Women tend to be the most vulnerable when it comes to taking bad financial advice. Of course, behind every data point is a real story of a real woman who thought she was getting good advice, but it eventually led to less than great, or maybe even disastrous, long-term consequences. I’m here to help you know the difference between the kind of advice you should take and the kind you should steer clear of.
First, the Good News
I recently interviewed Holly Fagan, a managing director at BlackRock investments, on my podcast, Profit Boss Radio. In our interview, we talked about a BlackRock study that revealed 51 percent of women reported feeling “very positive” about their financial futures, a significant improvement over last year. And 42 percent said they were confident about their savings and investment decisions, up from 34 percent the previous year. So far, so good!
But Now, the Surprisingly Bad News
Unfortunately, BlackRock’s survey results also revealed that even though women may be feeling confident, that confidence is likely unjustified. The survey showed that 71 percent of female respondents said that their portfolios were in cash — they were sitting on the sidelines without an investment plan! An all-cash portfolio, despite what your intuition or emotions might tell you, is extremely unlikely to get you to your goals.
When It Comes to Your Financial Future, Cash Is NOT King
When people invest their money without a plan, their emotions are often at the helm. There is no bigger generator of fear than a volatile or sinking stock market. But in this case, following our emotions leads us to violate the No. 1 rule in investing: Buy low and sell high!
Decades of research on the behavior of actual investors has shown that the vast majority of people who sell as stocks fall will sit on the sidelines too long. They’ll miss the market recovery and the tremendous gains that historically have followed 100 percent of market declines. Plus, fear lingers and keeps people from moving back into their investments often until the costs are quite high.
Sitting on cash is a sign that your money has no plan, that you’re likely suffering big losses, and that your thinking is very short-term.
For years, men tended to handle both the household budget and investing decisions. Some of those patterns have likely shifted over the last five to 10 years, but not all of them. Research tells us that while women have increasingly asserted themselves over budgeting and household expense management, men are still largely the ones who handle long-term savings and investment.
What sometimes goes unnoticed is that budgeting and investing are two very different activities, requiring different skills and strategies. Budgeting is done with an eye toward cash flow. The more cash on hand, the better. But focusing exclusively on day-to-day management and neglecting the long-term perspective can have serious long-term consequences.
Focusing on how much cash you have to work with each month means that you’re likely to be confident when, say, prices at the gas pump are low, and more fearful when they’re high. But in terms of investing, higher oil prices often actually mean big gains in your portfolio! In that scenario, hoarding cash is exactly the wrong strategy.
So, Why the Misplaced Confidence?
Why are women feeling more confident when 71 percent of us are making big mistakes with our money?
For years, the financial media has been reporting that women are coming into their own when it comes to managing household budgets and personal purchasing decisions. There's no limit on what you can do.
Women control $14 trillion in personal wealth, about 51 percent of the wealth in the United States. And with that control comes a responsibility to be good investment managers.
More and more women are relying on advice they read on the Internet to make investment decisions. We feel educated, savvy, and confident, when in truth we’re taking bad advice and hamstringing our long-term plans.
Kind of a bummer, huh?
Remember, Technology and Modern Advances Don’t Always Serve Us
Fortunately or unfortunately, anyone, and I mean anyone, can publish on the Internet. No credentials, no formal education, no matter.
While most of the financial advice on the Internet comes from well-meaning people and sources, only some of it is actually good advice. Some of it is flat-out terrible advice, and much of it is written by sponsored sources that simply want to scare you into buying their product, annuity, or seminar. While we have grown to love and trust the Internet for fast and convenient service delivery, there are some areas where it just doesn’t solve problems.
Here’s How to Learn Your Way
If you’d like to hear more about how to know what financial advice you can trust, and the tools that can really move investors forward toward their dreams, check out episode 11 of Profit Boss Radio today.
Hilary Hendershott is a member of the DailyWorth Connect Program. Read more about the program here.