This article was originally published on "the institute"
Financial advisor Laurie Itkin wants more women engineers to invest. After all, she believes their analytical nature and fearlessness when it comes to math make them perfect candidates for success at building an investment portfolio-and ultimately their wealth.
Itkin is the author of "Every Woman Should Know Her Options: Invest Your Way to Financial Empowerment
," which describes the techniques she used to become a millionaire before her 40th birthday following a childhood of financial instability after her parent's divorce. She was one of the speakers at the 2014 IEEE Women in Engineering Leadership Conference
, held in San Francisco.
Even though women are now the primary breadwinners
in more than 40 percent of U.S. households, many are afraid of making the wrong decisions about investments and losing money. Most women do not spend enough time on their investments and defer to their male partners, according to Itkin. "A lot of women just put their money into a savings account," she says, pointing out that US $1,000 in such low-interest-yielding accounts would earn next to nothing in interest. It's not even enough to keep up with inflation, she says.
Learning to become an investor could help women-as well as men-overcome financial challenges and build wealth on their own. Here are four tips on how to get started.
STEP 1: MAXIMIZE YOUR 401(K)
If your employer offers one, maximize your contributions to its 401(k) account. Not only do these pretax contributions lower taxable income, but employers also often match a percentage. "If your employer matches the percentage you put in, you could be doubling your money right from the start," Itkin points out.
Employers often make mutual funds available for investment in their 401(k)s, but the funds' expenses can be high. Take the time to figure out what funds you are investing in. Some charge annual expenses of 1 to 1.5 percent, but others have much lower fees. In her book, she writes about how to go about selecting mutual funds with the lowest fees. "If you can save 1 percent on your money a year just by choosing your funds more effectively, you've already increased your wealth," she points out.
Finally, revisit your 401(k) contributions whenever your financial situation improves. "The way I built my wealth was whenever I got a raise or a bonus, I increased what I put into my retirement account," Itkin says.
STEP 2: LIVE SIMPLY
Another way to grow wealth is by living as simply as possible and then investing the money you don't spend. "I became a millionaire by living frugally," Itkin says. "When I excelled in my career, I raised my standard of living but still kept it below what I could have afforded. Instead, I saved and invested even more." Also, putting money into a brokerage account-which allows you to invest in stocks, bonds, mutual funds, and other investments-rather than, say, real estate, will help keep those assets not only growing but also available in an emergency.
One tip is to learn as much as possible about the economy and investing-without spending money to do so. "The information on investing is bountiful and often free," she says, on sites such as Yahoo Finance, Motley Fool, and CNBC. Itkin herself offers a free newsletter
. "Make it a goal to take one hour a week to read about the state of the economy and the stock markets," she suggests. "You'll get smart about investing very fast."
To become comfortable with putting money into the market, women have to develop the right mind-set, according to Itkin, which includes thinking about the long term and being unafraid of market fluctuations. "You have to understand that the value in your accounts will sometimes go up and down," she says. "The worst time to sell is out of fear."
STEP 3: CONSIDER YOUR OPTIONS
One of the best ways to grow wealth, Itkin believes, is to invest in ways that minimize your risk. Exchange-traded funds (ETFs), for example, are funds that track indices like the Dow Jones, Nasdaq 100, or the S&P 500. Each fund holds a portfolio of securities that tracks the yield and return of the stocks in its index. ETF shares are traded like stocks, but they're not tied to the stock price of any one company. Similarly, real estate investment trusts (REITs) allow people to invest in real estate without actually buying property. This, Itkin says, is a great way to make sure that your assets are available to you within a day or two instead of wrapped up in a property that could take months to sell.
Itkin also recommends the use of conservative strategies that can generate income. One is a stock option, which is a contract that allows the investor the right, but not the obligation, to buy or sell shares of a stock at a specified price on or before a given date. For example, Itkin says, an investor who holds shares of stock can receive income today for agreeing to sell stock at a higher price in the future, a strategy called a covered call. This is similar to when homeowners receive a down payment to take their house off the market. If a buyer comes up with the cash, the sale goes through; if not, the seller keeps the fee.
"Options have the reputation of being very risky," Itkin says, "but that's unfair because options were actually introduced to reduce risk while investing. I have stories in my book about women in their 60s who are trading options. If they can do it, younger women can too." She acknowledges that there is no such thing as completely safe investing but says that options allow people to manage risk more effectively.
WHY INVESTING MATTERS
Investing provides empowerment and financial freedom to women, who may end up needing it more than men. A death, divorce, or the layoff of a partner can lead to financial ruin. According to the Women's Institute for Financial Empowerment, a woman's standard of living can drop by about 27 percent
after a divorce. Itkin says investing provides women with an essential nest egg for emergencies.
Investing can also provide seed money for those who want or even need to launch their own business. "We're finding that more women have to start their own businesses because of layoffs or their taking time out of the workforce to raise children," Itkin says.
"If you haven't been a smart investor, you likely do not have enough in savings," she adds. "But that doesn't mean you can't start." She suggests setting a goal by figuring out how much money one would need if paychecks stopped coming in. This can help women decide the amount to save in case they need to tap into their account for a few months. Smart investing is a great way for women engineers who have already invested time and money in their education to make the most of their future, Itkin continues. "Don't you deserve to have your money working just as hard as you do?"
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