What’s the number one reason women come to me before they start investing in the stock market? They are “overwhelmed” with the information that’s out there. The availability of free information on the Internet is a double-edged sword. Sure, you can research stocks, exchange traded funds, mutual funds, bond and annuities on the Internet, but the quantity of information can be paralyzing.
I recommend women who want to start investing take these six steps:
Determine your investment objectives. Would you be satisfied with returns between 5-10% a year or are you expecting much higher returns? Earning 5% a year can be achieved with low risk and you don’t need to devote much time a month to manage your account. If you are eyeing returns of 15-25%, it is potentially achievable most years but you will take on more risk and it will require more of your time each month to manage.
Determine which strategies to use. Are you a speculator willing to lose some money in the short term in order to potentially double your money in a few years? Or do you prefer making slow, steady income which compounds over time? When I was younger, I did the former. But as I matured, I shifted to the latter. The income strategy I teach my clients is called “covered calls.” It overlays the sale of call options on purchases of stock to augment returns, generate monthly income, and provide some protection when the stock market goes down.
Open an account with a discount broker. It can be a regular account or an individual retirement account (IRA). If you are trading on your own, there is no need to pay high commissions to a stock broker or investment advisor to make trades for you. You can place a trade for $10 or less. I recommend TD Ameritrade to my clients, because they can practice strategies using “virtual” money, in addition to placing real trades with real money.
Rollover your old 401K to an IRA. If you are no longer working at a company but still have money invested in mutual funds through your former company’s 401K, consider transferring that money into a self-directed IRA where you will have more investment choices and control.
Educate yourself. Start reading the Wall Street Journal or Benzinga. Watch some of the free videos available on your discount broker’s website. Join a Meet-Up group or investment club. Spending time attending educational activities doesn’t have to be boring. For example, I convene a group of women once a month for Women &Wine w/Options.
Request a meeting with your financial advisor. If you have a financial advisor, request a meeting to review what’s in your account. Your advisor is charging you a fee (either a percentage of assets under management or a commission when a financial instrument is purchased) so you deserve a few hours of his or her personal time. Ask questions. If your account includes mutual funds, ask if the advisor gets a commission from the mutual fund company for putting clients into those funds. How does your advisor identify the stocks he or she chooses for your portfolio? Does your advisor use options to hedge downside risk in your portfolio? How often does your advisor rebalance your portfolio? Take as much time as you need to understand your advisor’s expertise and philosophy. If you don’t like what you hear, then find another advisor or learn how to manage your money yourself.
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