Learning How to Invest: A Survival Kit for Women
Esther Berger’s father, a Cleveland real estate developer who had survived a concentration camp to come to America, taught her to understand finance and business. “He taught me not to be afraid of money,” says Berger, who today is a successful stockbroker in Beverly Hills.
But now, as Berger tries to pass on investment understanding to women among her 200 clients at PaineWebber, she finds many of them terrified about money, either because they are faced with making investment decisions alone after being widowed or divorced, or simply fearful they will lose a nest egg and suffer impoverished old age. “ ‘Esther,’ they say to me, ‘don’t let me become a bag lady’,” says Berger, author of “Money Smart,” an investment primer for women.
Berger reflects part of a big trend in finance today, the active interest of women in investing. Married women of older generations, though they handled household budgets, typically did not manage investments and so feel a need for knowledge.
More women, especially younger ones, are taking control of their money and investments--just as they do other aspects of their lives--and they want information. “It’s evolutionary, my mother stayed home, but women today know they have to understand the larger world of finance,” says Linda Marcelli, a senior vice president of Merrill Lynch’s private client group that handles $500 billion in investments.
Women are now the sole or primary decision maker in one-third of Fidelity Investments’ U.S.-based accounts, and the mutual fund company estimates that women are co-decision makers on 80% of its accounts.
It’s not a gender imperative but a financial one. Everybody needs to take a closer look at investments because the days of effortless 8% returns on Treasury bills and bank certificates of deposit are long gone with the ‘80s. Today CDs paying 3% actually lose money after taxes and inflation are taken into account. Leaving money in the bank means growing poor slowly.
And President Clinton’s budget bill, which was groaning its way through Congress last week, only makes informed investing more critical. You can argue about the bill’s specifics, such as its dopey retroactive taxes, but its overall message is simple: Taxes are not going down while budget deficits continue for years ahead. And we may see reflation and a rise in interest rates in the not too distant future as well, say managers of major bond investments.
Both women and men need help in investing, but smart financial firms are focusing on women because they have not been well served until now. Recent articles in “Money” and “Working Woman” magazines report pompous stockbrokers of both sexes using jargon or talking down to women prospects. Thus, there is opportunity for brokers and advisers who can explain things clearly and who know how to listen.
Also, women need help at this time, experts agree, because they invest more conservatively than men--at once a strength and a weakness. “Women investors tend to have long-term plans and not to be distracted by the latest performance fad,” says Mary Ruth Moran, a vice president of Fidelity Investments. But they also tend to leave more money than is wise in CDs and bank accounts.
“Women should know how to use investment strategies such as diversification, dollar-cost averaging and ensuring tax-deferred growth in managing their assets,” says Marcelli. Dollar-cost averaging means investing fixed amounts on a periodic basis in stocks or bonds or mutual funds. The practice wisely ignores intermittent fluctuations and captures the benefit of long-term growth.
Keep in mind, says Berger, that at a time of 3% Treasury bills, you can’t get 10% without taking the risk of common stocks. And to invest in individual stocks, $50,000 to $100,000 is needed for a properly diversified portfolio.
For tax deferral, everybody should take advantage of company 401k plans, in which pre-tax income is invested. And IRA accounts, which can earn income free of taxes until withdrawal at age 59 1/2 , are not a bad idea either. Also, there are municipal bonds, in which interest can be free of state and federal taxes.
And tax-deferred annuities are becoming a standard offering of insurance companies and investment firms. Annuities are insurance policies that act like mutual funds--investing in a diversified array of bonds or stocks--but allow income to build up tax-deferred until withdrawal. They tend to charge higher fees than mutual funds--SunAmerica’s Polaris annuity product, for example, charges more than 2% of your investment annually--and there are surrender charges for taking money out early.
But fees alone should not be determining factors; as with all investments, take a pencil and calculate how fees figure against promised returns and benefits such as tax deferral.
OK, you say, but what of this uncertain economy? Don’t be frightened, listen to what major investment firms--some of them run by women such as Los Angeles’ Payden & Rygel and Advisers Capital Management of New York--say about it.
Patricia Klink, president of Advisers Capital Management, which counsels pension funds on bond investments, said last week that any budget deal is better than none. “It clears the air, now businesses can plan. We’ll see the economy pick up for the next three to four months.”
But longer term, she was less impressed. “Lack of incentives for saving and investment ensure that we’ll have unsatisfactory economic growth,” said Klink. “And so to accomplish all we want, we’ll reflate the economy.” Interest rates will go up, but not as they did in the ‘80s. Rather, rates will just about track inflation, so that if you sit back and only invest in Treasurys and CDs, you’ll lose money all the time.
Clearly, learning to invest is not a matter of gender; it’s a matter of survival.
