I vividly remember a woman in one of my classes who stood up and proudly announced that she had maxed out her 401(k) and had a hefty portfolio outside her retirement. She’d been buying stocks based on the recommendations of her cousin who worked at a brokerage firm.

She had a right to be proud. But when I asked if she was following a plan, she looked bewildered.

“How do you know if the portfolio is properly diversified for you?” I asked. “How do you know if you’re taking too much or too little risk?

I then explained the difference between gambling and investing.

Picking stocks or bonds haphazardly, following a hot tip or purchasing the hottest fund, trying to time the market (buying when it’s high, freaking out and selling when it plunging), or just simply deferring investment decisions to another and turning your back…that’s gambling.

Investing, on the other hand, is a means to an end. The whole point of investing is to put together a portfolio that ensures you meet your goals.  If you don’t have some sort of idea of where you want to end up, it will be far more difficult to make the right choices.

A  good financial plan addresses three questions: Where are you now financially? What are your goals (short term and long-term)? What do you need to do to achieve your goals?

Once you identify the gaps between where you are now and where you want to go, you can create a realistic game plan with the right mix of investments based on your time horizons, budgetary restrictions and risk tolerance (how much volatility can you stand and still sleep at night).

Sure you can do this on your own. But my advice: Hire a fee-only Certified Financial Planner or a financial advisor you trust.

If you enjoyed these “Words of Wealth”, head over to my website and sign-up for my FREE weekly newsletter at: www.barbarastanny.com

I saw a cartoon that cracked me up. A financial advisor sat on one side of the desk.  The Easter Bunny, with a big basket of eggs, on the other. The advisor, leaning forward, warns the bunny: “Never put all your eggs in one basket!”

The advisor of course was giving his client the classic admonition: Diversify! Diversify! Diversify! Or put your money (eggs) into many different baskets.

You can significantly minimize risk by spreading your money out among the five asset classes:  stocks, bonds, real estate, cash and commodities. Every asset class can be further divided into sub-classes.

The idea is that different asset classes, or sub-classes, react differently to various conditions and time periods. It doesn’t always work that way. Sometimes a turbulent sea sinks all ships.

But for the most part, diversification protects your overall holdings.

In fact, studies indicate that diversification accounts for 93% of a portfolios’ overall performance; 2% comes from stock picking; 3% from luck.

Two percent from stock picking!!! We make ourselves crazy trying to find the best companies, when we should be putting more energy into making sure we’re properly diversified over numerous categories

If you enjoyed these “Words of Wealth”, head over to my website and sign-up for my FREE weekly newsletter at: www.barbarastanny.com

My first big mistake came with my first foray into the market. It was 1986. I hired a financial advisor and gave him the little money left after my divorce. He’d send me the monthly statements, but I tossed them in the trash, unread.

Then, October 19th, 1987, the market crashed with a vengeance… the biggest market crash since the depression. I called my broker, told him to sell everything.

He begged me not to.

“Barbara, the market will go back up. It always does,” he assured me. “And you’re going to have capital gains taxes to pay.”

I didn’t know what capital gains taxes were, but it didn’t matter. I wanted my money out where it was “safe.” Big, fat, awful mistake. The market went back up and very quickly.
 
That fiasco taught me well. In the 20 plus years I’ve been investing, despite living through at least 8 crashes, not just correction (when market falls 10%) , but full on crashes (when the market plunges 20%), I’m proud to say, I’ve done very well for myself. Instead of panicking, I stayed the course.

The next time the market plunges, if you tend to panic, let me give you some sage advice. Turn off the TV. Unplug the computer. Don’t look at your investments. Ignore the naysayers. Get a massage and remind yourself that the market will go back up…because it always does

If you enjoyed these “Words of Wealth”, head over to my website and sign-up for my FREE weekly newsletter at: www.barbarastanny.com

Let me see a show of hands. How many of you promised yourself you’re going to save more. You really want to. But your savings remains minimal to non-existent.

I can understand if your hand went up. It’s easy to say that you’ll move money to savings but in practice, it often doesn’t happen. You forget; you overspend; you have a hundred excuses.

But that’s because you haven’t discovered the simple secret to amassing significant savings…easily, mindlessly.

Automate.

Every month, have your bank automatically transfer a certain amount of money (no matter how small) from your checking account to your savings account. All you have to do is fill out a form and it’s done. So simple.

What I love about this—you don’t miss what you don’t see.

If you enjoyed these “Words of Wealth”, head over to my website and sign-up for my FREE weekly newsletter at: www.barbarastanny.com

Ask a novice investor to define risk, and most will say losing money. They look at market fluctuations and all they see is the likelihood of loss.

An educated investor, however, looks at those same market fluctuations and sees opportunity for gain.

The truth is, our biggest financial risk is not market volatility. Our biggest risk is to do nothing at all.

Sure the market’s ups and downs are scary. But you can dramatically cut your losses with due diligence, a long term approach, and good diversification.

On the other hand, if all your cash is sitting in the bank, your purchasing power will shrink like a wool sweater in a hot dryer.

At least a portion of your savings needs to be in assets that grow faster than inflation and taxes eat it away.

Otherwise your greatest risk, as a woman, is that you’ll outlive your money.