7 Tips Female Investors Should Consider in 2019

Experts in behavioral finance point to a wide range of potential variables when explaining why women and men differ in budgeting and investing.

Some claim the human chemical makeup (the ratio of estrogen to testosterone) dictates a predisposition to seek less risky investments or chase returns. Others claim gender roles formulate a predefined mindset.

Interestingly, behavioral finance often talks about an investor’s risk tolerance during market declines. The challenge is you cannot control the stock market, but you can control your finances.

As your income increases, so should your monthly contribution.
It is never too early to start saving, yet a common misconception is that small monthly contributions will not make a difference.

Millennials can use time to their advantage. Small monthly contributions in your 20s and 30s can compound over a long time, which can result in large returns. More importantly, starting to save early develops a habit of savings.

Take full advantage of your 401(k).
In a recent study completed by Charles Schwab’s Retirement Service Division, 55 percent of millennial men believe they are fully versed on their 401(k); whereas, only 36 percent of millennial women feel they fully understand their 401(k).

If you are not confident about your 401(k), consult with your HR department about your company match and payroll deduction options.

At a minimum, save as much as the company match. If the company is matching a certain percentage of your savings, take full advantage of this opportunity, as this is essentially “free money.”

Look beyond your 401(k).
Just because you “max out” your 401(k) doesn’t preclude you from saving more into a Roth IRA or brokerage account as well. If you don’t qualify for a 401(k) or 403(b) through your employer, utilize a brokerage account or a Roth IRA.

It’s never too late to save.
You’re a baby boomer rapidly approaching retirement but because of a divorce, sending your children to college, or not saving early, you feel like you’re behind the eight ball. There are still options for funding your retirement.

In 2019, the IRS has increased the 401(k) contribution limits to $19,000; however, if you are age 50 or over, you are allowed an additional $6,000 annually. This is known as the catch-up provision. Effectively, you can save $25,000 annually into your 401(k), if you are 50 years of age or older.

Look into tax-exempt options.
A fee-only certified financial planner practitioner can assist you with your investment mix (“asset allocation”) and savings targets. Company matching on a qualified retirement plan is the most effective savings tool, but an often-overlooked option is the Roth IRA, which allows tax-exempt earnings, meaning your savings will not be taxed in retirement.

A personalized financial plan can change your life.
The age-old adage “buy low, sell high” is often not followed. Instead, investors sell in periods of market stress and buy during market euphoria. Developing a personalized financial plan will help avoid emotional decisions and refocus your attention to actionable steps based on your goals.

A financial plan will detail a sustainable retirement income (meaning how much you can afford to withdrawal on a monthly basis), but the plan should extend beyond savings, retirement date, and retirement income planning.

During the financial planning process, it is important to prioritize long-term goals, such as charitable gifting and wealth transfer upon your demise. It is also important to outline contingencies, such as nursing home and extended healthcare costs, as female investors tend to have longer life expectancies.

An ounce of prevention is worth a pound of cure.
Inaction as a result of fear or lack of comfort can be overcome. You may want to consider seeking a fee-only financial planner for guidance. Fee-only financial planners do not receive commissions based on the products they recommend. The only compensation they receive is paid directly by their clients, which avoids potential conflicts of interest.

Though the results of the financial projection may not be the outcome you desire, it’s better to know deficiencies while you have the chance to make meaningful changes. Otherwise, you may have to delay retirement or reduce your retirement income expectations, neither of which are ideal situations.

While saving is not a pleasant chore, the results of the financial plan may motivate a change in your spending and savings behaviors. BW

Bryson J. Roof, CERTIFIED FINANCIAL PLANNER™ with Roof Advisory Group, specializing in investments management and financial planning services located in Harrisburg. www.roofadvisory.com