Investing is a hot topic when I teach it to my high school- and college-level classes. These young women come to class knowing bits and pieces about stocks, bonds, and markets, and are very motivated to put all the pieces together and solve the puzzle. I love teaching about investing, as it gets to the heart of financial confidence and engagement.
However, investing is an area that I found in my research where women need more education, and I also see it in real life.
What does it mean to invest, and why is investing so important for women? An investment is something that you buy with the expectation it will gain value over time. That change in value is known as the return on the investment, and can be positive or negative. If the return is positive, investing can grow your money over a period of time.
Investing can be particularly important for women since, as we have discussed in this space, women earn less than men on average, and also outlive them by an average of five years. Finding additional mechanisms to build wealth can help women become more able to care for themselves and their families financially.
So how do we keep this interest and engagement alive in young women so it carries forward to a time when they are earning, and they actually have the need and ability to invest? Start talking to your daughters about investing now, so that you can help build their confidence and capability, and eventually, their engagement.
Here are some key topics to understand, for any age investor:
1. Compound interest — This means the sooner you start investing, the better. With compounding, you earn interest on interest, or return on return. Compounding builds value by investing the gains from the original investment.
2. Risk — With investing, there is risk, which means no guarantee that you are going to make money. Investors need to be prepared for that, and also learn mechanisms for helping to mitigate risk.
3. Diversification — This is a risk mitigator, along the lines of the old axiom “don’t put all of your eggs in one basket.” If you invest across different types of asset classes (likes stocks and bonds), and diversify within asset classes (like different sectors), you have less of a chance of losing everything as your investments likely will not all decline at once.
4. Educate yourself — Start learning about the world and markets now. Find a respectable daily news publication and read it religiously. Economies and markets tend to move in cycles — once you follow the story, you will see it happening over and over again.
What if you are not comfortable with the topic of investing? We offer a number of private and institutional programs for girls and young women, that include education and support for parents. Please let us know if you are interested!