More women are now enrolled in college than men. Female entrepreneurs are rising at record rates. Alongside these trends, more and more women are also taking it upon themselves to start investing.
Almost 67% of women are investing outside of their retirement accounts, according to Fidelity’s 2021 Women and Investing Study. That’s an increase of 23% from the 44% of women investing in 2018.
It’s critical for women to start investing, not only for their own financial futures but also for their family’s financial futures. Women who choose to become mothers hold a powerful influence over their children’s education and financial habits, and while investing can be beneficial to everyone, its advantages are even more pronounced for women.
That said, some women may want to start investing but they may not know how to go about it. Here’s a guide that can help women to start investing and taking more control of their financial futures.
How to make investing easier
Investing can seem intimidating at first. While there are plenty of jargon and complex financial terms that we could talk about, it’s best if we simplify the process. One option is to sign up for automated investing services that will personalize your investments according to your selected risk tolerance. This can help you put your money to work effortlessly.
With fully-managed investing, experts will take care of everything. From creating your portfolio and picking individual investments to manage your account on your behalf, fully-managed accounts can be amazing.
Ideally, you’ll want to look for options without any asset-based management fees or minimums. These will allow you to invest however much you want when you want.
How much should you invest at first?
How much should you invest? The answer depends on your financial situation. Investing as much as you can is the most beneficial decision, especially if you’re younger and time is on your side.
Take a look at your personal finances and decide how much you’re comfortable investing on a monthly basis. No matter if it’s $2, $20, or $200, every dollar matters, and staying consistent is key.
When you consistently add to your investment account instead of frequently withdrawing, you’ll start to see the benefits of compound interest, which is the money you will make on your initial investment and the gains on your investment. Check out this compound interest calculator to get a better understanding of how profits make profits!
Remember, women tend to live longer than men, so we’ll need a large nest egg to depend on later in life. Getting started sooner will only be more beneficial in the long run.
What should you invest in?
When it comes to investing, you have numerous options. You can choose from stocks, bonds, cryptocurrencies, ETFs, and more. Most investors will have a mixture of different asset types in their portfolios.
Investing in a mix of stocks and bonds gives you diversified exposure to financial markets. If you want to invest yourself, you can either construct a portfolio out of individual investments or opt for ETFs that bundle a variety of individual investments together.
Here’s a closer look at the three main investment types!
A share of stock is a single piece of ownership in a corporation. When you buy a share, you buy a tiny piece of a company. Many investment platforms also give you the option to invest in fractional shares, which are an even smaller piece of a share. This allows you to invest in company stocks based on the amount you want to deposit.
Many corporations pay stockholders a small amount of money, either annually or quarterly, called a dividend. You receive dividends based on the number of stocks you own.
For example, if a company pays out a $0.10 dividend per share and you own 100 shares of stock, you’ll get $10 from the company each time it pays out dividends. Corporations aren’t required to pay out dividends, and stock values can change quickly.
A bond is a legal contract between a buyer and an entity that borrows money. The U.S. government is one of the largest bond issuers, but corporations can also issue bonds. Bonds are typically safer than stocks because the issuer is obligated to pay you back for the money it borrows. Note: Bonds usually have a much lower average rate of return than stocks.
Exchange-traded funds (ETFs)
An ETF is a pooled investment vehicle that bundles a number of stocks or bonds together. You buy a small percentage of every stock or bond in the fund when you buy an ETF. Also, ETFs are an easy way to diversify — which means you spread your assets around to reduce volatility as you seek gains.
How many stocks, bonds, and/or ETFs should you buy — and which types? That depends on how comfortable you are with risk and how long you plan to invest before withdrawing. If you want to take on greater risk to pursue higher gains and invest for a couple of years, you’ll likely opt for mainly stocks. On the other hand, you’ll likely choose bonds if you’re not as comfortable with risk and need to be more cautious about preserving your money in the short term.
How long should you keep your investment account?
The amount of time you’ll need to keep your investment account open depends on the type of account you have and the goals you’re trying to reach. For example, if you have a Roth or a traditional individual retirement account (IRA), you cannot withdraw your funds before you reach retirement age. Early withdrawals can incur penalties or other fines.
Most other types of brokerage accounts don’t have a limit or time frame for withdrawals. In other words, you can withdraw at any time! That doesn’t mean you’ll want to withdraw your investments as soon as you see a return.
Withdrawals incur capital gains taxes, and you’ll end up paying more if you’ve only held your investments for the short run. Investors with a long-term strategy not only pay fewer capital gains tax, but they also reap other benefits. A long-term investment strategy gives your money more time to grow, and it’ll be more likely to ride out market volatility.
How can you minimize investments?
If your employer offers a matching 401(k) plan, participating can help you maximize your investments. You also don’t want to forget to maximize the money deposited into your own IRA every year to add to your long-term savings and investments.
Can you borrow against your investments?
Yes. Oftentimes, banks may allow you to take out a line of credit against the money in your investment portfolio. When you agree to borrow against your assets, your bank gets a lien on your assets that they can use to claim your investments if you don’t pay back what you owe.
If you decide to withdraw money from your retirement accounts early, you may have to pay a 10% early withdrawal penalty. This is why you might be better off letting your investments grow over time – or diversify into a non-retirement brokerage account for more flexibility.
Close the investing gap
Investing can seem complicated, but it doesn’t have to be! It’s also important not to let the unknown discourage you. Remember that investing can bring about many benefits, and it’s a key way to build wealth. Keep doing the research and discovering advantageous brokerage accounts to help you get started!