A Beginner’s Guide to Investing
LearnVest CEO Alexa von Tobel returns to kick off our new investment series.
Women are a major force in today’s economy. We control over half of the country’s wealth and by 2020, the Federal Reserve estimates that number will increase to two-thirds. Unfortunately, despite having more financial power than ever, we aren’t saving nearly enough. As women, we’re equally likely to enroll in a retirement plan as men, but we tend to save less—6.9% of our pay compared to 7.6% for our male counterparts—and that’s a problem considering that women outlive men and tend to have higher medical costs, meaning that we should be saving more. In light of these facts, Alexa von Tobel, CEO of LearnVest, author of Financially Fearless and the expert behind Finance 101: A Millennial’s Guide to Money, says it’s absolutely crucial that women learn to invest. “Investing is a powerful tool to help you grow your money and reach your financial goals," Alexa says. “The majority of women believe that they lack the knowledge to invest in today’s market. Six in 10 women rely on family and friends for financial advice instead of financial experts.” We asked Alexa and the LearnVest team to help set the record straight—and introduce us to the principles of investing that we should be putting into practice today.
1. Your dad had a pension—you don’t
For the first time in history, the responsibility for retirement planning is shifting away from the government. With Social Security dwindling, it’s primarily up to you to make sure you save enough money to retire. Once you determine how much to set aside each month for retirement, investing those funds becomes equally important—otherwise inflation can actually eat into your account balance.
2. Make your money work for you
Historically, inflation has increased at a rate of approximately 3% each year. If you keep your cash in a savings account (with an approximate interest rate of 1%), your money is actually losing value over time. Investing essentially puts your money into a marketplace where companies, governments and other entities can use it to create a profit that will be returned to you.
3. So, how much should you invest?
Consider following the Rule of 120. The idea is simple: subtract your age from 120. The number you get represents the percentage of your retirement portfolio to invest in stocks. In following this rule, a 35-year-old would have 85% of their portfolio invested in stocks and 15% in more predictable vehicles like cash or bonds that you can make readily available in case of an emergency.
4. The Rule of 5
Another rule of thumb: Only invest money that you won’t need to liquidate within the next five years. If you’re saving to buy a house in two years, that money may be safer in a high-yield savings account. If you’re saving for your child’s college education in 15 years, you can consider investing that money.
5. Get comfortable. You’re going to be here a while
The stock market has historically gone up, but it will have days, months and even years where it will go down. The key to dealing with the inevitable swings is to keep a cool head and take a long-haul approach. Don’t follow day-to-day market news or try to “play” the market. Instead, consider setting a calendar alert every year or every quarter to check in on your portfolio and rebalance it based on your needs.
6. A diverse portfolio is key
The principle of diversifying is simple: don’t put all of your eggs in one basket. Having a diverse portfolio can help minimize your exposure to market fluctuations. The poor performance of some stocks will be offset by good performances in others. Ideally, you should spread your investments out across a wide variety of companies, industries and even countries. This doesn’t just distribute risk; it also means you have a variety of growth opportunities that you might not have had if everything was in one place.
7. Ready to start investing?
At LearnVest, you'll be matched with a personal financial advisor who will help you establish a budget and determine how best to utilize investing to reach your goals. If you're starting out on your own, first assess your financial situation to see if you're in a position to invest. Do you have outstanding debt? Do you have an emergency savings account with enough cash to cover your living expenses for six months, or more, if you have a family? If your finances are in check, consider seeking out a fee-based service that can help guide you to the best place to start investing your money. For more information on investing, or to learn more about managing your money and find a financial planner, visit LearnVest.com.
LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc., that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation.