Safety in Numbers: Key to Wealth Accumulation is Discipline
In the infinite search for security, some women mistakenly identify investment planning with insecurity and carelessness. What women should know about investing is: You can do it! Well-executed investment discipline can provide stability and financial security for women of all ages and income levels. Investing is not magic, or luck, or a random activity ruled by the whims of Wall Street wizards. Investing is a discipline, and like any discipline, it requires diligence, practice, and patience.
For more than 20 years, I managed billions of dollars of other people’s money, and I have learned that women’s bias toward investing is generally based upon an enormous misunderstanding. Most women confuse investing with trading, and this notion likely dissuades some women from building a sound investment discipline. Trading is akin to gambling: It is risky and uncertain and subject to the vagaries of daily stock market volatility. Investing is another activity entirely; it involves long-term ownership of great companies, the kind of stocks we own, or should be willing to own, for a lifetime. Celebrated investor Warren Buffett once said, “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”
As I wrote in my book, The Women’s Guide to Successful Investing, research shows that about two-thirds of women describe themselves as savers, but they do not express confidence in making investment decisions. Yet, women control close to 50 percent of American wealth, and this figure is expected to grow at a rate of 8 percent per year. Even more compelling is that research shows that at some point in their lives, 80 to 90 percent of women will be solely responsible for managing the family finances. Thus, in the search for security, women save but they do not invest. Saving alone is not enough to achieve long-term financial goals and ultimately attain the financial security women seek.
Currency of Confidence
Women self-identify in studies as feeling less confident than men in financial matters. This lack of confidence leads us to do more research about stocks and trade them less frequently. Research shows that trading less improves overall investment returns. In their 2001 study, “Boys Will be Boys: Gender, Overconfidence and Common Stock Investment,” Brad Barber and Terrance Odean confirm that women, who traded less frequently than their male counterparts, produced an almost 1 percent premium of annual investment return over men’s accounts. What many of us perceive as our weakness is, in fact, our strength: Less confidence leads to careful selection of long-term stock holdings. And our ability to analyze and connect qualitative data (right hemisphere of the brain) and quantitative data (left hemisphere of the brain) also contributes to women’s investment success.
In my book , I discuss my “11 Intelligent Investing Rules” to assist women in developing a successful investment strategy. The first three rules listed below, although they’re investment rules, could apply to many aspects of a woman’s life:
Rule 1: Having any (investment) discipline is better than having no discipline at all; once your investment strategy is established, don’t deviate.
Rule 2: Don’t run with the crowd; establish a discipline that meets your objectives.
Rule 3: Establish your life goals early, and stick to your plan.
It is time women suppress their need for security so they can build a sound financial future, which can include retirement, our children’s education, a home, philanthropy, a grand vacation, or any long-term goal you set for yourself. Women know how to save; let’s learn how to invest in ourselves and our futures.
Nancy Tengler is senior vice president and chief investment officer for Heartland Financial USA Inc., where she oversees $1.5B in client assets, as well as a team of investment professionals and the company’s financial planning initiative.