When Sheryl Sandberg said women need to “lean in” in the workplace, there’s the other part of the equation: women need to lean in in the investment world as well.
The biggest barrier against women learning how to invest their own money are themselves. Research has shown that number of brokerage accounts held by women are only one quarter of those by men. Women have the tendency to postpone taking the risk. We want to be sure we are ready before we take the plunge. But women won’t be ready until we try it.
[See: 11 Great Investing Tips for Women.]
Investing is a skill that you can only acquire by doing. Start now. If you are not comfortable with the whole investment idea, the best way to overcome the fear is to embrace it. Go open a brokerage account, put in some money — say $1,000 — and test the waters. To have an account and real money in it makes you care.
Investing in individual stocks. The popular suggestion is to invest in exchange-traded funds and stay away from individual stocks because individual stocks can be twice more volatile than ETFs. But I would suggest investing a portion of your budget in individual stocks at the beginning as part of the learning process. The right attitude for a beginner is to be prepared to lose some of your investments. Treat the potential loss as tuition. Your gain is the investment knowledge and the psychological comfort you are gaining along the way.
Why individual stocks? An individual stock is a window into world of investing. Use an individual stock as a lab to learn investment jargon and to study basic investment concepts. Track the news and see how stock prices respond. You will learn how macroeconomic, industry and firm-specific news affect stock valuation. For example, when Britain voted for Brexit, why and how was your stock doing? During earnings seasons, listen to the earnings calls and see how management analyze that quarter’s performance.
This kind of learning is valuable and may not be feasible if you just buy ETFs.
[See: Warren Buffett’s 10 Biggest Deals.]
Start with companies you know. Warren Buffett only invests in companies he can understand. As rookie women investors, start with companies you know well. If you are a working professional, you can buy an industry leader from the sector you work in, a company you are inspired to work for, or a company whose leader you admire. When you have the industry know-how, it will be much easier and more fun for you to digest the news, track the earnings and to form your own opinion and judgment about the stock.
What if you are a stay-at-home mom? Well, you can invest in a company that’s heavily involved in your daily life.
Turn yourself from just a consumer to an investor by linking your consumption with your investment. See where and what you spent your money on and buy that stock. Women usually are the family shoppers, so retail stocks are a good starting point. You don’t have to spend tons of time to do stock research, compared to if you invest in Caterpillar. When you shop, you get a sense if the parking lot is crowded, how big the customer flow is, how quick the items are flying off the shelf, and the quality of the customer service. That is research for next quarter’s earnings. For example, if you own Costco Wholesale Corp. (ticker: COST), when the stock price plunged in June because analysts were concerned about the transition from American Express card ( AXP) to Citi credit card ( C), you would have your opinion from firsthand experience to gauge if the market overreacted or not.
Following the same logic, you can have a thorough examination of your consumption and identify your star companies. If you travel, which travel website do you use, where do you book your flights and hotels? What credit card do you use? Where do you dine? What cars do you drive?
[See: 20 Awesome Dividend Stocks for Guaranteed Income.]
The key to a successful start to investing is to find low barriers to entry. Start with companies you are familiar with because it will make investment more fun and interesting.
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3 Tips for How Women Can Learn How to Invest for Themselves originally appeared on usnews.com
