Yes, Virginia, You Too Can Be Rich - A Guide for New Female Investors

Introduction

A good friend of mine is a flight attendant for one of the major U.S. carriers. When she was only 21 years old, she approached me with the singular goal to have $1 million by the time she was 35, making it absolutely clear that whatever needed to be done, she was willing to do. Using a time value of money formula, we calculated that at the historical rate of return on stocks in the United States, she would reach her goal by contributing $33,000 to her investments each year. Although that number seemed daunting to her at the time – she was barely making ends meet while living in a 500 square foot apartment near Manhattan – she was committed to her dream and vowed to make it happen. Thanks to the flexible nature of her profession, she was able to pick up a second career outside of her day job, making it possible to reach those funding goals through the extra income and the 401k match provided by her employer. Today, unbeknownst to her friends, she is on track to reach her objective while maintaining a comfortably middle class lifestyle. At 35 years old, the laws of mathematics dictate that she’ll be able to do one of two things: Create, in essence, a self-funded pension plan by living off the dividends and interest her $1 million endowment generates each year. She’ll quit one of her jobs and between her remaining profession and her investment income, pull down over $125,000 annually; or, lock the money away for thirty years until she turns 65, never adding another dime and using her existing salaries to massively upgrade her lifestyle, resulting in nearly $23 million by retirement. That’s not a typo.

Decide Upon the Life You Want to Live

Why is this noteworthy? Because when she was first looking to build her assets and had her dream, all of her friends and some of her family told her that the only way she could hope to have a seven-figure or higher net worth would be to marry a wealthy man. Decades after the sexual revolution and nearly a century after women’s suffrage, these comments were almost always from other women. While the root cause of this is a matter for psychologists and sociologists to debate, the practicalities of building a successful investment plan are squarely in our circle of competence here at Investing for Beginners. This seven part step-by-step will provide you with some of the thoughts I gave my young friend when she was starting her journey. My hope is, they will help you live the life of your dreams!

The goal of investing should not necessarily be to get more money as fast as possible. Instead, it is to provide a means through which you can grow the assets necessary to allow you to live the life of your dreams. For some people, that means working from home so you can spend more time with their kids; for others, it may be generating enough cash each year to pay for a month-long trip to another part of the world.

Because you put aside your first dime, you should try to find out what your “number” is – that is, the figure that will allow you to accomplish those dreams. Often, you may find it takes far less than you expect because many goals have nothing to do with money – learning to play piano, reading more, learning to paint, etc.

You Do Not Need a Man to Become Wealthy

Once you have identified what you want in your life, it’s important that you realize your investments – stocks, bonds, mutual funds, real estate investment trusts, etc. – don’t know if you are male or female. They don’t perform differently depending upon the gender that is on your birth certificate. If you select your investments intelligently, focusing on the price you pay and ensuring that you have a prudent diversification policy, you are likely to have good results overtime that can improve the quality of your life and make you financially independent. That’s why it’s important to arrange your affairs as if you were going to be single for your entire life; when love does come knocking, you’ll bring more to the table and your combined incomes will only make you reach your dreams faster. You cannot wait on someone else to hand you the life you deserve.

The Secret to Successful Investing - Start Young

One of the constant themes of this site and financial textbooks is that compounding gets more and more powerful the longer the time horizon. Consider that $10,000 invested at 11% for 10 years is only $167,220, while the same amount invested for 40 years is roughly $5,818,261 – four times as long results in nearly 35x as much money in your accounts. That is why it is so vitally important for you to start as young as you can; put money into a Roth IRA and always, always, always take the 401k contribution match provided by your employer.

Dont Just Cut Costs Expand the Income Pie

The first instinct for most people when they are attempting to come up with cash is to cut expenses. Going back to the example of my friend who is a flight attendant, the notion of saving $33,000 per year would be almost inconceivable if you viewed it in the context of your existing income. While coupon clipping certainly has its place and is an easy way to improve your disposal cash levels, an even easier way to generate investment capital is to expand the income pie by taking on jobs and sources of income that are not dependent upon the number of hours worked. Some traditional examples are real estate broker, author, door-to-door cosmetic salesperson, or entrepreneur. By dedicating the cash from these secondary sources to your portfolio, you can continue to live a comfortable life on your primary salary. To the outside world, nothing will have to change – no cutting the heat in the winter or patching your clothes. Even better, your primary job is likely to provide you with the benefits and retirement matching you wouldn’t get from your more proprietary endeavors.

Consider a Prenuptial Agreement

In a world full of love and money (click link to read an article for a perspective on how couples should handle the question of joint finances and investments), one thing you should consider if you’ve managed to amass a respectable amount of assets is to have your fiancé sign a prenuptial agreement. I know, I know … in a world seeped in the robust Cinderella tradition where Prince Charming comes riding upon a white stallion and gives you the keys to the kingdom along with the treasury, it seems almost odd for some people, particularly those in the older generations, to consider that it may be the woman that needs financial protection. Thankfully this perception is changing as a result of high profile young female celebrities such as Britney Spears insisting upon iron-clad prenuptial agreements.

How do you know if a prenuptial agreement is right for you? If any one of the following is true, consider insisting upon a prenuptial agreement before you get anywhere near booking a venue or hiring a florist:

• Do you have several hundred thousand or millions of dollars in assets?
• Do you own a business that you’ve started on your own that, although not worth much now, you expect to blossom in the future and want to ensure you receive in the event of a divorce?
• Do you expect to receive a substantial inheritance from your parents or another relative?
• Do you think there is a possibility that your soon-to-be spouse will cheat?

The important thing to consider is that it would be foolish to spend a lifetime focusing on your investments and then throw it away because you become metaphorically blinded while in the throws of love.

You Need to Build a Complete Portfolio

Remember when I told you that investing for a woman is just like investing for a man? Yep, all of the empowering details about how various ways to structure your portfolio to reach financial independence can be found in an article called Build a Complete Portfolio which you can access and read for free. There's no need to rehash it here so get going - grab a cup of coffee, sit back down to the monitor, and grab a pen and paper to make notes as you discover what a top-notch personal investment program looks like!