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Monday, May 18, 2009

Five Things Women Need to Know about Investing in Stocks

There are five basic concepts women new to investing in stocks need to know to be successful. These concepts range from the psychological to the practical and once you accept them, you're ready to begin learning about investing.

The concepts are:

  • Investing in stocks is not a "man's" game.
  • You already know more than you think.
  • You should invest for your retirement.
  • You should avoid being too conservative.
  • Learn and practice asset allocation.
Some of these concepts, like the last two, clearly apply to every investor, whether you are a man or a woman. I single them out for women so they will pay particular attention to them as they begin the learning process of investing in stocks.

1. Just for Men

Surely, we've moved beyond the notion that woman aren't suited somehow for business or investing. While we "talk the talk," I'm not sure we "walk the walk," when it comes to acknowledging this fact.

The reality that I feel the necessity to write a column about "women and investing" seems to suggest that there is still some concern (and much of it comes from women) about this whole notion.

There is nothing about investing in stocks or investing in general that any woman of reasonable intelligence can't grasp just as readily as a man of reasonable intelligence. So put that notion to rest.

2. You Know a Lot

You already know more than you think. Successful investors understand what they are buying. Women are generally careful consumers, who know what works and what doesn't.

Women make most of the consumer purchases in the U.S. When you get to that point of looking at specific companies, you already have a treasure of hands-on information about their products and services.

There is a great story that is probably an urban legend, but illustrates the point beautifully. When the financial services industry was going through a radical deregulation, banks and other financial institutions had newfound freedoms to go into new areas.

A young stockbroker invested in first this company and then that company looking for the one to make him rich, all with limited success.

One Sunday, he went to visit his elderly mother. He noticed a statement from a stockbroker and picked it up to see how much she had invested.

To his astonishment, his mother's account was in the six figures. He knew that she did not have that much money so he wanted to know how she amassed such a sum. Her answer humbled him.

While he had been chasing after the emerging leaders, his mother had noticed that ATMs (automated teller machines) seemed to be popular, so she invested in the company that made them. It didn't matter which bank was the best, they all wanted more ATMs, so the company profited.

Invest in what you know and observe.

3. Invest for Your Retirement

It's great to save for your kid's education and you probably have several other financial goals.

Here's why you should invest for your retirement. The statistical odds are that you will outlive your partner. That's a reality women must face.

You should plan to have enough money to last you 20 years after you retire. That's a long time.

If your employer offers a retirement plan, participate, especially if they offer some percentage of matching funds.

If you do not work, look into IRA options and even more reason to begin investing now, even if it is not in a retirement plan.

Kids can get college loans, scholarships, and so on. However, when you're 75 and alone (I sincerely hope that's not the case), you will regret not funding your own retirement.

4. Don't be too Conservative

As you get into investing, you will find where your level of risk tolerance is. This is not a suggestion that you should take risks that make you uncomfortable.

However, keeping all your funds in "safe" investments will make it difficult to reach your financial goals. Taxes and inflation will eat your small returns and the best you can do is tread water, if you're lucky.

Stocks, which are riskier than some other investment, also provide the opportunity to beat inflation over a long period and build a solid foundation. Buying and holding good companies for the long term is a way to build a nest egg.

5. Learn and Practice Asset Allocation

Asset allocation is one of those investing terms that you will learn. A good place to start is with this article: Introduction to Asset Allocation.

It's another way of saying spread your money around so it's not all invested in one spot. You'll see the common sense of this immediately.

The important thing to remember is that it is a continual process that you must always have in your mind as you begin investing. If you start out with this mindset, your investments will be in a better position as the years go by.

Conclusion

Don't be afraid to jump in with both feet - investing in stocks knows no gender barriers. There are a number of articles on this site to help you get started and the rest is up to you. Good luck.

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