Investing is one of the best ways to grow your wealth, yet many women aren’t doing it. GOBankingRates’ 2023 Women & Money survey found that more than half of women are not investing, and 24% cite a lack of knowledge about investing as a reason why. One of the ways that this lack of knowledge can manifest is to believe that investing is the same as gambling — but this isn’t the case.
In this “Financially Savvy Female” column, we’re chatting with Emily Boothroyd, a partner and wealth manager at Merit Financial Advisors in Wilton, Connecticut, about why investing isn’t an equivalent to gambling, and why every woman should be doing it.
How is investing different from gambling?
Investing is often used as a synonym for trading or speculating. Gambling implies a lack of intention, lack of plan and lack of control. While no one knows what the stock market will do on a short-term basis, investing is the concept of sharing in the growth and profits of a company or, in the case of bonds, a company or government, over time.
Sometimes companies can lose value, so there is an inherent risk of loss, but investing for the long term in a diversified group of companies can allow for significant growth over time.
Gambling implies a one-time risk that is usually up to fate or luck that can result in a big win or a big loss. Day trading, or investing in stocks or other vehicles for a quick win, can often result in losses due to impulsive decisions and lack of discipline. Even the “wins” from day trading can bear big tax consequences, cutting down the size of the gain.
We find the most success in a well-executed investment plan that is customized based on our clients’ risk tolerance and return needs over time, making sure we take into consideration not just how much money they’ll need in the future, but when they’ll need it.
What are some ‘safe’ investments for women who may be wary of taking on too much risk?
While there are certain products that do carry guarantees, like some annuities or bank products, most investments have a risk of loss. It’s a good idea to identify the various types of investments along a broad spectrum of risk. For example, a treasury bill or bond may be less risky than investing in a small start-up company.
It’s a good idea to get an understanding of both your natural risk tendencies and your timeframe — i.e., when will you need certain amounts of money — as a starting point, then matching your risk and reward level to the seasons of your life. For example, if I had a home renovation I wanted money for in two years, I wouldn’t invest that in the stock market — I’d look for money market funds or short-term bonds to give me some income while I wait, but likely less potential for a loss of value.
If I am investing in a retirement account I won’t touch for 25 years, then I am more inclined to focus on long-term stock market investments that will likely result in larger gains over time.
Why should all women be investing, regardless of their risk tolerance?
Risk of loss, or risk of the value of your investments fluctuating over time, isn’t the only risk to address. As we all fork over more money at the grocery store checkout, the impact of inflation is making its mark on all of us today. The idea that the cost of goods and services will increase over time can present a risk to someone holding only cash in their savings accounts.
A well-planned investment strategy will allow for growth over time, so that when the costs of goods and services rise over time, your money rises to the occasion to allow you to continue forward with your lifestyle in the future rather than having to make drastic cuts to afford the more expensive items.
Investing and growing your assets over time also translates to more freedom. By allowing your money to grow for you, you are under less pressure in other areas of your life, and have more freedom to make lifestyle choices that reflect your needs.
For example, a well-planned portfolio may allow you to take time off to care for kids, grandchildren or parents without worrying how you’ll support yourself. Or a well-planned portfolio that grows over time could allow you to retire earlier, or move to a different career later on in life. Creating a plan that allows for freedom and security will empower women to live more fulfilling lives with less stress.
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