"Never invest in the stock market"
"It's way too risky. Instead, work hard, save money, and keep it nice and safe in the bank"
That's all I knew from the stock market when I was a child. Clearly, my parents didn't envision that I would ultimately start a blog on investing.
But here's the essential part of that story: we have a tendency to internalise things that aren't true when we hear them over and over. Especially when the topic is so fully emotionally charged as money.
Here are a few myths about investing that will hurt you later in life if you don't crush them.
Before I had kids, I was a queen at managing my work emails and to-do list. Probably a result of my Swiss heritage 😉
I also could not understand why so many (most?) of my colleagues would not reply to emails for days or even weeks. Or why I always had to follow up with them to get things moving.
But then I became a mother… Now I try my best to process the zillion emails I get and manage my thousands of work, family, and household responsibilities each day.
And this doesn't always work as planned, which means that I am now the kind of person who takes forever to answer emails. And the one to receive 'follow up' emails from others…
So what does this have to do with investing?
Many women have it sooo busy that they think they don't have time to invest. Maybe you don't even have the time to think about thinking to invest.
Sometimes just the thought of spending hours and hours researching, learning, and implementing an investment plan is just too much. And then having to constantly watch the financial news and monitor your portfolio…
But here is the thing: when done right, investing can be very time-efficient. In fact, one of the best ways to go about investing for both performance and time management is to:
Then you can just let it run for decades.
You see! No need to spend much of your valuable time on investing.
A few more words on that one.
Last year, I did a presentation at EY, an international audit company. As I had just finished my talk, Ania approached me and said: "I don't understand why you tell us to invest in the stock market: it's too risky!"
Ania was right (and my parents too!).
If you invest for anything less than 10 years, then the risks of losing money are quite high. But let's take a closer look at what 'risky' really means when it comes to investing.
I won't bore you with a formal hard-to-grasp financial definition. Instead, here is the simple way of looking at it:
Investment risk: the degree to which the price of an investment goes up and down compared to its historical average.
So if you invest with a high-risk strategy, that means that you will see big jumps up and down regularly.
Take a look at the illustration below.
When you watch your high-risk portfolio all the time, it's a bit like having a heart attack every second day. Sometimes you are in the green, and sometimes you go deep in the red.
But if you don't look at your portfolio that much, then all you see is that on average, it's really going up.
On the other hand, if you go for a low-risk strategy, you can keep watching your portfolio every day without sweating too much. But then, of course, your money grows at a much slower rate.
And if you don't invest at all… Well, your savings actually go down because of inflation (not to mention negative interest rates!).
Think again: which one is the riskier strategy over the long run…?
And the good news is that we can manage risk to 'smoothen' investment performance, while still keeping it up. With things like diversification. Or thought continuous investing to enter the stock market at different price points.
If you follow the right principles, investing will give you a good fighting chance of growing your savings over time. The ultimate goal is to reach a level where you can live out of your investments, giving you more freedom.
Freedom to work less or stop working earlier while keeping your lifestyle for the long run.
"It’s easy for you to invest. Because you are in finance. But this is not my case: I work in another field, and I don’t know a thing about investing.”
That’s what my friend Caroline told me during a dinner party several years ago. She was not the only one. I have heard that from my friends times and times again.
Like Caroline, you may think that you need to be a financial analyst, wealth manager, or an accountant to get into investing. At the very least you should be good with numbers, right?
Rest assured, this could not be further from the truth. And that’s one of the reasons I started this blog in the first place.
It’s easy to fall for the trap of what we see on TV. Or what we hear from the people (usually men) around us.
“I am investing in this company because it is undervalued” or “The moving average and inverting yield curve means that the stock market should crash in the next few weeks,” etc.
The truth is you don’t really need to get into all of that to be a successful investor. Because times and times again, studies have shown that the best way to invest is a lot simpler than that.
Which is investing consistently in a low-cost and well-diversified portfolio over the decades. And there are many ways you can do that, without getting a Master’s degree in finance or reading a zillion books.
You can do that with a robo advisor. Or you could do it with a German savings plan.
You could also do that all by yourself: just invest in the same set of ETFs on a trading platform over and over again (but this requires a bit more knowledge and a lot more discipline).
Should you know about the principles of investing? Yes.
Because you don’t want to put your money into something if you don’t understand the big picture.
But there is really no need to know all the nitty-gritty statistics, fancy names, hedge funds, and trader-like vocabulary and concepts.
And that means that absolutely anyone can do it, as long as you can count, read and write (and I am pretty sure you got that covered!)
“Because you know, my boyfriend is taking care of it. It's HIS thing: he likes it (and I don’t care for it), and he knows a lot more than me about investing.”
You should see my face every time I hear that one.
Well, in truth, I try to keep my facial expression as neutral as possible. But inside, it’s like I’m boiling. Here is why.
Many studies have shown that although they are less likely to invest when they do so, women are better investors than men.
When you compare the average performance of a woman and a man after 30 years of investing, the average woman ends up with 25 % more than the average man (if only she chose to invest!)
If you are married or in a long term relationship, you already know that you have about 50% chances of breaking up at some point.
Let me ask you something: what would you do if you knew you had a 50% chance of an accident every time you took the car with your kids in the back?
Would you instead take the train? Or would you just tell yourself: “I am going to drive anyway. I will be very careful”
I guess you see my point…
Here’s another fact. As a woman, it’s pretty much a given that your partner will die before you.
My husband Karl passed in an accident when he was 33. And as unlikely and shocking as this was, he had about 100% more odds of dying (at 0.16%) than I did at the same age (at 0.08%).
On average, women live five years longer than men.
That also means that one day or another, we are going to be in sole charge of our finances. And if you haven’t dealt with money and investing before, that’s going to be an issue.
You will not know what to do. You might well mess it up.
Or, more likely, you will become a lovely target for the bank sharks who will use your lack of knowledge to make sure they make the most out of your bank account, robbing you from a big chunk of your wealth.
And they will do that with a reassuring smile, saying "Don't worry because, with us, you are in good hands.”
I recently landed on one of Sallie Krawcheck’s videos (she is the charismatic founder of Ellevest, a successful online investing tool and wealth manager for women in the US). What she says strikes a chord with me:
Don’t give oversight and control of your money to your spouse. Because “we tend to outlive (our partners) six to eight years, and when that money comes back to us, we have a bad surprise 74% of the time. That’s not random... These things just tend to end unhappily”
I know it’s easy to cover our eyes and think that for us it will be different. But I know that you are sooo rational in most areas of your life! So why not apply that wisdom to money matters as well?
It’s not about love or trust. It’s about making the best decisions to give you, your kids (and your partner!) the best chances of a secure lifestyle once you get older.
… It’s not the right time because the stock market is too high, because I’m moving, I’m having a baby, changing jobs, getting married, getting divorced, etc...
I’d better wait a bit and start once all of this has settled.
Truth be told: this is the biggest hurdle for me. Even if I know everything that I know. And also if I have been investing for years.
I also know that I could/should do more, and I could do it better. Which is why I am not blaming you for falling for that trap too.
But here is the thing:
Starting early and investing as much as possible for as long a time as possible, is one of the most essential principles of successful investing.
There will never be a right moment. And there will always be a good reason to delay investing.
And here is something I would like to leave with you as you move on to the rest of your day:
“When it comes to investing, starting early will ALWAYS beat waiting forever for the right time”