4 questions women should ask themselves about their investments | The smarter investor
Women often play a large role in the financial decisions of their households, and that includes making investment decisions.
Unfortunately, a recent Primerica study found that women’s financial confidence has declined over the past year, largely due to the disproportionate impact of the coronavirus pandemic on the financial health of many women. In view of this crisis of confidence, it is more important than ever for women to expand their financial and investment know-how, regardless of their stage of life and financial situation.
Women bring key strengths to financial decisions. Women are often conservative, patient investors willing to plan long-term goals as long as they have the financial knowledge to make informed investment decisions.
For any woman (or man) looking to invest their hard-earned money more consciously, here are four important questions to consider.
What are the investment objectives and limits of my household?
Carefully consider what goals you will save to achieve them. Financial goals can include buying a home, owning a car, funding college, or funding retirement. Imagine what your financial future should look like and set yourself short, medium and long-term goals.
Determine how much your household is investing each month. The number should by no means be zero. To invest the right amount, consider how far you are from any financial goal. The sooner you start investing, the easier it will be to save, especially for long-term goals like retirement.
Is there anything that could stand in the way of your investment? For example, do you have debts that you need to pay or a major purchase pending? These financial commitments shouldn’t stop you from investing, but be sure to include them in your assessment of how much money you can afford to invest each month.
How do I share my household’s investments?
Know how much is in each of your household’s investment pails. These could include your home down payment fund, your college or graduate education fund, or your retirement fund. Knowing if you are on the right track can be difficult if you don’t know where you are on the way. Remember, what is being measured is being managed.
They can be spread across different investment vehicles to spread your financial risk as well as your potential return. Your current investment portfolio should maximize returns while appropriately minimizing your risk tolerance. A financial professional can help you understand your risk cap and guide you to make smart decisions about how to allocate your wealth.
You may also find it valuable to consider the debt to income ratio of your household. In other words, the amount of your household’s gross income that is used to pay off debt. Think about the type of debt you have and make a consistent effort to pay it off.
A common method for this is what is known as “debt stacking”.
Here’s how it works: First, try to pay off one of your debts. The one with the highest interest payment should be your target account. Roll this payment to your next target account and continue this process until you have paid off all of your debts. Once you have paid off your debt, the money you paid for debt can be used for investments instead.
Do I have a trustworthy financial professional?
People who have advice on money matters are more likely to feel that they can achieve their financial goals. In addition, they are also more likely to have a personal financial safety net. You don’t have to do six digit numbers to work with a finance professional and develop an investment plan.
When you are in a relationship, make sure that both you and your partner reach out to your finance professional and develop a relationship. In this way, you can work together to make informed decisions that take into account your personal financial goals, risk tolerance and investment preferences. If you and your partner go separate ways, each of you can continue to work with your financial professional to adjust your finances, goals, and investment plans.
What can IDo do differently this year to achieve financial goals?
This is an important conversation to have with your financial professional and, if you have one, your partner. This way you ensure that you stay on track and save and invest enough to meet the goals set for you and your household.
Every year, review the fees you pay for investments and see if there are any ways to cut costs. Assess your risk tolerance regularly and don’t forget to rebalance your investment accounts at least once a year.
Do you know the answers to these questions? If not, it’s time to learn the answers. Knowledge is power when it comes to maximizing your investments and preparing yourself financially for your future.