Risky Business

Don’t Let Fear Keep You Out of the Game

By Kara Stefan

A lot of women are turned off by investing because it seems like a risky way to lose money. But hey, it’s not exactly as perilous as a teenager running a brothel inside his parent’s house while they’re on vacation–as in the 1980s’ Tom Cruise movie, “Risky Business.” In fact, it’s not as risky as a lot of things.

Like raising children, for instance. When you have a child, you basically have to devote your time, money, love, attention–basically every part of yourself to raising that child if you want to be any good at it. Investing doesn’t take half as much effort, and it shouldn’t be nearly as frightening.

So why are women so afraid to invest or invest aggressively enough to come out ahead? Well, investment risks are indeed very real and very threatening. But there are things you can do to mediate these risks and reduce your chances of losing money.

Just like raising children–the more you know, the easier it gets.

Market Risk
This is the main one: The risk of losing money in the stock market. Most investment losses come when shortsighted investors freak out because their stock has experienced a loss–a paper loss, that is. You haven’t actually lost any money until you sell the stock.

The antidote? Diversify, diversify, diversify (see MsMoney.com’s discussion of diversification and asset allocation.The more variation you have in your holdings, the more the risk is spread out. Securities performing well at any given time often cover for those experiencing temporary setbacks. And find the patience to ride out market declines.

Global Risk
It’s tough to understand all the political warfare that goes on in other countries, and understandably it makes Americans queasy to invest internationally. But the fact is the U.S. represents less than half of the world’s market opportunities–so you’re really cheating yourself if you don’t venture into foreign waters.

The antidote? You guessed it–diversify. Choose your investments wisely and spread them out over different countries and industries.

Inflation Risk
Now we enter the realm of key risks for women investors: That of not investing aggressively enough. If you take the safe route–CDs, money market funds, savings bonds–you may discover there’s not enough money for your potentially long-lived life. In fact, one out of every seven women retires in poverty; for black and Hispanic women, it’s one in every four. Let’s face it, if you’re going to invest at all, invest for success.

The antidote? Learn more about investing for growth and give up your warm security blanket of traditional bank and fixed income investments.

Longevity Risk
This is the crucial risk for women–that of outliving your money. The average woman outlives the average man by about seven years, so you need to make sure the household nest egg is designed to last your lifetime, not just his.

The antidote? Invest aggressively for growth, and that means stocks. Mix up your holdings between small, middle, and large cap stocks, take advantaged of tax-deferred investments, and consider the guaranteed lifetime income option that’s only offered by annuities.

Stupidity Risk
That’s right–the risk of trying to do everything yourself.

The antidote? Interview a few investment advisors and go with one who explains things in a way you understand. You wouldn’t build a house without help, so don’t try to build an investment portfolio by yourself if you’re not sure of what you’re doing.

Look Before You Leap
Now that you know the risks, investing is not so scary. Not nearly as frightening as a car full of teenagers.

For beginners, mutual funds are a good place to start. They are inherently diversified, managed by professionals, and you can get into one with a minimal investment and contribute gradually whatever you can afford.

Investing is to the 21st century what buying a home was to the 20th century–it’s how American dreams become fulfilled. So slap on that SPF 30, buckle up your seatbelt, and keep your cell phone close at hand. Just as in life, reducing investment risk is a matter of taking necessary precautions.