Bernard Madoff defied the odds by returning a consistent 12% annual return to his investors.
Stanford Financial assured its clients that they were investing in safe, insured certificates of deposit.
WorldCom's balance sheet was remarkable in its ability to grow profitably.
All were lies. Investors in each of these enterprises lost billions of dollars.
Even those women who were fortunate enough to invest with honest advisers see their retirement savings cut by 1/3. We are understandably very hesitant to assume risk in this environment.
Disadvantages for Women Investors
Adding to those challenges, women also face the facts that we:
- Earn $.80 for every dollar men earn;
- On average, are out of the work force for eleven productive years as an unpaid care giver for a family member; and
- Women live longer than men.
Last October, I discussed this situation using an example of a woman I called Sarah. http://beyondjane.com/lifestyle/issues/women-and-money-the-upcoming-financial-tsunami/ While she had saved almost $32 thousand, collected $2000 per month in Social Security payments and owns her $335 thousand house free and clear, she was unable to maintain even basic living expenses. Why?
Sarah invested 70% of her money in so-called "safe" investments like insured Money Market Funds and Bonds. While her investments grew slowly and predictably, after deducting the loss of spending power due to inflation, her investments barely kept up during the time she was saving. To make matters worse, she has a long life expectency after retirement that will damage her spending power with these investments even further.
That's what not to do.
While, as we've seen lately, the stock market and real estate investments can be wildly volatile in the short term, over the long term they are the investments that are most likely to grow in excess of inflation.
Last November, I advised getting back into the stock market http://bizcovering.com/investing/its-time-to-start-buying/ If you had followed that advice and bought the S&P 500 index, that investment would have grown by 11.3%. A combination of money market funds and bonds would have grown by 2.5%. Inflation would cut your return on the S&P 500 to 11%, and 2.2% on your bonds.
That could be the difference between a comfortable retirement and one where you can barely pay your bills.
Women and Poverty
According the Center for American Progress, "elderly women are far more likely to be poor than elderly men." More than twice the number of women over 75 are poor compared to men. Those are the facts. We need to face them.
The Real Risk
The real risk we take is not taking risk. We know that, over time, the stock market and the real estate market are the two investments that grow in excess of inflation over time. We know that both can be volatile over the short term.
The Ten Commandments for Investing
1. Buy low. Sell high.
That means buy when nobody else wants to. That means buy on sale.
The Standard & Poor's 500 Index can be purchased for a little over $1000 per share right now. It gives you a stake in 500 large companies, mostly based in the US.
3. The market is volatile.
Don't sell in a panic. (See #1.)
4. You have an 81 year life expectency.
Even when you're retired you need investments that will outperform inflation. One simple rule of thumb? Subtract your age from 100. Put that percentage of your investments in stock.
5. It's not too late.
Maybe you waited until now to start investing, and you think it's too late to start. It's not.
6. It's not too complicated.
You're smart. You can do this.
7. Don't be afraid of risk.
Be afraid of being old and poor instead.
8. Debt is bad.
Pay it off. That's a good initial investment, if you're just getting started.
9. Pay low commissions.
They diminish your return on investment. Use a discount broker, like ScotTrade or TD Ameritrade.
10. Keep investing.
Put money aside for yourself, and invest regularly. Putting yourself first is not selfish. It's smart.