There was a gasp from the audience, when this photo of a homeless woman was shown at a talk I recently attended.
A new survey shows that almost half of women fear they will become a “bag lady” someday. They fear being financially desperate and living on the street.
No job. No income. No partner. That is the fear.
I have asked thousands of people: “What’s important about money to you?” The #1 answer for women is security.1
What does “security” mean? It’s surprising how often the “bag lady fear” comes up. The #1 explanation is similar, but less severe:
Security: “Having enough so I never have to worry about money.”
Women want to know there will always be enough income for their family, for emergencies, and for the things that are important to their lifestyle. They want to focus on their life, their family and their friends and not have to constantly worry about whether they can afford it.
What does that look like and how do you get there? The answer might surprise you.
First 3 questions:
- Jennifer has $2 million in stock market investments. This is:
A. Very risky.
B. Financial security.
2. Financial security is:
A. No debt and safe investments.
B. Large diversified portfolio.
3. Who is more secure?
A. Mary has no debt.
B. Andrea has a $200,000 mortgage and $1 million in investments.
Whether you ever become financially secure depends a lot on your picture of financial security.
Most people who want security do exactly the opposite of what they need to do to get it. The biggest mistake most people make is to think they can be financially secure by paying off all debt and having safe investments, instead of investing wisely for long-term growth.
I call this the “Zero Plan”. You retire with zero debt, zero investments (nearly), and zero income (except a bit from the government). People who do this are actually making it hard for themselves to have the nest egg they will need to be secure.
The truth is, investing very little money and buying low return investments means you will never build up much of a nest egg.
What does financial security look like? What I have learned from experience helping thousands of people become financially secure is this:
Real security comes from having a huge nest egg.
A large portfolio of equities (stock market investments) is financial security. That’s what security looks like.
Many people are actually scared of having a large stock market holding. This is especially true for women. “When it comes to investing, women let fear stop them.”2
Here is the question. If financial security is a large portfolio of equities and you are scared to have a large portfolio of equities, how will you ever become financially secure?
Fear does not have to stop you. If having a large stock market portfolio scares, it might be just that you need a bit of education on investments.
A simple example to give you the picture. Let’s say you need $50,000 per year to be financially secure. You have $1,000 per month you can invest. How large of a portfolio do you need to be secure and how long do you need to save to get there?
Which road to security do you want for your life:
Save for 83 years to get there?? This is why you need to invest in equities.
Building a bigger nest egg usually means you need to invest in the stock market. You need a higher long-term return to get there. That can seem scary, but as long as you think long-term, have a solid investment strategy, and have a written plan that you stick to, you’ll be well on your way to investing effectively and building that healthy nest egg before you know it.
You can become comfortable with equities by getting educated about the long-term growth and the risk.
The short explanation is that the equities are the asset class with the highest, reliable long-term return. They are unpredictable short-term and even medium-term, but very reliable as a long-term investment. This is why retirement investing and pensions are based mainly on equity investing.
Based on history, declines of 20%, 30% or even 40% have happened fairly often. However, the worst 25-year return of the S&P500 since 1930 is 7.9%/year.3 If you are a long-term investor, growth has always been reliable.
Your investments will go down sometimes, but you don’t lose money – unless you sell. The Big Mistake of investing is to sell or switch to more conservative investments after a decline – and miss the inevitable recovery.
It’s okay to feel scared after when your investments go down. Just don’t act on it.
The secret to successful equity investing is the quiet confidence that your investments will be much higher long-term. The declines are temporary, but the gains are permanent.
For an effective equity portfolio focused on long-term growth, you need a solid investment strategy. I believe the 2 best methods are:
- Index investing. Target returns above the index with an “Index Plus” portfolio manager paid by performance fee.
- “All Star Fund Manager” approach of working with the world’s best investors.
Ultimately, everyone wants to be financially secure. The best way for you and your family to achieve financial security is through a Financial Plan from a fee-for-service financial planner who can help guide you through making decisions to become secure and live the life you want.
A Financial Plan is your GPS to the life you want. A fee-for-service financial planner can give you a real plan, not a sales pitch in disguise, no hidden fees and unbiased advice.
You do not need to fear being a “bag lady”! But you do need to understand what financial security is. And you need a Plan.
1 For men, the #1 answer is freedom.
3 Standard & Poor’s. Calendar years since 1930.
Planning With Ed
Ed Rempel has helped thousands of Canadians become financially secure. He is a fee-for-service financial planner, tax accountant, expert in many tax & investment strategies, and a popular and passionate blogger.
Ed has a unique understanding of how to be successful financially based on extensive real-life experience, having written nearly 1,000 comprehensive personal financial plans.
The “Planning with Ed” experience is about your life, not just money. Your Financial Plan is the GPS for your life.
Get your plan! Become financially secure and free to live the life you want.