Even
though the coming of ponzi schemes has attracted many people's focus,
there are indeed many other legitimate ways of making investments.
Illustrative photo
Women face different obstacles from men when it comes to investing
and tend to have less in savings because women often take time off to
raise children. With years of not earning a salary, there is no money
being saved and compounded upon.
In addition to this, women typically outlive men by close to 10
years on average. Research shows that most women would rather preserve
their money by stashing it away in a bank account or other ‘safe
investment’.
Ponzi scheme
But as the ponzi scheme MMM has proven, safe is not always safe.
Why Safe Isn’t Safe: When you ask most women why
they don’t invest, the typical answer is that they don’t want to lose
their money. They see the investment they have drop, become worried and
sell out hoping to not lose any more money. They then put the cash into a
savings account where they won’t lose any money. But they do lose
money. They lose purchasing power, also known as inflation.
Historically, inflation runs around 3%. To give a basic example of
inflation, if a gallon of milk costs N1,000 today and inflation is 3%,
next year at this time, that same gallon of milk will cost 3% more.
The Stock Exchange
Investing in the stock market can be confusing and scary at the
same time, but if you just understand the basics, you will have all of
the information you need to know. There is no need to learn about binary
options, calls, puts or soybean futures. To understand these and to be
successful in the market requires a ton of knowledge and time
commitment. But to simply be successful in the stock market by investing
in mutual funds and exchange traded funds is much easier.
Learn the patterns
Yes, the market will drop. It always does over the short-term. You
will lose money but only on paper as long as you don’t sell out- but
over the long-term, you will make money. Over the short-term, there is
volatility in the market. Prices fluctuate and can fluctuate wildly. But
over the long-term, things calm down and the general trend is positive.
For help seeing this, just pay attention the next time you are at the
beach or lake. Watch the wake of a passing boat. Right after the boat
passes, the waves are high and the water looks dangerous. But follow the
wake out over the water and the waves become smaller and smaller and
eventually disappear. This is the stock market both short and long-term.
Focus on the long-term.
Your emotions, your worst enemy
Women are naturally emotional, and this comes to bear on their
relationship with money as well. While it sounds easy to just focus on
the long-term, the truth is that this is hard to do in reality.
Understand that the loss is only on paper. You never actually lost any
money unless you sell. It’s like your house. Your house might gain or
lose value. But you never know this until you actually sell your house
and have the cash or check in hand. Social media is good at bringing
your emotions out. They make everything seem scarier with the graphics
and sounds they use, as well as with the words they use to describe the
market. The media sensationalizes the market to keep you watching. When
they start telling you how the stock market is crashing or melting down,
you know it is time to turn the channel.
Have a plan: Before you invest, sit down and write
out your plan. What are your goals? Why are you investing the way you
are? All of this is important because in the future, you will be
reviewing your plan to make sure you are still on course. Your
investment plan also helps when the market gets rough. You may be
tempted to sell and run for safer investments. But by reviewing your
plan, you can see what your goals are and why you are investing the way
you are. It will help to keep things in perspective and keep you
invested over the long-term.
Invest, Don’t Trade
There is a difference between investing and trading. Trading is
when you are constantly buying and selling funds, trying to avoid losses
and earn a higher return. Unfortunately, this rarely works. In fact,
the average investor only earns 2% while the market earns 8%! This is
because the average investor keeps jumping from investment to
investment. Success in the stock market doesn’t work like this. You need
to be invested for the long-term. No one can time the market and invest
only when the market is rising and be out of the market when it is
falling. It fluctuates every single day. Instead, just invest. Create
your plan, pick a few investments, and continuously add money to these
investments on a regular basis. Ignore everyone telling you the market
is high or low and just invest. Remember, your eye is on the long-term.
Go Passive
There are two types of investments: active investments and passive
investments. Actively managed investments (mutual funds in this case)
are run by a portfolio money manager who is trying to beat the market.
On the other hand, a passive investment is a mutual fund that is simply
going to match the return of the market. So which philosophy should you
follow? You should choose passive investments. The fact is that no one
beats the market on a consistent basis, year in and year out. Only one
person has done it recently, and his name is Bill Miller of Legg Mason.
The mutual fund he ran beat the market every year from 1991-2005. He
hasn’t fared very well since. While his run was great, the odds of
completing this feat are 1 in 2.3 million. Don’t bother trying to beat
the market, because in the long run, you can’t. Just take what the
market gives you and you will be fine.
Investment fees
Know that you have to pay a management fee with mutual funds and
exchange traded funds. Paying a higher management fee does not guarantee
a better return. In fact, there is no correlation so you are better off
paying the lowest fee possible. Luckily, this is where passive
investments come into play again. Since a passive fund doesn’t employ a
management team to pick investments, the fees are much lower. While it
doesn’t seem like much, when your investments start approaching six
figures the fees really add up. You work hard for your money.
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