MONEYAND MARKETS PRESENTS AN EXCLUSIVE REPORT BY BILL HALL:
TO HELP WOMEN ACHIEVE
INTRODUCTION When it comes to investing, women understand that doing nothing is often the right course of action. Women tend to be more patient and disciplined than men. That’s because sometimes it’s more important to know what not to do – make a risky investment, constantly trade in and out of stocks, pay high fees for a hot mutual fund or exchange traded fund. That’s why it’s crucial to recognize the power of doing absolutely nothing. It used to be that, in a marriage, men made the decisions about finances and investing. But it turns out that women do better, as is well-documented. It has to do with, in a nutshell, avoiding undue risks and maintaining realistic expectations. And as women narrow the pay gap to men, attend college at a higher rate and marry later in life, taking control of their financial future should simply be one more task on the to-do list. The following 10 points explain how to get started. The key takeaways are to keep things simple, stay consistent and, above all, build up confidence.
SEPARATE YOUR YOUR INVESTING INVESTING MONEY MONEY FROM FROM YOUR SEPARATE YOUR DAY-TO-DAY EXPENSES. DAY-TO-DAY LIVINGLIVING EXPENSES.
Failing to do so means you might skim from your Failing to do so means you might skim from your investing money to pay for unexpected household investing money to pay for unexpected household expenses, which, quite frankly, seem to recur all too expenses, which, quite frankly, seem to recur all too frequently. Set up a direct-deposit account with a frequently. Set up a direct-deposit account with a discount-brokerage firm or mutual-fund company discount-brokerage firm or mutual-fund company and invest the same amount of money each month. and invest the same amount of money each month. That’s called dollar-cost averaging, and it enables That’s called dollar-cost averaging, and it enables you you to buy more shares when prices are low and to buy more shares when prices are low and fewer fewer when prices are high, helping to reduce the when prices are high, helping to reduce the average average per-share cost. per-share cost. For example, suppose you decide to purchase For example, suppose you decide to purchase $100 worth of XYZ each month for three months. $100 worth of XYZ each month for three months. In
In January, XYZ is worth $33, so you buy three January, XYZ is worth $33, so you buy three shares. In shares. In February, XYZ is worth $25, so you buy February, XYZ is worth $25, so you buy four additional four additional shares. Finally, in March, XYZ is worth shares. Finally, in March, XYZ is worth $20, so you $20, so you buy five shares. In total, you purchased buy five shares. In total, you purchased 12 shares for 12 shares for an average price of about $25 each. an average price of about $25 each. Remember to keep three to six months of living Remember to keep three to six months of living expenses in a checking or savings account at your expenses in a checking or savings account at your bank. That way, you’ll be prepared for an emergency, bank. That way, you’ll be prepared for an emergency, and you’ll rarely have to dip into your investing pool to and you’ll rarely have to dip into your investing pool to pay for that new heating furnace or car transmission. pay for that new heating furnace or car transmission.
KEEP IT SIMPLE
With so many investment options at your disposal, what should you do? There are stocks, bonds, commodities, exchange traded funds (ETFs), mutual funds â€Ś the list goes on. The simplest solution is usually the best. In fact, many asset managers want you to believe that the investing world is complex,
and you can only make money with their help. Thatâ€™s often untrue. When you get started, or if you want to make changes after being invested for several years, pick the simplest, least complex strategy and investments. You can always branch out when you get more experience.
It might seem that investing expenses of, say, 1 percent a year for a mutual fund is peanuts, but when compounded over decades, you could be paying tens, or even hundreds, or thousands of dollars in fees. A starting balance of $100,000 and an annual return of 6 percent a year results in a payoff of $574,349 in 30 years. But add annual management fees of 0.90 percent, which is the average for stock mutual
funds, and the total falls to $438,976. That means you would have paid your mutual fund company almost $140,000 to manage your money. Always pick lowcost mutual funds, particularly index funds, whose fees can be as low as 0.10 percent a year. Some ETFs, which track major indices such as the S&P 500, have even lower fees. For stocks and bonds, go with an online discount broker.
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HAVE REALISTIC OBJECTIVES
We’re often led to believe that investing is about making as much money as possible. But the truth is that, over time, you can usually never earn more than the historical average of a particular market. After all, companies’ share prices are based on earnings, and earnings power is a result of economic growth. So stock prices are rooted in the reality of the economy. And returns on bonds largely have to do with official
interest rates set by the central bank. Sure, some investments can soar over short periods, luring you in with a big payday. But they tend to revert to their average historical performance – you can bet on that. Remember, don’t swing for the fences, and learn to be satisfied with modest gains over long periods. That’s the path to true prosperity.
ACHIEVE DIVERSIFICATION THROUGH ASSET ALLOCATION
This sounds rather technical, but it’s easy to understand. Asset allocation means you split up your money into different types of investments – stocks, bonds, commodities, real estate and so on. The reason to do so is because those markets often don’t move in the same direction, so if stocks are falling, bonds may be rising. And that helps to balance gains and losses. Another way to diversify is to invest
in different parts of the world, own shares of small and large companies, and emphasize fast-growing industries. For many years now, emerging economies such as China and Brazil have outperformed the U.S., so maintaining a stake in those countries could have helped build wealth at a faster pace. But with better performance often comes increased risks, so placing your money in mature economies, like those in Europe and the U.S., is prudent.
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REDUCE TAXES AND TRANSACTION COSTS WITH LOW TURNOVER
Every time you buy or sell an investment, there’s a transaction cost – a fee paid to an adviser or broker for executing the trade. And if you’ve made a profit, be prepared to owe taxes at the end of the year. (Broker fees and taxes are different than investment fees, as seen in tip number 3.)
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So if you manage money for yourself at a discount broker, use the buy-and-hold strategy in which you ignore the gyrations of the market. For instance, if you had bought shares of IBM in 1983 and held them till today, you would have made more than six times your money. But if you had sold the shares in the early 1990s, when they fell from the purchase price in 1983, you would have lost money. By holding an investment over the long run, you minimize transaction fees, and lower your tax bill.
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FULLY FUND YOUR TAX-ADVANTAGED RETIREMENT PLANS BEFORE EVERYTHING ELSE.
Many investors make the mistake of underfunding their workplace 401(k) account. There are at least three advantages to 401(k) plans: 1. Employers often match part of your investment; 2. The government won’t tax you on investment gains until you retire, when your tax rate tends to be the lowest; and 3. Every dollar invested can be deducted from your earned income statement, lowering your annual tax bill to the Internal Revenue Service. Here’s an example for someone who earns
$60,000 at age 30 and gets a 3 percent salary increase a year until 65. If she put 15 percent of her salary into a 401(k) and earned an average return of 7 percent a year, she’d end up with $1.84 million for retirement. If an employer matched her amount by 50 percent, with a cutoff at 6 percent of the salary, the total would jump to $2.21 million. In contrast, investing outside a 401(k) usually means more taxes, higher fees and no company match.
USE A 529 PLAN TO FUND COLLEGE EXPENSES.
Much like a 401(k) plan, a 529 plan lets you save for a child’s college expenses without incurring a tax bill. The advantages are many, including: state income-tax deductions (states usually administer the plans); the principal grows tax-deferred; and investments usually
don’t affect financial aid. But be careful: Some carry high fees because asset managers have a limited customer base to sell plans to. And you usually can’t make many asset allocation changes throughout the year.
PREPARE AN ESTATE PLAN.
Somehow we’re always planning for the future, yet we easily overlook a well-crafted estate plan. An estate plan simply means you decide what happens to your wealth after you pass away. If done incorrectly, the government can grab a large chunk of the money and property you’ve earned during your lifetime. Drafting an
estate plan is best done with an attorney who’s familiar with your state’s laws. He or she will help you, among other things, pass on your wealth so it isn’t highly taxed, set up trusts for children or grandchildren, and ensure you have enough money to live on should you require assisted-living services.
MOST IMPORTANTLY, TRUST YOUR INSTINCTS AND HAVE CONFIDENCE IN YOURSELF.
This point canâ€™t be emphasized enough. It is the basis from which all decisions are made. Listen to your gut, but verify with your mind. The first thing you must know is that you are capable of making any and all financial decisions, and hiring an expert on certain complex
matters is part of that process. We all make important decisions every day â€“ at home and at work. And financial and investing issues are something we simply need to incorporate into our lives.
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Mike Larson, editor of Safe Money Report, has more than 10 years of experience researching and writing about the housing industry, mortgage, interest rates, personal finance and investments. He has become a primary press source for insights on financial markets, frequently quoted by the Washington Post, Chicago Tribune, Dow Jones Newswires, Associated Press, Reuters, CNNMoney.com, and many others. He has also appeared on CNBC, CNN, Fox Business News, and Bloomberg Television, as well as many nationally syndicated radio shows.
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ABOUT THE AUTHOR Financial expert, author and speaker Bill Hall has experience as a key player on the main platform of all the biggest stages in the investment and financial planning industry. Wielding incredible expertise and hands-on experience on Wall Street, Bill has helped individuals and institutions navigate the complex global financial markets. With more than 25 years in the investment and wealth management business, Bill specializes in simplifying investment solutions so they can be easily understood and implemented. He has the unique ability to indentify profitable opportunities across all markets using powerful mathematical principles and time-tested financial models. Bill was one of the first financial professionals to attain the prestigious credentials of Certified Public Accountant (CPA), Chartered Financial Analyst (CFA) and Certified Financial Planner (CFP). He earned all these professional designations by the time he was 34 years old. During his career, Bill has founded his own accounting firm, served as the managing director of a large regional
trust company and held the positions of senior executive officer and CEO in a world renowned publically traded investment management company. Currently, he is the president, managing director and senior investment counselor of Plimsoll Mark Capital, a firm that provides financial, tax and investment advice to wealthy families located all over the world. Previously, he was the CEO and president of W.P. Stewart Asset Management. Bill’s extensive expertise in wealthbuilding and -management makes him a key player on the Money and Markets team, where he serves as the editor of The Park Avenue Society. There he shares with individual investors the strategies that his firm uses to help some of the world’s wealthiest investors to preserve and grow their family fortunes. In his free time, Bill serves as the chairman of Maine Education Services. And in 2012, he published his newest book, “Changing the Game: How to Profit from Your Passion for Sports, By a Wall Street Investment Manager.”
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