By chance or choice, more and more women are taking charge of their own finances. But whether you’re a numbers novice or a seasoned investor in the stock market, financial planning experts say every woman can benefit from following a few basic investing guidelines:
Tip #1: Don’t underestimate the effect of inflation
At just 5 percent inflation, every $100 you now have will be worth only $60 in 10 years, so you can imagine what will happen to your savings over 25 years. “For financial goals beyond five years, growth investments are critical,” says Beverly Paulk, a partner with Aegis Financial Planning in Chicago.
Tip #2: Be tax smart
Taxes can have a huge impact on how an investment grows. Whenever possible, experts recommend choices that offer tax-deferred growth. This will allow your gross earnings to compound year after year. But watch out for significant penalties on early withdrawals.
Tip #3: Make regular–not market timed–investments
Experts say it’s nearly impossible to predict the ups and downs of the stock market, but that doesn’t keep some investors from trying. You’re far better off, they say, to stick to a regular investing schedule that takes advantage of all kinds of market swings over time, rather than trying to buy low and sell high. For example, a $10,000 initial investment in the S&P 500 Index held from Jan. 1, 1994 through Dec. 31, 2003 would have grown to $28,563—but missing just the 10 best days of that time period would have reduced the ending value to $17,795.
Tip #4: Don’t spread your investments too thin
As the saying goes, don’t put all your eggs in one basket. Asset allocation (dividing your investments among the three asset classes – stocks, bonds and cash), diversification and asset rebalancing are sound practices. But Joshua Kennon, an author of “The Complete Idiot’s Guide to Investing” (Alpha, 2006), warns against going to extremes by spreading your investments too thin. Brokerage fees and other transaction charges can add up, and in the end they could even exceed the profits from your investments.
Tip #5: Invest in what you know
When you get to the point where you’re looking at specific companies to invest in, either on your own or through mutual funds, your household purchasing experience gives you a wealth of hands-on information. Use that knowledge to help you make informed decisions about products and services that are likely to be popular with consumers.