By Lauri Salverda |

Women are smart, savvy, and wise. Partnered with the fact that most women outlive their spouses by five years, it’s a wonder that so many women take the back seat when it comes to managing their financial future.

A study by Fidelity Investments found that when couples interact with a financial advisor, men are 58 percent more likely than women to be the primary contact. In a similar study by Prudential, 78 percent of women rated themselves either as beginners or as needing help in many financial areas, compared with only 53 percent of men. These are rather large gaps, but it’s not surprising that we got here.

An Anecdotal History

When I was in junior high school, the girls took Home Economics and the boys took Shop—a well-tread dichotomy of the time. In Home Economics, I learned how to cross-stitch a heart, sew a pillowcase, make three different kinds of refrigerator cookies, and grocery shop. While the importance of snickerdoodles cannot be understated, the irony was that we barely touched on economics. The closest to financial education was learning how to clip coupons to make your shopping list come in under budget. Conversely, in shop class, boys got to play with lots of cool woodworking tools and they learned how markets moved with supply and demand and what stocks and bonds were. Life was truly unfair.

This uneven playing field was a sign of the times. (Remember, that until 1974, banks required single, widowed or divorced women to bring a man along to co-sign any credit application, regardless of the woman’s income.) We’ve come a long way, but many women have been left in the dust.

Investing is not a difficult thing to understand and we would love for more women to feel confident and empowered about their financial futures. The easiest way to get started is to learn the differences between a few key investment options. For example:

Stock – A share of ownership in a company.

Bond – Lending money to a governmental entity or company.

Certificate of Deposit – A savings certificate that entitles the owner a specific interest rate and has a specific maturity date

Mutual Fund – An investment in a group of stocks, bonds or a combination managed by an individual or group of individuals.

ETF – Exchange Traded Fund is marketable security that tracks an index

Large Cap – Large companies typically with a market value of over $10 billion

Mid Cap – Mid-sized companies with market value between $2 and $10 billion

Small Cap – Smaller companies with market value of under $2 billion

Working with an Advisor

I had a couple in my office not too long ago. Let’s call them “Mary” and “Jim” for the sake of this story. Right off the bat, Jim made it very clear that he only made this appointment with a female advisor to appease Mary and he had no intentions of working with a female planner. (We were off to an interesting start, no?) While we were talking, I asked the couple about who handles the money in their household. Mary proudly answered, “I do.” Jim quickly put her in her place and said, “No Dear, you pay the bills. I handle the money and the investments.”

Well since I had nothing to lose, I couldn’t resist. I said, “Okay, you are telling me that Mary, you pay all the bills, make sure the appropriate amount of money is in each account when needed and that everything is paid on time.” Mary nodded in agreement. I then looked at Jim, smiled and said, “After Mary does all the work, you get to shop.” Well, you can imagine how well that went. The point is that investing is simply shopping for a safe place to put your money so it will work for you and be available when you need it.

I liken it to the selection process of buying a car and going through different steps before you make a final decision. You need to know your budget, how much is available for the down payment and monthly lease or loan payments. You also need to identify for what the car going to be used—short distances, hauling a trailer, or reliable transportation to and from work. Finally, you need to prioritize what is important to you, whether it be gas mileage, maximum seating (or minimum if it is you child’s car!), comfort, reliability, resale value, or color. Selecting investments is a very similar process.

You and your advisor should walk through these steps for investing your assets:

What is the purpose of the assets? Is it for everyday use? Is it to be covered in case of an emergency? Is it to buy a home, send kids to college, or your retirement? Determining the need for the money will help you determine what type of investment would be most beneficial.

How long is it until you need the money? If you need the money within the next three years and you need it to be there, a savings account or a certificate of deposit is the best alternative. If the money is not needed for three to six years a high-quality bond or a certificate of deposit may be your best options. If it a longer time period then you may want to think about investing in the market.

If it is a longer period of time there are other questions that need to be asked:

Do you need the money to provide income and/or to maintain its purchasing power in the future? Will the income from investing the money be sufficient to live off of or do you need the money to keep up with inflation so its value in today’s dollars will be able to purchase the same amount in the future? Or are you counting on that money to grow to fill a bigger need?

How comfortable with market movements? Can you sleep at night if the market is up 1% one day and down 1.5% the next? Would the temptation to get out of the market when it is low be too great? Or could you sit back and not listen to the doomsayers and buckle in for the long haul? In an analysis done by Dalbar, the average investor earned an average 2.1% over a twenty-year period while the S&P 500 earned 7.8%. The reason for this is that investors get nervous, sell all their positions and only reinvest once the market has shown continued improvement—thus missing the majority of the gains in the market.

The best thing to do, if you have a longer time horizon and you can withstand some market movements, is to invest in a diversified portfolio of mutual funds or ETFs—diversified meaning exposure to many different markets, such as large, mid and small capitalized US and international companies, US and foreign bonds, commodities, and real estate. The reason for having a diversified portfolio is to protect us when different markets move up and down at different times.

How Women Can Seek Advice

There are thousands of trusted advisors out there. Selecting an advisor can be quite the undertaking in and of itself. But, truly you just need to know the appropriate places to look and some simple questions to ask:

What is the advisor’s background and training? If they have initials after their name, ask them what they mean, how did they earn them and do they require continuing education and if so, how much.

Are they a fiduciary? This means that they have to work in the client’s sole best interest as opposed to suitability, which is a looser guideline. (Something can be suitable, but not necessarily in the client’s best interests. It could be cost the client more and pay the advisor more.) If they are a fiduciary, will they put it in their contract?

How are they paid? Are they paid solely by their clients or do they receive commissions or kickbacks from investment companies or their parent company for selling certain investment or specific products?

Women have great instincts and should have no problem finding a trusted financial planner. From my point of view, it’s always advantageous to interview a few of advisors before making a decision. You have to be very comfortable with the person you hire. After all, they are going to take an intimate look at your finances.

Finally, there has to be mutual trust. The advisor needs to trust that you are providing them with the correct information and just as you need to trust that your advisor is acting in your best interest. Three excellent sources for finding someone to help you on your journey to financial independence are www.NAPFA.com, www.FPAnet.org, and www.FeeOnlyPlanners.com.

If you are a woman, and decide to work with a financial advisor, make sure your voice is heard and your input is considered as you drive towards your financial future, confident and empowered. 

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Lauri Salverda is an award-winning Certified Financial Planner and the owner of Castle Rock Financial Planning in Mendota Heights, Minnesota. She has been helping individuals and families reach their financial goals since 2001.

 

By Lauri Salverda |

As parents, we do everything we can to get our children prepped for college. We keep an eye on the ACTs, SATs, and the AP classes. We feel the stress of the early decisions and early admissions. We’re there for all the tears and the triumphs—knowing that we’ve done everything in our power to send our little adults into the world as ready as they can be.

As a financial planner, it may be expected that I delve into the many new fiscal responsibilities young adult children will face. Learning how to minimize student debt, manage a budget, and avoid impulse credit card applications are important touchstones. I encourage these conversations with all my heart. However, I’d like to discuss something that is oft overlooked. Something that had never occurred to me until it was right in front of my nose.

My daughter, the eldest of four, went to college halfway across the country. The distance, in and of itself, is enough to wrack some nerves. But we confident that we had done everything we could to get her ready for her adult wings. (And we kept our fingers crossed tightly for those first few months.) Her roommate was in a similar situation, attending college far away from home, but was not quite ready.

This particular young woman had health issues that ballooned exponentially in those first few months of college. She had issues with alcohol dependence and an eating disorder. Both were serious issues on their own, but the combination led to a complete physical and mental breakdown within a few months.

Fortunately, her friends intervened and notified the medical staff at the college. She was admitted on a Friday night to a local hospital, against her will, for a psychological evaluation. It was being viewed as a life-or-death situation. Her parents were notified by the college and were on the first flight out.

Once her parents arrived on the scene, they were confronted with an unexpected truth. Their daughter was an adult in the eyes of the law, leaving them powerless to intervene or even visit with their daughter. This is a terrible place for loving parents to be. By Monday, they were able to meet with a judge and receive a health care power of attorney for their daughter. It was a simple piece of documentation that allowed them to legally care for their daughter and make decisions about her health care in her best interest.

As parents, there are legal and medical things to consider when your child becomes an adult that are commonly overlooked. There are some simple things that can safeguard your child as he or she transitions into adulthood. These documents can also begin a meaningful conversation and open the lines of communication.

A Healthcare Directive or Power of Attorney for Healthcare allows a parent to act on the child’s behalf in case of a medical emergency. This simple document can be found online from many state and hospital websites. After a quick trip to a notary, you will be able to assist your child in medical decisions when they are deemed unable.

A Durable Power of Attorney for Finance is another important document. This gives financial power to the parents or another third party should something happen to your child and they cannot freely manage their finances. We see this commonly used when a child is studying abroad or heads across the border for Spring Break, but it can be equally handy when they lose their wallet. Consider it a backup plan for when there is an obstacle between them and their funds.

Knowing what we do now, each of our children will be sent off to college with more than their shower shoes and extra-long sheets. We’ll nudge them out of the nest knowing that their parents are legally prepared to act in their best interest should the situation arise.

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Lauri Salverda is a Certified Financial Planner with an office in Mendota Heights. She has been working with individuals and families to help them reach their financial goals since 2001. She has been a devoted mother since 1991.