The following is an excerpt from It's Your Money Honey that dispels the notion that women are more "emotional" than men when it comes to investing.
As women, we might consider ourselves to be highly emotional beings (or at least, that’s the stereotype). Men are the ones who are more decisive and therefore better at investing, right? Au contraire, ma chérie. Studies show that when it comes to investing, women do more upfront research, spend more time selecting companies, are more likely to invest in companies they understand, hold onto shares longer, and generally take fewer risks than men.
In 2010, Vanguard, a mutual fund company, released the results of a two-year study of 2.7 million investors, which was conducted during the thick of the global financial market meltdown. They found that men were 10 per cent more likely to panic and sell when prices were at the bottom of the market. (Talk about emotional!) Women, on the other hand, were more likely to stick to the investments they made, through thick and thin.
It turns out that men are often overconfident in their abilities to time the market and make smart investment decisions. As a result, they trade their stocks more frequently and end up paying a lot more in trading fees. Women, on the other hand, tend to be more anxious about making a wrong decision, are more likely to admit what they don’t know, and, in the face of uncertainty, will often delay making a decision.
So perhaps our emotions don’t always get in the way of good judgment. Perhaps, when it comes to investing, those self-doubting womanly neuroses are actually working in our favour! Hmmm . . .
Warren Buffett of the buy-and-hold doctrine would certainly think so. As would Philip Fisher (may he rest in peace), another fantastically successful stock-market investor who famously said, “If the job has been correctly done when a common stock is purchased, the time to sell it is almost never.”
You see, once you start investing (slowly, carefully, and a little at a time), you will be amazed at how good it feels to see your little nest egg grow (and grow, and grow). The effects of compound interest, investment returns, and dividends can make your savings multiply, kind of like free money. It’s a beautiful thing.
Think of it this way: there are only so many hours in a day in which you can work to earn money. But when you get your money earning money for you, well, that’s when things really start to roll.
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Creating a Fabulous Portfolio
Here’s how to layer your investment portfolio just like you do your wardrobe. It starts with something that keeps you snug, yet can be accessed with ease (don’t let your mind wander ...).
• The base layer
Don’t leave home without your good underwear on. Isn’t that what your grandmother would say? And make it silk. (Did you know silk has been used as an insulating fabric for centuries and is one of the warmest, yet lightest, fabrics around?)
The base layer is like an insulator too: your stash of funds for protection against emergencies. You want to invest this money somewhere that is out of reach of your debit card and yet won’t cost you any fees if you need to get at the cash quickly.
Your goal is to make sure these funds remain intact and accessible,which means choosing an investment vehicle that is low risk (and consequently, relatively low return). High-interest savings accounts or money-market mutual funds are often good choices for base-layer savings.
• The middle layer
This is the serviceable, practical layer that you begin with when you start investing in the stock market. Think of these investments like good white cotton shirts and black pencil skirts.
You know . . . safe, dependable, wardrobe staples.
