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book excerpt

Mastering a few basics will help you gain control of your financial future.Andreas Rodriguez

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.


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.

Your goal is to hold these companies for a very long time, so look for solid, reliable companies that provide steady returns through interest payments or dividends. Investments to consider

or this layer are often major banks, utility companies, government bonds, and low-fee exchange-traded funds (ETFs). A little boring maybe, but very useful. These babies hold up!

• The top layer

Growth companies add a little more sex appeal and personality to your portfolio, the way a Chanel tweed blazer (vintage, of course) or a block-print wrap dress can fire up your wardrobe basics.

These companies are not like the workhorses of the middle layer, and they may not provide the lovely reward of regular dividends. However, your goal with these companies is to buy low and watch the company (and the stock price) grow—and subsequently increase the value of your investment. There will likely be ups and downs as these companies react to media stories and strive to meet their growth targets, but if you've done your research and have faith in what they do, you should eventually be rewarded.

• The accessories layer

Once you've got your retirement funds and major savings invested, you might find that you have a little extra to invest and you're very attracted to a new start-up company that you've heard could be the next big thing.

Like a bright silk wrap or a pair of chandelier earrings, a small investment in an emerging company has the potential to make a big statement within your portfolio—or it could turn out to be a major faux pas. Your goal with this kind of higher risk investment is to only use funds you are willing to lose in case the financing for the company doesn't come through or they have distribution problems from which they can't recover. Because there is no known track record for an emerging company, you can do your best to research their industry, their competition, and their financial solvency, but as the fine print always says, "past performance is no guarantee of future results," especially when there is a very short past to consider.

Reprinted by permission of the publisher, John Wiley & Sons Canada, Ltd., from It's Your Money Honey: A Girl's Guide to Saving, Investing, and Building Wealth at Every Age and Life Stage, by Laura J. McDonald and Susan L. Misner. Copyright © 2012 by Laura McDonald and Susan Misner.