Contributed by Pari Hashemi, Financial Advisor, Financial Planning Associate, The McFadden Group at Morgan Stanley Smith Barney LLC. Member SIPC
Are women conditioned from an early age to not focus as much on money as men? Think of the daily chores a brother and sister in a household might traditionally be expected to take on. As her daily chores the girl is asked to do the dishes, set the table, or clean the house. The boy is asked to take out the trash, mow the lawn, or perhaps rake the leaves.
This may seem ordinary, but there is a hidden meaning: the boy gets the chores that are traditionally paid!
This early division of labor suggests that women are not predisposed to money. And it may be why I have seen that even affluent women do not prepare as well as they should, financially. But there’s no need to be overwhelmed! Here are a few steps that can help make the process a bit easier.
Involve a Professional
When looking for the right advisor for you it is important to take a few things into consideration. Do you trust that person? Do you have a good relationship with them? Are they looking out for your best interest? It should be the advisor’s job, just like a doctor, to make sure you are diagnosed and treated properly. You work too hard to make your money for that to be taken for granted. Unlike your doctor though, this checkup should be free and not even have any co-pay!
Yes, your financial advisor will likely want to be paid in one way or another, but some advisors are moving away from charging commissions on every trade to fee-based platform. This way you sit on the same side of the table and they want your investments to grow just as much as you do, because they get a percentage.
Develop a Comprehensive Plan
After you chose the right professional, you want to sit down and come up with a plan that is appropriate for you. Fewer than one-third of all women have a financial plan in place to grow and safeguard their assets. Financial plans are an important part for everyone’s overall strategies, but several factors make financial plans essential for every woman. (Source: HNW: Wealth & Values Study, 2006)
No two plans will be the same – because every person or family is different. You probably have different goals than your neighbor down the street or your mailman.
You need to identify your objectives and determine the risk you are willing to accept. This plan should take into consideration all of your goals, whether it is moving down to Florida to retire, or buying the new speed boat. Your advisor should work with you to see where you are, where you are going, and what you need to get there. Planning should give you and your family confidence. This way you don’t sell low and buy high, or simly follow the trends of the market. It will help weather volatility in the market and then you can go to the movies instead of fretting over the stock pages.
Learn About Your Portfolio
I can not emphasize enough how important it is to learn what every investment is and make sure you are comfortable with it. During the economic turmoil of the past few years, many people decided it would be better to throw their statements in a pile next to the door. They people didn’t realize how much they were losing until it was too late.
On the other hand, there were also the people that tracked the market every second of every day following the trends. This would most likely not be the case if you knew what you had in your portfolio. If you knew that you had a riskier investment that was likely to be more volatile, you wouldn’t panic as much when you saw it going up and down. This goes back to the first two steps – to work with a professional and develop a plan. Your advisor should help you determine what risk tolerance you have and what investments are appropriate for you. You should also follow your financial plan rather than pulling the trigger and selling something you didn’t really need to. You can’t change the plan haphazardly by reacting to every market move.
Schedule Regular Reviews
Yes, it is your advisor’s job to watch your investments and make sure you are staying on track. But wouldn’t you sleep better at night if you knew what was happening as well? It is very important to at least have some idea of how your investments are doing and what decisions are being made.
Also, your life changes constantly – as should your financial plan. You need to make sure you keep this updated with your constant life changes. Maybe you are going to receive an inheritance, you bought a new house, or just changed jobs. These are all things you should make your advisor aware of.
It is important to keep saving as you move throughout the different stages of your life. One recent unsettling realization, according to The Retirement Security Project, is that the median female worker in the US has only saved about $34,000 into a 401(k) or IRA. This is a very low figure and highlights that women still need to place more focus on securing their financial future. (Source: The Retirement Security Project, Retirement Security for Women: Progress to Date and Policies for Tomorrow, Feb. 2008). Most women can not even live off of $34,000 for one year, let alone their entire retirement. The earlier you start saving the more compounding can take effect and the more your money will grow. Save that bonus check you weren’t expecting or extra cash you have sitting around. In the long run, it really adds up. Set goals of how much you want to save every year and increase that goal as your pay check grows.
Keep in mind that currently, 39% of High Net Worth individuals in the U.S. are female—by 2019, this is expected to be 67%, with women controlling a sizable majority of the nation’s wealth. (Source: Corporate Executive Board, VIP Forum; white paper entitled “Understanding the HNW Female Investor”; October 2006). You could be the next millionaire entrepreneur or CEO of a fortune 500 company! Do you really want to put yourself in the position of not being prepared financially when you yourself have so much responsibility for other people’s finances? Take the first simple steps towards being prepared and you will feel more confident and comfortable. You have to start sometime – why not now?