the past few years, and are a little freaked out about this home-buying thing? "If you're renting, you're giving someone else your money. The sooner you can build up equity for yourself and gain the tax benefits of owning a home, the better." Rosetta goes on to share how she and her husband decided to buy back when interest rates were an astronomical 14 percent (they're now as low as 4 and 5 percent). "Even though interest rates were high, we knew that if we rented, we weren't going to keep any money ourselves." They went on to pay the house off and she cites home ownership as the reason for her current financial position. "It has really been the foundation of our wealth." In her opinion, there's no reason to be wary if you avoid the traps that many homeowners succumb to. 

Pitfalls to Avoid

The number one pitfall of first time homebuyers? "Overextending yourself," Rosetta states. Think of buying a car or a new dress. You see it in the store, it's all sparkly and beautiful--you just have to take it home with you. But then maintenance repairs come up on the car, you realize you have to get the dress dry cleaned all the time, and, "what seemed like a blessing can truly become a curse." A few hundred thousand dollar curse, at that. 

She also says the best approach is to take your time, figure out what you can truly afford and to find a realtor that you trust. "You have to be comfortable sharing the most intimate details of your life. If for any reason you're feeling uncomfortable with your agent, you should not go forward. Move on!" Got it!

Pamela Watkins, a homeowner twice-over (go ahead, Made Woman!), agrees. "You should never be rushed; you've got to feel comfortable with your realtor and you have to do your homework. This applies to everybody, but for young women in particular, you're so susceptible because you're striking out on your own and you don't always know what you should question. It can be easy to be pushed the wrong way." Rosetta also cites emotions as something that can trip women up. She urges us to remember that home-buying is not an emotional decision, but a financial investment. So now that we know what to avoid, how do we get started?

Tips and Resources

If you don't happen to have $200,000-$400,000 in cash at the moment, chances are you'll have to borrow a few bucks.  Rosetta says that all of the major lenders (Wells Fargo, Bank of America, Chase, etc.) have free online tools where you can enter your financial info and see what you can afford today. Free financial advice? I'll take it! Once you know where you stand, you can create a plan to get where you want to be. Whether you need to improve your credit or save more money for a down payment, this is a good place to start. When you're ready financially, she recommends being pre-approved (not pre-qualified--there's a difference) by three major institutions and "to use them against each other to negotiate for the best terms. If you cant qualify, you shouldnt be looking for a home." Well put.

Another good idea Rosetta offers is to use an online calculator to "figure out what your mortgage payment would be, and live that way a few months. See if that's something you can live with." She sees this as a very powerful way to find out what fits your lifestyle and what you're truly ready for. Most major banks offer mortgage calculators on their websites, but she personally recommends Wells Fargo's online tool. I also like Richdadworld.com's in-depth, free tool; just register for the site to access it.

Pamela recommends a unique source of education--HGTV. Shows like Property Virgins and House Hunters have exposed her to tactics she didn't know were even possible: "I didn't know you could ask [the seller to pay] closing costs or to fix things. When I bought my house I paid a down payment and closing costs. I think that young buyers need to realize that negotiation is possible." Who knew TV could help you make smart financial decisions? 

Overall, what we should learn from these ladies is that with a little bit of research, time and negotiation, real estate can be attainable for all of us.  Rosetta puts it simply: "be patient and buy what you can afford." Hmmm...what a novel idea.


Published in Business
Monday, 26 September 2011 10:01

Investing 101 | Baby Steps to Investing

September 26, 2011

You have worked hard to establish a great career--no small feat during an economic recession--and now you are ready to put your money to work for you. But where to begin? Should you hire a financial broker, or become an independent investor? Play it safe with bonds, or play the stock market?  Before you resort to stuffing cash under a mattress, take these five steps toward investing…straight to the bank. 

1. Get Financially Literate. Some investment terms you should know include:

Stock/ Equities - If you own a stock, you own part of the company. A stock is evidenced by a paper certificate.

Securities - Includes stocks, bonds, and bank deposits. 

Bond - A bond is a debt investment in which an investor loans money to a corporate or government entity that borrows the money for a defined period of time at a fixed interest rate. The main categories of bonds are corporate bonds, municipal bonds, and U.S. Treasury bonds.

Market Capitalization - Also known as “market cap.” It is calculated by multiplying the current price per share of a stock with the number of shares outstanding.

Mutual Fund - An investment company that combines the money from a large group of investors to buy stocks and other investments.

Dividends - A portion of a company's profits that is paid out to shareholders on a quarterly or annual basis. 

These are the most commonly used terms in investment and knowing what they mean will help you understand stock roundups in The Wall Street Journal, Yahoo Finance and Dow Jones. When I first tried to calculate a company’s market cap it took me two hours, simply because I didn’t know what it meant. Now that I know the lingo, I can look at an analyst report and easily follow the progress of a stock. I’m no expert, but I know enough to play the game. 

Photobucket  Photobucket  Photobucket

After brushing up on your fiscal vocabulary, read Lois P. Frankel’s Nice Girls Don’t Get Rich: 75 Avoidable Mistakes Women Make with Money.  I love the advice she offers women about diving into investment and not waiting on “Prince Charming” to take care of their finances. Use the workbooks and self-evaluations in the book to establish and monitor your progress toward financial goals. 

Another great read is Douglas R. Andrew’s Millionaire by Thirty: The Quickest Path to Early Financial Independence. Andrew claims that young professionals can achieve financial independence at an early age by investing. He suggests alternatives to the traditional 401k to make the dream of early retirement a reality.

The Richest Man in Babylon uses parables and layman terms to deliver investment basics and emphasize the importance of growing your money. My dad gave it to me when I was only seven and I often revisit the principals outlined in this book. The common sense advice helps keep me in check when I’m tempted to splurge during a sale at H&M.

Also, get in the habit of scanning Investors Business Daily, The Wall Street Journal and Yahoo Finance for the latest news and market trends.

2. Do Your Research. Before you invest in anything, do your homework. Publicly traded companies want your money, so they make it easy to find pertinent information. Check out their websites to find earnings reports, mergers and acquisitions news and stock quotes. Knowing everything you can about a potential investment is crucial to making a wise decision. Supplement your research with facts from Hoover's Company Profiles. This is an invaluable web resource that offers additional material about company management and executive profiles. 

3. Stay Connected. Once you have done your research and decided which companies you want to invest in, it is smart to stay in touch with an online financial community. Social media is a great tool for networking with investment pros and getting the inside scoop on smart buys. Try Stocktwit, a social networking platform where you can “share ideas and learn from passionate investors and traders.”

4. Don’t Invest What You Should be Saving. Investments should be a part of your overall financial strategy; however, it is important to establish good saving habits first. Create an emergency fund, open a retirement savings account and pay off outstanding credit card debt before playing the stock market. Pay yourself first and you should have extra money to invest in no time. 

5. Diversify Your Portfolio. Once you have savings and understand your investment options, it is important not to place all your eggs in one basket. Diversification is the practice of spreading money among different investments to reduce risk. A well balanced portfolio of investments is more likely to withstand fluctuations in the volatile financial market. The U.S. Securities and Exchange Commission offers great advice on steps you can take to diversify your investments for maximum returns. 

Investing is key to financial independence. You want the freedom to travel, buy a home or retire early, but savings alone won’t get you there. The average annual percentage gain for a high-yield savings account is one percent. Compare this to the average 10 percent earned on stocks. When you save, your money doesn’t work for you and you will only have as much money as you set aside from your salary. When you invest, your money grows by earning interest. So, determine your financial goals, study up and take your first steps toward a wealthy future.

Published in Personal Finance