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By Debra Ohstrom
April is financial literacy month so let’s talk about learning to invest your money!
There are a lot of hot stock tips available on the internet and they aren’t always winning investments. Picking stocks can be challenge and even the most experienced professional doesn’t get it right every time.
That is why professional stock pickers invest into 10 to 20 different companies at any given time knowing some will be a losing choice.
This can be an overwhelming task for anyone doing it on their own, especially as a beginner. The good news is it doesn’t need to be that way anymore. Many Financial Advisors who manage client’s money invest in Mutual Funds and Exchange Traded Funds which make investing so much easier and now you can do it too!
What is a Mutual Fund or Exchange Traded Fund you ask? If you are in Europe you would be using the term UCIT or SICAV instead. These are packaged ( bundled) investments that are a basket of stocks, bonds or both and make it easier and more accessible for everyone to get started investing.
There are some big differences between Mutual Funds and Exchange Traded Funds (ETFs) here in the US and I know that ETFs are available in Europe as well. Let me point out the major differences you should be aware of.
Mutual Funds charge different fees for different investors depending on how much money they invest and how the Financial Advisor and firm they work for gets paid their commission. These fees are disclosed in the paperwork but they are taken out of the money you contribute to the investment and can add up over time.
Mutual Funds also get taxed twice. Once when you sell the investment at a gain and also every year it distributes gains and losses to shareholders on the holdings within the Fund. Something to keep in mind about this is that you don’t need to own the Fund for the entire year to get saddled with taxable gains from the holdings.
Mutual funds are only valued once a day at the end of the trading day. A lot can happen in the stock market on any given day with large price swings. Mutual Funds only get priced at the end of the day after the market closes. This means if you wanted to buy or sell a Mutual Fund in the morning it really doesn’t matter since you will only get the value of your shares at the end of the trading day.
Transactions Fees for buying or selling Mutual Fund shares still exist today. This isn’t talked about often and can be as high as $49 per transaction. If you are contributing to your investments once a month that also adds up!
Exchange Traded Funds are more efficient compared to Mutual Funds and here is why:
All investors pay the same fee regardless of how much they invest. No special treatment for anyone.
You are taxed only once. When you sell your investment.
Traded and valued constantly throughout the day. ETFs are bought and sold online just like a stock and are traded throughout the day making it much more efficient to buy and sell.
Usually NO transaction fees to buy and sell for most on-line brokers. This is really beneficial if you want to contribute often and it keeps fees low.
Now that you know the major benefits of Exchange Traded Funds (ETFs) the next common question is, how do I get started?
Well, to be a successful investor there are a few things to keep in mind. First, you need to think long term which means a 7 to 10 year time frame at least and the longer the better. I talk about this in my free workshop and walk through a few examples so you can really see the benefit of how time compounds your money. Second, you need to understand the difference between short term trading and long term investing. Many articles on the internet have made it sound like they are the same thing and that isn’t true. Short term trading is when you are buying stocks to hold for a day or a week and hope to get a quick gain in the process with short term price movements. This is very risky and takes a lot of time to monitor news and prices on a daily basis. Long term investing through ETFs is about combining a few Funds in a way that matches your money goals and ability to handle risk over the long term. The last item I will mention is that it can be more important to understand history and cycles versus math. So the good news is you don’t have to be a math geek in order to be a successful investor.
I am always amazed by how most people around the world know that if you want to have a healthy meal plan then you figure out the right mix of protein, carbs and fats for your goals and personal situation. You may add a few other criteria to the mix such as counting sugar and fiber but most people understand the basics.
Well, building the right ETF mix isn’t that much different. You need to figure out the right mix of cash, stocks and bonds that are best for your goals and personal situation. It really doesn’t need to be very complicated and technology has made it so much cheaper and easy for everyone to get started on their own.
Figuring out which ETFs to choose and why is what you need to learn and that is where I come in! I teach this in a really straight-forward easy to understand course called the Keys To Investing. I offer everyone at Womenhood a $50 Coupon code for a discount. If you can buy something on-line through a cart then you can learn to buy 4 or 5 ETFs through an on-line broker. I give you three examples of how and why to create a mix and even give you lists of ETFs to choose from to pick your own. This saves you thousands, if not hundreds of thousands of dollars in fees over your lifetime by doing it yourself.
I have shared all the statistics of where women stand with financial wellness in my last blog article and it really doesn’t need to be that way anymore. If there is anything I can do to help then please reach out through my website at www.DebraOhstrom.com or email me at Debra@debraohstrom.com to connect.
Bye For Now,
Debra
About the Author
Debra has worked in the financial industry for over 27 years at firms such as Merrill Lynch, Morgan Stanley, Citi Private Bank and Allianz Global Investors. She has worked in different roles such as research, asset allocation and account management. She has an MBA in Finance and the Chartered Financial Analyst designation. Debra created her education business, DebraOhstrom.com to help women get the education they need to become confident investors and be in charge of their financial future.
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