This article originally featured in Swaay Media, after I was invited to write about my experience with investing from a female point of view. The unfortunate reality is that far too few women are investing in the stock market, despite the fact that, generally speaking, we have proven to outperform the market in the long-term. This article is designed to highlight ways in which women can build their confidence in a male-dominated environment and reduce their fear of stock market investing, in order to capitalise on the financial opportunity that long-term investing offers.
I hope this piece provides you with the guidance and motivation to get started.
According to research done by Kiplinger, females are methodical long-term investors. In general, we save more and we trade less. This means we don’t expose ourselves to the friction costs of investing, which ultimately eat into any margin earned. Therefore, we earn more on our investments annually. Additionally female investors, in general, tend to be less eager to sell, which is ironic as most of the best investors say their worst decisions have been sell decisions.
Taking the first step towards investing can be daunting, I know. While fear is natural, what makes long-term investing so worthwhile is the fact that the benefits far outweigh the risks. Since entering the stock market two years ago as a novice investor I have built up simple but fundamental knowledge, my portfolio has grown (better than any savings account or managed fund has returned for me), and I have really enjoyed the journey so far. However, I have also really been struck by the fact that, as a female investor, I’m part of a very small minority that doesn’t help in tackling that daunting fear, but rather exacerbates it.
At a recent hackathon in MyWallSt I dug deep in this phenomenon to understanding the core reasons as to why more women either don’t invest at all or at least to the same levels as men, despite it being proven that women are more successful at it. The main reasons I came away with were perception of affordability, natural risk aversion, lack of trust, not knowing where to start and a lack of guidance. (Are you ticking any of these boxes? I ticked them all before I started.)
The great thing about all of these challenges is that, nowadays, they all have solutions and these solutions are entirely within our own control. Given our natural predisposition to successful investing, I think it’s about time that more women owned their financial future, and I wholeheartedly believe, from first-hand experience, that stock market investing offers the best opportunity to do so.
Here are the five simple ways that have built my confidence to get started, and hopefully they will help you too. They were not developed by me but my adoption of them through MyWallSt has helped me in building a successful long-term portfolio.
This is a scary thought, right? But it doesn’t have to be. Starting is the most important step that essentially requires two things — time and money.
Time relates to the hours you are willing to invest in building the knowledge necessary to reduce the risks associated with making uninformed decisions. It’s important to know the basics. While I found the perfect app (which is free!) that helped me to get started, start wherever suits you best — the important thing is to just get started. Your knowledge also relates to the length of time that you are comfortable investing, which will change your potential for higher returns – hence the importance of getting started, now.
The second thing that is required is money. People presume they can’t afford to invest or that they need thousands to get started. Realistically, you can start with as little as ten dollars (although I recommend starting with a bit more than that, so that you are cushioned against the costs of investing — transfer fees, commissions etc.). Many apps offer fractional share investing, simply meaning you can buy a fraction of a share, say $50 of a $500 dollar stock, if the full share price is too large for you.
I believe that there is no better experience than that which is gained from the actual act of investing. Once you make your first move you are committed — it’s real, and this sense of commitment will lead you to understand, with greater clarity, how stocks and the stock market operate. It’s also quite exciting!
I adopt the ‘buy-and-hold’ philosophy. This requires buying part of the companies that you understand and believe in, and holding them for the long term (ideally, ten+ years). The reason I adhere to this philosophy is because it has been tried, tested and proven to be the best way to outperform the market. While I’m only two years into my investing life, my commitment to long term investing also means that I don’t break out in a cold sweat if my portfolio drops twenty percent or more in a given week, which has happened! (see pic below).
Never Borrow to Buy
Borrowed money comes at a cost, usually in the form of interest, which will eat into your returns over time. As a good habit, with each pay check I receive, the first thing I do is save ten percent of my salary. If you can’t save that, just save whatever you can and before you know it you’ll have a nice little bundle to dedicate exclusively to investing. Or, you could follow the rule of investing what you can, when you can — investing a regular amount on a fixed period each month — this is called Dollar Cost Averaging.
That famous adage, ‘don’t put all your eggs in one basket’ can be perfectly applied to stock market investing. By spreading your risk across different stocks in various industries and diverse territories, you are providing yourself with the best opportunity to reduce your exposure should the market take a turn for the worse. Over time, aim to build your portfolio to 12 stocks or more to be truly diversified (try not to go over 20 stocks or you start diluting your potential for better returns). If ensure where to start, you could start with an ETF, which offers instant diversification.
Buy What You Believe In
Reflect on the brands that you consume every day. Whether it’s Amazon, Apple, Nike or Netflix, start to build up your knowledge of what goes on behind the scenes of these companies. All listed companies have an Investor Relations page on their website. You can start there and get to know the nuts and bolts of the company.
From my experience investing has been a very enjoyable pursuit because, for the most part, I’ve invested in businesses that I’ve bought from or used, therefore I believe in and understand them to a point — investing has encouraged me to take time to really get to know them from a different angle. I have also learned a lot about new sectors, emerging trends and the broader business world along the way.
Since I began to invest it has only been a positive experience for me — even the stocks that haven’t performed as I expected have provided a learning opportunity. For example, Fitbit was my first stock — it’s currently sitting at -55.47%, which is less than ideal! But, what I have learned from that experience is the importance of ignoring the hype — research a company in full and then make an informed and educated opinion. Thankfully, I also invested what I was comfortable with ($68.95 in total) and I have committed to long-term investing, so who knows, Fitbit may redeem itself yet. Add to that, the fact that it sits within a diversified portfolio mean that the losses with this stock are offset against the gains in others, and my portfolio as a whole is beating the market — meaning my returns are greater than what the S&P 500 is producing.
So, while some mistakes may be made along the way, there are ways to minimize these risks. To quote Warren Buffet, “Risk comes from not knowing what you’re doing.” I don’t know everything, but I know enough to get started — after that, it’s just a case of repeating these five simple steps again and again. Start today and enjoy the journey.
Originally published at swaay.com on July 26, 2018.