Investing:Crossing the Threshold of Confidence,

Identifying and Reaching Goals

Investing:Crossing the Threshold of Confidence,

Identifying and Reaching Goals

Chapter 6Chapter 6

Gender DifferencesGender Differences

• Just as we see gender differences in money in the way we spend, personalities, etc, we see these differences making themselves evident when it comes to investing $.

• At the heart of these gender differences is the notion of confidence.

• Far more women than men express a lack of confidence in their ability to invest, causing the women not to invest at all or to invest too conservatively.

• Just as we see gender differences in money in the way we spend, personalities, etc, we see these differences making themselves evident when it comes to investing $.

• At the heart of these gender differences is the notion of confidence.

• Far more women than men express a lack of confidence in their ability to invest, causing the women not to invest at all or to invest too conservatively.

Gender DifferencesGender Differences

• In a recent OppenheimerFunds, more than 60% of women said they didn’t know how a mutual fund works versus 41% of men.

• Within a household, women are more likely than men to pay the bills, balance the checkbook, and maintain the family budget. But only 25% of women are responsible for buying and selling stocks, bonds, and mutual funds.

• In a recent OppenheimerFunds, more than 60% of women said they didn’t know how a mutual fund works versus 41% of men.

• Within a household, women are more likely than men to pay the bills, balance the checkbook, and maintain the family budget. But only 25% of women are responsible for buying and selling stocks, bonds, and mutual funds.

Gender DifferencesGender Differences

• Merrill Lynch determined in a survey that women don’t enjoy investing as much as men and aren’t as likely to try to beat the market.

• Charles Schwab: When the brokerage firm looked at portfolio’s of its clients, it found that women were more likely than me to have $ in bank certificates.

• Merrill Lynch determined in a survey that women don’t enjoy investing as much as men and aren’t as likely to try to beat the market.

• Charles Schwab: When the brokerage firm looked at portfolio’s of its clients, it found that women were more likely than me to have $ in bank certificates.

Women Make Better InvestorsWomen Make Better Investors• Lack of confidence does not mean

lack of competence.• Women are more likely to research

and ask for assistance then men before they make investment decisions

• Women tend to be “bargain hunters” while men are “risk-takers”

• Lack of confidence does not mean lack of competence.

• Women are more likely to research and ask for assistance then men before they make investment decisions

• Women tend to be “bargain hunters” while men are “risk-takers”

Gender Differences Possible ExplanationsGender Differences Possible Explanations• According to the Women’s Cents Survey

conducted by the National Center for Women and Retirement Research, women tend to be “present thinkers.”

• Personal experience plays a part in why the gender roles manifest as they do:– Women work fewer years by the time they are 40

(on average 3.2 years less)– To some degree, women are dependant on their

husbands (risky business considering divorce rates and average age of widowhood and life spans)

• According to the Women’s Cents Survey conducted by the National Center for Women and Retirement Research, women tend to be “present thinkers.”

• Personal experience plays a part in why the gender roles manifest as they do:– Women work fewer years by the time they are 40

(on average 3.2 years less)– To some degree, women are dependant on their

husbands (risky business considering divorce rates and average age of widowhood and life spans)

Gender Differences Possible ExplanationsGender Differences Possible Explanations• According to the Dreyfus Gender

Investment Comparison Survey, men are far more likely than women to feel that they have control over their financial lives.

• According to the Dreyfus Gender Investment Comparison Survey, men are far more likely than women to feel that they have control over their financial lives.

Women Make Better InvestorsWomen Make Better Investors• Even though they express less

confidence in their investing ability, women investors often outperform men, largely because they trade less frequently.

• And, as they become more experienced, they also become more confident.

• In short, lack of confidence does not mean lack of competence.

• Even though they express less confidence in their investing ability, women investors often outperform men, largely because they trade less frequently.

• And, as they become more experienced, they also become more confident.

• In short, lack of confidence does not mean lack of competence.

Women Make Better InvestorsWomen Make Better Investors• So what’s the secret:

– Women are more likely to do research– Don’t trade as frequently verses male

counterparts– Men tend to make other “investment

mistakes” such as holding a stock too long or waiting too long to sell a winner

– Men are more easily seduced by the market– Women are “bargain hunters” Men tend to

be “risk takers” (men are 2 x’s as likely to buy on a “tip.”

• So what’s the secret:– Women are more likely to do research– Don’t trade as frequently verses male

counterparts– Men tend to make other “investment

mistakes” such as holding a stock too long or waiting too long to sell a winner

– Men are more easily seduced by the market– Women are “bargain hunters” Men tend to

be “risk takers” (men are 2 x’s as likely to buy on a “tip.”

Why the ‘Hand and Glove’ Makes SenseWhy the ‘Hand and Glove’ Makes Sense• Given these gender attributes, it

makes sense, then, to work together and compliment each other as you chose investments. Enhance your strengths and play to your weaknesses.

• So how are you going to handle and play off of these gender differences?

• Given these gender attributes, it makes sense, then, to work together and compliment each other as you chose investments. Enhance your strengths and play to your weaknesses.

• So how are you going to handle and play off of these gender differences?

Stocks are Gender-NeutralStocks are Gender-Neutral

• Although men and women talk about investments in different terms, investments themselves don’t discriminate. Stocks, bonds, and mutual funds are gender-neutral. They work exactly the same way no matter who owns them. If you know how to use them, you can make them work in your favor. Knowledge is power.

• Although men and women talk about investments in different terms, investments themselves don’t discriminate. Stocks, bonds, and mutual funds are gender-neutral. They work exactly the same way no matter who owns them. If you know how to use them, you can make them work in your favor. Knowledge is power.

Invest for the Short TermInvest for the Short Term

• A short-term goal is anything you want to do, buy, or spend money on in fewer than five years.

• Keep your money liquid– Meaning that you can get your hands

on it quickly and without penalty if you need it

• A short-term goal is anything you want to do, buy, or spend money on in fewer than five years.

• Keep your money liquid– Meaning that you can get your hands

on it quickly and without penalty if you need it

Invest for the Short-TermInvest for the Short-Term

• Garden-Variety Bank Savings Accounts– You wont get rich on the interest you

own but they are convenient and the money is insured by the FDIC

• Bank Certificates of Deposit– Pay a higher rate of return then

savings accounts but tie your money up for a certain about of time

• Garden-Variety Bank Savings Accounts– You wont get rich on the interest you

own but they are convenient and the money is insured by the FDIC

• Bank Certificates of Deposit– Pay a higher rate of return then

savings accounts but tie your money up for a certain about of time

Invest for the Short-TermInvest for the Short-Term

• Money-Market Mutual Funds– Get the best interest rate on a short-term

deposit, money-market mutual funds are generally the place to be. Instead of investing in stocks, these mutual funds invest in the “money market,” a collective name that describes all the different ways in which governments, banks, and corporations borrow and lend money for short periods of time

• Money-Market Mutual Funds– Get the best interest rate on a short-term

deposit, money-market mutual funds are generally the place to be. Instead of investing in stocks, these mutual funds invest in the “money market,” a collective name that describes all the different ways in which governments, banks, and corporations borrow and lend money for short periods of time

Invest for the Short TermInvest for the Short Term

• Other short term investments– Short term bond funds– Treasury Bills – IOU from the gov’t

• Other short term investments– Short term bond funds– Treasury Bills – IOU from the gov’t

Invest for the Long TermInvest for the Long Term

• For investment purposes, a long-term goal is anything that you want to do, buy, or spend money on more than five years into the future. Of course, “long-term” is relative.– College savings plans– Retirement Plans– Saving for a major purchase can even be a

long term goal – by a house by 30, etc.

• For investment purposes, a long-term goal is anything that you want to do, buy, or spend money on more than five years into the future. Of course, “long-term” is relative.– College savings plans– Retirement Plans– Saving for a major purchase can even be a

long term goal – by a house by 30, etc.

Invest for the Long TermInvest for the Long Term

• Some considerations:– Diversify, stocks, bonds, mutual

funds, other savings vehicles, real estate

– Beware of being too conservative.

• Some considerations:– Diversify, stocks, bonds, mutual

funds, other savings vehicles, real estate

– Beware of being too conservative.

Invest with ConfidenceInvest with Confidence

• 3 Key Considerations- Age old theory on portfolio management –

stocks in your portfolio should be 100 minus your age

– Keep All Things in Proportion• Stocks: 40% - 80%• Bonds: 20% - 50%• Cash: 10% - 25%

– Invest Slowly and Steadily – the ERA – Stick with a Plan

– Dollar Cost Averaging (“Wanda”)– Choose Your Level of Risk and Diversify

• 3 Key Considerations- Age old theory on portfolio management –

stocks in your portfolio should be 100 minus your age

– Keep All Things in Proportion• Stocks: 40% - 80%• Bonds: 20% - 50%• Cash: 10% - 25%

– Invest Slowly and Steadily – the ERA – Stick with a Plan

– Dollar Cost Averaging (“Wanda”)– Choose Your Level of Risk and Diversify

Pick StocksPick Stocks

• Educate Yourself on the Market – Where and How might we do that?

• How Much Does the Company Earn?– This is the famous “bottom line,” the company’s net

income after taxes, expenses, and set-asides, often expressed as earnings per share (EPS) of common stock outstanding. Successful investors look for a strong record of rising earnings.

– For Example - Microsoft – http://www.microsoft.com/msft/financial/

default.mspxhttp://www.microsoft.com/msft/download/Income%20Statements.xls

• Educate Yourself on the Market – Where and How might we do that?

• How Much Does the Company Earn?– This is the famous “bottom line,” the company’s net

income after taxes, expenses, and set-asides, often expressed as earnings per share (EPS) of common stock outstanding. Successful investors look for a strong record of rising earnings.

– For Example - Microsoft – http://www.microsoft.com/msft/financial/

default.mspxhttp://www.microsoft.com/msft/download/Income%20Statements.xls

Pick StocksPick Stocks

• How Does the Price Relate to Earnings or P/E Ratio?– Divide the current price of a stock by its

earnings for the past 12-month period and you have the price-earnings ratio (P/E ratio). P/E ratio tells you what investors think of a particular stock compared with other stocks with an especially high P/E. Buy at a low P/E.

• What is a Company’s Book Value?– The difference between its assets and its

liabilities (Net worth) or shareholder’s equity

• How Does the Price Relate to Earnings or P/E Ratio?– Divide the current price of a stock by its

earnings for the past 12-month period and you have the price-earnings ratio (P/E ratio). P/E ratio tells you what investors think of a particular stock compared with other stocks with an especially high P/E. Buy at a low P/E.

• What is a Company’s Book Value?– The difference between its assets and its

liabilities (Net worth) or shareholder’s equity

Pick StocksPick Stocks

• What’s the Return on Book Value?– Return on Equity –

• Company’s total annual net income as a percentage of total book value, and you get a measure of how much the company earns on shareholders’ stake in the enterprise. Use this to compare the company to other companies in the same industry

• What’s the Total Return?– How much you have made on share price

including dividends– http://www.microsoft.com/msft/FAQ/

dividend.mspx

• What’s the Return on Book Value?– Return on Equity –

• Company’s total annual net income as a percentage of total book value, and you get a measure of how much the company earns on shareholders’ stake in the enterprise. Use this to compare the company to other companies in the same industry

• What’s the Total Return?– How much you have made on share price

including dividends– http://www.microsoft.com/msft/FAQ/

dividend.mspx

Finding a Stock brokerFinding a Stock broker

• You can go with online brokers to full service brokers.

• Online brokers: www.firstrade.com• Full service brokers: www.ml.com

www.smithbarney.com

• You can go with online brokers to full service brokers.

• Online brokers: www.firstrade.com• Full service brokers: www.ml.com

www.smithbarney.com

Mutual and Index Funds Mutual and Index Funds

• Mutual Funds might be an alternative to you verses individually picking stocks:

• Numerous types of mutual funds:– Aggressive growth funds– Growth funds– Growth and income funds– Sector funds– International funds

• Index Funds assemble portfolios designed to track one or more broad stock of bond indexes that duplicate as precisely as possible all the stocks in a particular sector of the market or as a whole. For example: www.vanguard.com

• Mutual Funds might be an alternative to you verses individually picking stocks:

• Numerous types of mutual funds:– Aggressive growth funds– Growth funds– Growth and income funds– Sector funds– International funds

• Index Funds assemble portfolios designed to track one or more broad stock of bond indexes that duplicate as precisely as possible all the stocks in a particular sector of the market or as a whole. For example: www.vanguard.com

Invest in BondsInvest in Bonds

• When you buy a bond, you are basically lending money (like the federal gov’t, local gov’t, businesses) to whoever is issuing the bond. In return, the issuer gives you an IOU promising to pay back the money, plus interest, over a certain period of time.

• Bonds historically have a lower payout than stocks over time but are not as risky.

• Come in handy for the following reasons:– Relatively safe– Come in different maturities– Pay interest

• When you buy a bond, you are basically lending money (like the federal gov’t, local gov’t, businesses) to whoever is issuing the bond. In return, the issuer gives you an IOU promising to pay back the money, plus interest, over a certain period of time.

• Bonds historically have a lower payout than stocks over time but are not as risky.

• Come in handy for the following reasons:– Relatively safe– Come in different maturities– Pay interest

Real EstateReal Estate

• Yet another way to build up an investment portfolio. Remember real estate markets are local – Research and learn your market.

• Real estate investment property can be a lot of work

• REIT might be an option for you.

• Yet another way to build up an investment portfolio. Remember real estate markets are local – Research and learn your market.

• Real estate investment property can be a lot of work

• REIT might be an option for you.

Where to go to look for answers to your questionsWhere to go to look for answers to your questions• Financial Planner/Advisor• Accountants• Lawyers• Banks, stock brokerage firms, credit

unions, etc.• Continuously educate yourself through

venues such as WPB, investment seminars, online services like Smith Barney’s Women and Company.

• Financial Planner/Advisor• Accountants• Lawyers• Banks, stock brokerage firms, credit

unions, etc.• Continuously educate yourself through

venues such as WPB, investment seminars, online services like Smith Barney’s Women and Company.

Don’t Stop Now!Don’t Stop Now!

• Decide whether you’d get a better return at this point by paying off debt or investing.

• Identify your short-term and long-term goals. Be specific

• If you’re married, take advantage of your respective strengths and inclinations as investors so tat you can achieve your mutual goals

• Decide whether you’d get a better return at this point by paying off debt or investing.

• Identify your short-term and long-term goals. Be specific

• If you’re married, take advantage of your respective strengths and inclinations as investors so tat you can achieve your mutual goals

Fiscal Wake Up TourFiscal Wake Up Tour

• A prelude to saving for retirement featuring David Walker, Former Comptroller General of the United Sates.

• A prelude to saving for retirement featuring David Walker, Former Comptroller General of the United Sates.

Don’t Stop Now!Don’t Stop Now!

• To get started the easy way, check out one of the low-cost investing options

• Join an investment club for education and encouragement

• Revisit your 401(k) or IRA, if you already have one, to ensure that you haven’t chosen investments that are too conservative or too risky for your goals

• To get started the easy way, check out one of the low-cost investing options

• Join an investment club for education and encouragement

• Revisit your 401(k) or IRA, if you already have one, to ensure that you haven’t chosen investments that are too conservative or too risky for your goals