Streetwise
Lauren Rudd
Sunday, February 9, 2014
Stocks Contribute to Your Wealth, Not Your Waistline
Valentine’s Day is almost upon us, which means that it is
time to repeat some of my most often asked for words of advice. Although
jewelry, flowers and chocolate will be on the minds of most women, they would be
better served if investing was the day’s raison d'être. It is an abysmal fact
that many women have only a minimal understanding of how to effectively manage
financial assets.
And while a degree of investment knowledge is mandatory for
everyone, it is understandable if it is not at the forefront of a woman’s
thinking. After all, it was not until the Great Recession that anyone gave
serious credence to the possibility that their blanket of financial security
could be torn away.
Traditionally, investing has been a male dominated activity.
However, the rise in the divorce rate, the increase in expected female
longevity, and the increasing number of women who chose to remain single means
that a woman’s ability to manage her investments is more important today than it
was when I first broached the subject over 19 years ago.
Every woman needs her own account with a deep discount
brokerage firm. A deep discount firm is not just a monetary issue but a barrier
against relying on the so-called “advice” of stock brokers. Deep discount firms
do not give advice.
Experience says that I can once again expect a tirade of
angry comments challenging the need for a married woman to have and manage her
own portfolio. Unfortunately, a number of gruesome statistics embrace the
assertion that she should. For example, women reaching the age of 65 can expect
to live for an additional 25 years. That means they have a better chance of
outliving their financial resources than their male counterparts.
Twenty percent of the female population will never marry. For
those that do marry, half will divorce. Within the first year after a divorce, a
woman's income could decline by an average of 30 percent. Failing divorce, 75
percent of all married women are eventually widowed. Among those widows, many
will find they are at a reduced standard of living despite the fact that about
80 percent were doing fine before their husbands died.
The good news is that a woman can take control of her
financial destiny at any time. Over the years, I have seen numerous examples of
women who have established their own portfolios, added to those portfolios
regularly and as a result will be able to live out their lives relatively free
of financial worry. However, in doing so they often had to resist the entreaties
of others to change their course of action.
Yet, even the best of intentions sometimes go astray.
Statistics indicate that the average woman who saves puts aside about 1.5
percent of her income. That is not enough. Everyone who earns a wage should put
aside no less than 10 percent of his or her gross income each year.
Do not write to me telling me that you cannot do that, or
that it “hurts” too much. I can assure you that spending your golden years
working at the Golden Arches will hurt a lot more.
Unfortunately, women like to invest in low yielding bond
funds with risk being considered an anathema to their well-being.
I can sympathize regarding risk. Nonetheless, every woman should have a
portfolio of individual equities that she oversees. Moreover, in today’s
investment climate bonds are not where you want to be.
Therefore, let’s assume you have or are going to establish an
equity portfolio and add to that portfolio regularly, which stocks should you
buy? Bookstore shelves sag under the weight of mighty tomes attempting to answer
that question.
Out of the more than 10,000 public companies you should
consider investing in 15 to 20 blue chip dividend paying industry leaders with a
10 year history of rising earnings and dividends. Above all, only consider
companies whose products you understand.
For ideas look to the Dividend Achievers Handbook published by Mergent
(800-342-5647). Then, just before Valentine’s Day, slip your loved one a note
with a few stock symbols and a reminder that chocolate will only contribute to
your waistline, whereas stocks will contribute to your wealth.