One of the best things you can do for yourself and/or your family is to be prepared to manage your finances responsibly. Even if you see investing as overwhelming or complicated and boring, you need to know the basics behind a well-thought-out investment strategy–at least enough to protect yourself from fraud and/or communicate effectively with a financial advisor or spouse.
Potential investments are all around
Odds are you make many purchasing decisions every day. That means you have a lot of opportunities to observe products and consumer behavior. Everyday life can be a rich source of information that can be applied to investments. For example, if all your friends seem to be flocking to a new retailer or buying a certain type of computer, you might be seeing an emerging trend or company whose value hasn’t yet been recognized by Wall Street. That doesn’t mean you should invest without additional research, of course, but your own daily experience can suggest ideas to explore. Conversely, if you notice that a trendy item that was so hot last year now seems to be showing up more often in clearance bins than shoppers’ carts, you might want to see whether the stock is a candidate for sale.
Being familiar with the following concepts can equip every woman to be a smarter investor:
- The three primary types of investments (also known as asset classes)
- The roles of income, growth, and safety in a portfolio, and which investments focus on each one
- The process of deciding how much to devote to each asset class (asset allocation)
- The benefits of diversification
- Risk tolerance and how your time horizon affects it
- The differences between mutual funds and individual securities
- How much you’ll need to save for retirement
- What returns you would need to reach your goals
- How much income you want your assets to generate in retirement
- The role of various financial vehicles, such as 401(k)s and IRA
If you make a mistake, can you admit and deal with it?
Many investors’ portfolios have suffered because of a failure to recognize an investing mistake and deal with it; instead, their owners hang on, waiting for a turnaround that may never come. As the saying goes, “Good investors know how to take profits; great investors know how to take losses.” There’s never been an investor who hasn’t experienced losses; smart ones follow a discipline that helps them know not only when to buy but also when to sell an investment or adjust a strategy that hasn’t worked.
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2014.