My wife and I welcomed our first daughter to our family this past August. I contemplated what knowledge will enable her to make informed decisions about her financial affairs. My mission is to provide you the same financial education and guidance covering a wide range of topics jargon-free. The need for women to have financial knowledge is vital. I believe this, as research studies show that by the year 2020, women will control two-thirds of the nation’s wealth (Forbes.com, Financial Services: The Industry Women Love to Hate, March 8, 2011). However: • Women lack the time and selfassurance to manage their financial planning (ProLiteracy Study 2013) • Women report higher levels of worry and stress about investing (Victor Ricciardi, The Financial Judgment and Decision Making Process of Women: The Role of Negative Feelings, 2011) • An estimated 66% of caregivers are female (www.caregiver.org/ women-and-caregiving-facts-andfigures) and due to their caregiving role, women work 12 years fewer than men over the course of their careers (AARP Public Policy Institute). • Only 31% of female investors are using financial advisors (Prudential, 2014-2015 Research Study) I believe that knowledge turns worry into confidence. You may be thinking “How do I start?” or “Am I doing the right things?” To help you answer these questions, you may want to consider following a 6-step process I’ve developed.
The first step: Determine What Is Important and What Do You Want Your Money to Achieve. I believe that constructing your ideal work-optional lifestyle plan and strategy cannot begin until you are crystal clear about what matters most in your life. With that, you must also have a realistic and defined vision of what you’d like your money to accomplish for you in order to work towards financial independence. Financial independence doesn’t mean you “retire,” merely that you go to work because you want to, not because you have to and, if you desire, have the ability to live off the income of your own resources.
The second step: Summarize What Your Current Assets Are. The goal here is to consolidate all of your personal data (paychecks, investment accounts, insurance documents, tax returns, mortgages and bank accounts, etc.). Doing this can uncover a clear snapshot of where you stand, identify existing strengths, and examine potential points of vulnerability. I suggest being as specific as you can, though, if you are time constrained, an “overview” approach is fine. This determines whether you are “on” or “off” track to pursue your work-optional lifestyle aspirations.
The third step: Determine Your Investor Profile (e.g., conservative, moderate, aggressive). You must know this BEFORE investing! When it comes to investing your hard-earned assets, there is always risk. Some investments have minimal risk, others can be incredibly risky. Being aware and informed of the possible outcomes you may experience should provide you confidence that your approach is tailored to work towards your goals. Even if you are younger with a relatively longer time horizon, you may not necessarily be comfortable investing aggressively. There is no right answer for what your personal risk tolerance should be. TAKE NOTE: Negative returns and high volatility are typically destructive to wealth building. You will need a larger positive return to offset any negative return (e.g., if you lose 50% over a period of time, you need to gain 100% to get back to even). Any attempt to attain larger returns may be detrimental to your progress towards financial independence so the key is to know what you are willing to risk.
The fourth step: Develop Your Investment Strategy Beyond Traditional Approaches. The investing landscape has changed. I believe the traditional notions of portfolio construction don’t work. The traditional asset allocation process has typically focused on how various investments move in comparison to each other over their respective long-term averages, but recent experience suggests that the movements in crisis or dislocation may be even more important. Long-term only investment programs are potentially at a significant disadvantage during a major market dislocation; in a flight to quality, the movements among risky asset classes often travel in the same direction, thus mitigating the benefit of asset allocation. I believe that there is a more comprehensive approach to the traditional portfolio that relies solely on the market increasing as it that lacks a strategy that may offset any market pullbacks.
The fifth step: Check Your Blind Spots. Managing your family’s financial matters extends beyond stocks and bonds. I believe you should seek an independent party to help guide you toward your work-optional lifestyle and advise you if there is anything overlooked which may expose you, your family, or your business to harm. If any risk exposure is uncovered, your advisor will review possible options designed to help manage the risk.