Updated Feb. 7, 2017
Having The Right Mindset
You may be desperately wondering how to invest your money in a way that gives a big enough return so your money outlives you, while having low enough risk to stay sane. After years of avoiding investing because it feels intimidating, or waiting endlessly to have enough money to even begin investing, a lot of women suddenly get hasty once they do have money to invest. The mindset becomes “Let me just get this investing thing done so I finally feel like I am doing what I am supposed to be doing with my money!” This often leads to hastily choosing a financial advisor, settling on an inappropriate fund in your retirement account, or buying into a mutual fund without the foundation that will drive those decisions.
Having Financial Order
While I’d never encourage procrastination for something as important as investing, my advice would be to slow down and take the few steps outlined below. The very first step to investing is creating financial order and knowledge around the investments you already have, so you can know whether to change your current investments. Additional investments should enhance what you already own. Financial order is also knowing your overall net worth, and the percentages of your net worth that you already have invested. Believe it or not, I’ve heard of overlooked assets, such as an old IRA floating around.
Knowing The Basics
One you have order and clarity about your current investment situation, you’ll want to be at least somewhat informed about what’s happening in the financial markets before putting your money into them. Then, you’ll definitely want to know the very basics of investing.
Making The Project Doable
Break the following steps below into manageable actions. Assign a set completion date. This makes almost every project doable because each completed step empowers and moves you forward. Many think that year end or early winter is a convenient time to begin embracing and tracking investments since you are probably already getting together your investment data for your federal tax returns. The reality is that any time, however, is a great time to gain clarity over your investments.
Here are some suggestions for steps toward investment clarity, and an action plan to be a better investor. Each situation will vary, depending on the amount of money you have and the amount of time you have decided to commit to growing it.
Suggestions For Clarity
- List all of your investment assets on some type of spreadsheet or online tool. I still like Excel spreadsheets, but I’m a little nerdy:) Handwritten spreadsheets also work. My dad, a very astute investor, used to jot the investment account name, an amount, and total it. This works, too! There are many wealth online tracking tools. Find what works for you, but keep it simple.
- Choose a financial news publication related to the type of investments you own. Update: Since I first wrote this article in 2008 (pre-market crash!), podcasts and videos have become abundant. Choose a podcast to increase your financial savvy while exercising, running errands, or doing otherwise mundane household tasks. If you prefer reading at your breakfast table with a highlighter in hand, that works, too. Do whatever works for you. Honestly, reading a five or ten minute weekly summary of the financial markets over the weekend is plenty good enough for most investors. An upside is that almost always triggers me to keep reading and learning.
- Understand each asset you own. This is not a lot of work, but it is a huge step toward financial independence. You can increase your understanding of mutual or index funds by reading Morningstar at the library, doing online research, reading a book about the type of investment you have, taking a course, or meeting with your financial advisor and having them teach you about your assets. Note: While financial advisors can provide information from a deep knowledge base, I also recommend you learn from an unbiased source so you’re independently leading your wealth.
- Develop a monthly and annual plan for overseeing your investments. This plan will include specifying a time to review your investment accounts, such as the first Saturday in the quarter. At that time you’ll update your net worth, as well as check to make sure any investment you have is performing as well as it should be. This is done by simply checking the index that’s related to your investment, which is explained here.
- Check the total fees you’re already paying for your investments. Women are great about watching the costs of clothes and groceries, but usually overlook one of their biggest expenses: investment fees. Just think: one percent of $250,000 is $2,500 every single year. Total fees of 2 percent on a $250,000 investment account is $5,000 every year. Since you checked to see how well your investments were performing, you’ll be able to easily see if the expenses are warranted. If not, see how you can lower your investment fees.
- Check your tax return or ask your CPA how much tax you paid on your investments on your last tax return. Ask yourself, your financial advisor, or your CPA if there is a way to lower those investment taxes.
- Total the amount of money you have in each type of investment, such as stocks, bonds, cash and real estate. Divide each category amount by your total investment amount. These percentages will give you your “asset allocation”. Always make sure yours is suitable for your risk level. Take notice of what has increased or decreased significantly in value since you made the investment. Find out why this change in value happened. Was the drop in value because the overall market dropped, or was it just poorly performing fund?
Clarity Then Exploration
Take these seven steps and you’ll be well ahead of the huge majority of investors. Once you’ve gotten clarity about what you have and what your current investments are doing, then you can explore how to invest your money smarter and better.