I am on a personal mission to get women to save and invest more.
Studies that find that women are better at investing than men, but they save and invest far too little, too infrequently, which puts us at a huge disadvantage.
The wealth gap is a terrible issue, as women have far less invested and saved than men, and we need those long-term assets even more than dudes:
- On average, women live longer.
- Women are disproportionately more likely to be responsible for children and aging relatives.
- Women earn less during our careers (damn you, pay gap!), and therefore receive less from Social Security.
Plus, since we are better at investing, so we should just be investing and growing our money for the sake of the economy, gender equality and national security, right?!
Unlike other posts you will find out there about how to invest for beginners, I will not bore you with details about diversification, rebalancing or stock picking.
That is boring and confusing to me, and I have worked as a personal finance journalist for more than a decade. All that jargon is important, but if you are not excited about learning it, then don't.
Also: keep in mind that all that financial jargon is created by men, and is designed to make you feel stupid so that you pay them a lot of money to manage your money for you.
You are not dumb or stupid. You are brilliant and you have what it takes to easily invest your money for the future and not pay anyone a lot of stupid fees for that.
Before you jump into investing, also make sure you have these financial bases covered (or are on your way):
- Are working on paying off debt.
- Have at least $1,000 emergency fund.
- Own life insurance. Get a quick quote from Bestow, which provides A+ rated term life insurance starting at $8/month for $50,000 policies, and guaranteed no medical or lab exam. Get a life insurance quote from Bestow now >>
OK! Let’s start investing:
- Where to start investing money
- Easy options to start investing money
- Employer-sponsored plans
- Investing accounts for the self-employed
- Selecting investments: Selecting investments: What should my asset allocation be?
- Retirement or college savings? Advice for single moms about investing
- How can I afford to retire?
- How to start investing for retirement, step-by-step
- Guest post from Shannon McLay, The Financial Gym
- How to start investing in retirement, step by step
Where to start investing money
Employer-supported 401k or IRAs are an excellent option for several reasons:
- Contributions to these investments are typically matched by your employer. Ignoring that is leaving cash on the table.
- These retirement contributions are typically tax-deferred, or tax exempt.
- If you struggle with the discipline of investing regularly, your HR department will set up contributions be automatically be deducted from your paycheck, contribute to your retirement plan and allocated funds. This is a very good reason — no shame in seeking help!
If you have a 401(k), Roth IRA or other investment plans at work with a match, maximize that. You probably get a handful of investment options to chose from, and one is likely a target date fund. Choose the target-date fund.
Easy options to start investing money
If you don’t have an employer-sponsored retirement plan, or are self-employed, or are interested in investing on your own, you have a few options.
Open your own brokerage account, and buy target date funds. Brokerage = Company where you can buy and sell investment products, like target date funds! Traditionally, you had to pay fees of at least $10+ per purchase, but now many of those brokerages like E*Trade, Charles Schwab, and TD Ameritrade make trades free.
The other option is to go with a robo-advisors.
Go with a robo-advisor. Robo-advisor = a really smart computer system that manages your money for you, for very very low fees. Robo-advisors are a great option because:
- Low fees. Fewer humans managing your money means less expense — which is passed on to you.
- Proven success for growing your money and helping you reach your goals (computers are smarter than flawed humans).
- Robo-advisors are super-easy to use, including setups that take a few minutes, and set up automatic deposits. The roboadvisor buys the stocks and rebalances your portfolio automatically.
Betterment is one of the first roboadvisors, and the biggest. Robo-advisors are computer-driven investment platforms that use algorithms to automate the management your money. By taking human and emotion out of investments, roboadvisors have proven to create better returns than traditional stock-picking and portfolio management by humans.
At a roboadvisor like Betterment, you can set your goals — like retirement, buying a home, college, having a baby, vacation — your investment style and risk tolerance, and automate your investments. A Betterment portfolio is automatically rebalanced, and adjusted to help you reach your goals.
Betterment offers personal advice for an additional fee, as well as socially responsible investing options.
Ellevest offers a quality product with beautiful design and a lot of valuable content — with a singular focus of serving women. At the end of the day, Ellevest is a robo-advisor whose core product is very similar, but slightly more expensive, than competitors like Wealthfront and Betterment — the latter of which has $22 billion of assets under management, compared with just $400 million for Ellevest.
In mid-2020, Ellevest pivoted into a membership service, adding banking, retirement planning, and career coaching for fees as little as $1 per month.
While this option is dwindling, many employers still offer investment benefits to employees.
Some of the main employer investing plans include:
Traditional and Roth 401(k)
If you work for someone else, you may have access to a 401(k) plan. With this type of plan, employees contribute a certain percentage of their wages and may even receive a “match” of some of those funds from their employer.
The money contributed to a traditional 401(k) is added to your account on a pre-tax basis up to annual limits, and this will reduce your taxable income for the year.
From there, your money grows tax-free, and you don’t pay income taxes on it until you begin taking withdrawals during retirement.
For 2019, employees can contribute up to $19,000 to these accounts. If you’re ages 50 and older, however, you can contribute up to $25,000 ($6,000 more) each year.
Like with a traditional IRA, there are penalties to pay if you need to withdraw money from your 401(k) before you reach age 59½.
When it comes to Roth 401(k)s, these investing accounts work similarly to Roth IRAs in the fact you contribute to them with after-tax dollars.
However, with a Roth 401(k), required minimum distributions start at age 70½ and there are no income limitations.
It is important to note that employers who do offer a Roth 401(k) are also required to offer a traditional 401(k).
A Simple IRA (Savings Incentive Match Plan for Employees) is another type of employer-sponsored plan that is even less common than the Roth 401(k). This type of plan is often offered by small employers but is also used by the self-employed.
With a Simple IRA, employers are required to make either matching contributions or nonelective contributions to the plan.
In the case of matching contributions, the employer may match the employee contribution for up to 3% of the employee’s salary.
With nonelective deferrals, the employer makes contributions to the plan whether the employee contributes or not.
Like other plans, contributions made to a Simple IRA are tax-advantaged up to certain limits.
Money then grows tax-free and is taxed once you begin taking distributions in retirement.
Like other plans, you’ll need to pay a penalty if you need to take money out of your Simple IRA before age 59 ½.
A Traditional IRA lets you save money that will grow tax-deferred until you reach retirement age. This means that you put money in now, depending on your income level, you may be able to deduct the amount you contribute to a Traditional IRA (up to annual limits) to reduce your taxable income that year.
Individuals younger than 70½ can contribute to a Traditional IRA. For 2019, you can contribute up to $6,000 to all IRA accounts combined if you are under the age of 50 or $7,000 if you’re ages 50 and older.
Since this type of account is for retirement, you cannot withdraw money without penalties until you’re at least age 59½.
Required minimum distributions are also required on these accounts by April 1st of the year following the year you turn age 70½.
If you or your spouse do not participate in a retirement plan at work, your traditional IRA contribution is fully deductible up to your contribution limit, which is based on your income.
You can contribute to a Traditional IRA if you earn less than these limits in 2019:
- $73,000 for individuals
- $121,000 married, join returns
- $189,000 married, filing separately
A Roth IRA works differently than a traditional IRA since you contribute after-tax dollars to this account.
The same $6,000 limit applies for those under the age of 50 (or $7,000 if you’re ages 50 and older) across all your IRA accounts.
Since the funds you contribute are made with after-tax dollars, the money also grows tax-free and can be withdrawn on a tax-free basis once you reach retirement age.
As an added bonus, you are able to withdraw your contributions to a Roth IRA account at any time without penalty (though you would have to pay taxes on any profits earned).
Keep in mind that income requirements apply, and many high-income individuals and couples cannot use a Roth IRA.
In 2019, phase-outs for Roth IRA contributions start at:
- $122,000 for singles
- $193,000 for married couples filing jointly
- Phase out completely at $203,000 for married couples and $137,000 for singles
Investing accounts for the self-employed
If you’re not employed by a traditional employer or you own a business, consider investing accounts for the self-employed.
While other retirement accounts can be used by self-employed individuals (e.g. traditional and Roth IRAs), the high limits of self-employed investing accounts make them a smart option when it comes to saving money to fund retirement.
The main investing accounts for the self-employed include:
A SEP IRA (Simplified Employee Pension) allows self-employed people, freelancers, and small business owners to save for retirement in a tax-advantaged way.
The contributions you make to this account cannot exceed either a) 25% of compensation, or b) $55,000 in 2019. However, employees of a small business owner cannot contribute to this account; only the employer can contribute up to 25% of their salary up to annual limits.
These accounts are often considered the best for self-employed workers and since there are minimal start-up or operating costs and contribution levels are so high.
Like other investment accounts, however, you’ll pay a penalty if you need to take money out of your SEP IRA before age 59 ½. Required minimum distributions also start at age 70 ½.
A Solo 401(k) plan, also known as a sole participant 401(k), is another requirement plan perfect for freelancers and individual business owners.
This type of plan can cover a business owner with no employees or the business owner and their spouse.
There are two ways individuals can contribute to these plans — first as an employer and second as the employee.
On the employee side, individuals can contribute up to an annual limit ($19,000 in 2019). On the employer side, you can also contribute up to 25 percent of compensation as defined by the plan as long as the total contribution doesn’t exceed $56,000 for the year.
So, if you are like me and the owner and sole employee of a company, you can contribute the full $56,000, assuming your company's income allows for it.
Best to check with your tax professional.
Once again, you should plan to pay a penalty if you need to withdraw money from your Solo 401(k) before age 59½.
Required minimum distributions are also required starting at age 70 ½.
Taxable brokerage accounts
While the investing accounts described above are mostly intended for retirement savings, there is another type of account to invest money in for retirement or other goals: taxable brokerage accounts.
You can open up an individual taxable account or a joint account with a spouse or partner.
Taxable brokerage accounts offer a path to continue investing even after you have “maxed out” traditional retirement accounts that may have tax advantages.
The best part about taxable brokerage accounts is the fact that there is no limit to how much you can contribute as well as no limits on income.
Taxable brokerage accounts are for anyone who wants to grow wealth beyond what they can accrue in a traditional retirement account.
Also, keep in mind that taxable investing accounts may offer more ways to invest your money than a traditional account like a 401(k).
Where your employer may limit funds or options to choose from, a taxable investing account lets you invest your money how you want.
This could mean trading stocks, investing in bonds, or buying index funds, but it’s your choice.
Since taxable investing accounts are offered irrespective to your employment, you’ll need to open an account on your own.
Fortunately, you can open a taxable brokerage account online through a variety of firms like Vanguard, Scottrade, or Fidelity or use a robo-advisor like Betterment.
What are robo-advisor fees?
One of the best features of robo-advisors is that they are typically much cheaper than a traditional financial advisor.
A financial advisor will charge 1% to 2% of assets under management (which means: your investments).
Robo-advisors might charge a flat monthly fee of $15 to $200 per month, depending on the size of your assets. Other robo-advisors charge between .15% and .50%, depending on the size of your portfolio (with a higher fee for larger balances).
For example: a $100,000 investment with a .50% robo-advisor fee would mean a fee of $500 per year. That same $100,000 invested with a traditional, human advisor at 2% annually would cost $2,000!
Betterment is one of the oldest and largest roboadvisors, with $22 billion under management. Benefits of Betterment include:
- $0 minimum
- New member promo: Up to 1 year free management
- Fees starting at .25%
- Tax loss harvesting
- Better Business Bureau A+
- Get a free financial plan
- Access to human advisors
- Socially responsible investing funds
- Betterment savings and checking accounts
Here are the quick steps to setting up a Betterment account.
Selecting investments: What should my asset allocation be?
Within each of these investment vehicles, you will be asked to choose stocks, bonds, mutual funds or index funds. Here is what you need to know:
Mutual fund definition: Group of stocks, bonds and cash investments
A stock fund, typically called a “mutual fund,” is way better than a single stock. The mix means you are better protected in case the market crashes, and more likely to make money when it goes up.
There are more than 30,000 mutual funds available on the market. Mutual funds can provide a great balance of investments to help you reach your goals, and minimize risk. The downside is that all funds come with fees. Increasingly, mutual funds are going out of fashion in favor of index funds.
Target date fund definition = a fund managed to maximize the time you own it
For retirement accounts, chose a target date fund that ends around the date you expect to retire.
For example, I am 43, and expect to retire around the year 2040, so have a lot of my retirement investments in Vanguard Target Retirement 2040 (VFORX).
Vanguard is famous because it is low-fee, and in return for that low fee, a bunch of nerds are paid huge salaries to make my money grow.
I'm not a fund manager, so I would never pretend to do a better job than those nerds. They got you. A target date fund is awesome. Do that.
If you want to check whether your 401(k) is performing as well as it could, I recommend the robo-advisor Blooom, an online tool that automatically maximizes your 401(k) investments, without you having to move your account.
If you don't have a retirement program at work, you can create your own!
Index funds = no-fee funds that track the market
An index fund is a mutual fund that is also an “exchange-traded fund,” or ETF. This means that the entire portfolio tracks or copies a certain market index. There are ETFs for the Dow Jones Industrial Average, so a share of that fund tracks the 30 stocks that make up the DJIA. When the DJIA goes up and down, your stock goes up and down by the same percentages.
Because we now have more than 100 years of stock market data, experts are reasonably sure that over time, all the stock and bond markets do go up, eventually.
There are index funds / ETFs for all kinds of things: International stocks, U.S. domestic stocks, specific markets like biotech, green energy, cannabis, big corporations, small companies, green energy companies, fossil fuel producers — you name it.
There are also target-date index funds.
One of the big benefits of ETFs and index funds is that the fees are extremely low — since there is like active management of the fund, which is what makes mutual funds so expensive.
Your employer retirement benefit may offer an ETF as an option.
Whether you are a woman, man or even child investing for the future, ETFs are an excellent choice.
Invest in bonds
Bonds are an important part of any investment portfolio for women. Bonds are a very safe asset class that allows you to invest money in a government or business for a set amount of time, typically with a guaranteed rate of return.
Because they are so safe, bonds tend to be very popular when the stock market is volatile. Bonds can also be a great place to park your emergency fund or cash savings, since they tend to pay more than a savings account.
Invest in or buy gold
Gold has hit record highs in 2020, and the yellow metal has long been considered a safe, modest investment to balance out a larger portfolio — especially since gold has typically moved in opposition to the stock market: When equities are up, gold is down, and vice versa. While this has not held true in 2020, gold is still considered a relatively safe investment.
Interested in buying gold for an investment? Learn more about how to buy gold coins, gold bullion and gold bars, or Learn how to invest in gold stocks, gold ETFs and gold futures.
Invest in art
Since 2000, blue-chip art (work from a list of 100 artists that has reliably increased in value like Kahlo, Rothko, Manet) has outperformed the S&P 500 by more than 250% without dividend reinvestment, according to Artprice’s art market index.
Why invest in art? Fine art has proven to be more stable during down times. During the 2008-2009 financial crash, art markets dropped less than 26% from their peak, while the S&P declined 57%.
According to Deloitte's 2017 Art and Finance report, 88% of wealth managers say art and collectibles should be included as part of the wealth management offering. But how can everyday, non-billionaire people invest in fine art?
Increasingly, investors are concerned about the social, environmental and political activity of the companies and governments in which they invest. You can align your investments through mutual funds, index funds, and those offered through roboadvisors, including Betterment's Socially Responsible Investing Portfolio.
Ethical investing and ethical investment funds
Ethical investing is a general term that includes all kinds of funds or individual stocks that align with an investor's values and morals. Some investors do not invest in ‘sin stocks' — or those that profit from gambling, tobaco, alcohol, pornography or firearms.
Faith-based investments include Shariah-compliant funds that are governed by the requirements of the principles of Islam, and Catholic-compliant funds avoid investing companies that support abortion, contraceptives, and embryonic stem-cell research.
Sustainable investing and green investments
Sustainable investing and green investments are those that only invest in companies that adhere to strict environmental regulations focused on reducing global warming, minimal waste, renewable energy, and related social responsibility. The Global Sustainable Investment Alliance sets guidelines for investors and member funds.
Socially responsible investing
Socially responsible investing ins a broad term that seeks to focus investments in companies committed to causes including:
- Gender equality
- Ethical treatment and fair pay for laborers
- Ethical corporate governance
- Environmentally sustainable
College 529 savings accounts
Many parents, grandparents and others choose to invest in a 529 plan to help pay for the education of a child in their lives. There are pros and cons to 529s. One of the biggest mistakes parents make is actually investing too much in their children's future education, neglecting their own retirement and other long-term financial planning.
Remember: There are countless ways that young people can finance and pay for their college educations (including paying for it themselves!). But there are no loans or Pell grants for retirement.
If you are on tract with your investments, have at least 3 months in cash in a savings account, are maximizing your employer's 401k or another retirement match, have your personal debt easily managed, and feel comfortable that you can retire comfortably, then consider investing in your child's future. Here is what you need to know:
What is a 529 plan?
A 529 plan is a federal program that allows for tax-advantaged savings and investing for education. Any profits from a 529 plan accumulate tax-deferred, and you do not pay federal taxes on any distributions when you use them for qualified higher education expenses, which now include accredited colleges and universities, computers, and up to $10,0000 for K-12 private education.
How does a 529 plan work?
Almost every state has its own 529 plan. You can invest in any state's 529 plan, and use your investment for any one of the more than 6,000 U.S. colleges and universities, as well as 400 schools in other countries, that are considered eligible.
In many states, you can deduct your 529 investment from your state taxes. In all cases, any gains from your investment are tax-free, as long as you use the money to pay for college.
If your child named on the account does not use the money for any reason, your investment can be transferred to another family member without penalty, or saved for a graduate school — so long as the funds are used for qualified educational purposes. Unused funds can be withdrawn for non-education purposes, subject to federal taxes and a 10% penalty.
To successfully use a 529 plan:
- Open a 529 college savings plan. The College Investor's 529 Guide explains plans in each state.
- You choose which investment fund you want to manage your money, putting you, the investor, in control of the investment.
- Contribute when and how you like — occasionally as you have extra cash, with automatic monthly depositions, and/or in gifts from loved ones at birthdays and holidays.
- When it comes time to withdraw the funds (in a lump sum, or as-needed), fill out your program's withdrawal forms, and distribute to the beneficiary (child) — not the account owner.
College planning of course should be part of your children's money education. Check out our guide on how to teach your kids about money—at every age.
Retirement or college savings? Advice for single moms about investing
Prioritize retirement investing far above your kids' college education.
An Allianz survey found that Americans over-save for their kids' college fund when compared with retirement, and guilt-ridden single moms are especially prone to this mistake.
Instead: Remember the oxygen-on-the-airplane rule: Take care of yourself before trying to save anyone else.
When you have your finances in order, cash in the bank, your investments under control, you are a less-stressed, more secure mom today, and relieves your children from the worry and resentment for caring for you in your later years. There are countless ways to finance college, but no Pell grants or loans for retirement!
Believe that you are worth it.
You deserve to have a fat wad in the bank, peace of mind and confidence that you can have a comfortable, joyful life and financial future!
You are not dumb or lazy because you have not started investing — or not saved enough.
The system is stacked against you. You are smart and you can do this.
When you succeed in your finances, all women succeed.
We lift each other up, set great role models for one another, and together we are going to close this wealth gap!
Remember: the best gift you can give your kids is your own financial health.
Read more from Shannon McLay, The Financial Gym
By single mom financial advisor and CEO and founder of The Financial Gym, Shannon McLay:
Women are really bad about investing. Statistically, we are less likely to invest, and more likely to invest less than we should.
While there are some great studies that show that women are actually BETTER at investing than men, we still have a long way to go.
In this Like a Mother episode, my single mom entrepreneur friend Shannon McLay, founder and CEO of The Financial Gym, explains step-by-step how women can get over their investing and saving hangups, and get started with a financial plan for their futures.
Below is a break-down of how to do just that, whether through an employer plan, or on your own.
Click here to scroll to the transcript of this really helpful, easy and funny interview with Shannon.
A common theme we see at the Financial Gym is an overall lack of investing by women. Most women say,
“I don’t invest because I don’t want to lose my money.”
Those are words I can assure you a man never says; and if you’re saying them, what you’re really saying is, “I don’t want to make money.”
The reality is that leaving your money in a checking or savings account and not investing means you’re actually allowing yourself to lose money.
On average you earn less than 1% in a bank account while inflation is 2-3%, which means your money loses 1-2% of value sitting in the bank.
I’m not going to lie, investing is scary. If you’re afraid of it, the fear is real but like any fear, if you have better knowledge, you can overcome it.
You work hard for every dollar you earn and when you invest your money, you’re allowing your money to work hard for you in return.
Don’t let investing stay the boys’ club it’s been for decades.
Here are some quick steps to get started investing, and securing your life today, and in the future.
Don’t let jargon get in the way of investing
The other night I had a woman ask me
“I hear about investing in the markets, but I don’t even know what the markets are, where are they and how do I find them?”
She thought she was asking a dumb question until most other people in the room (men included) wanted to know as well.
There’s a lot of financial jargon around investing that’s intentionally designed to make it confusing for you so that you’ll need to pay a man to explain it to you.
Here are the simple facts: by buying a target-date mutual fund or working with a robo-advisor like Betterment, you will be sufficiently balanced to withstand the downturns of the economy, and take advantage of upturns.
That doesn't mean that you shouldn't understand all the investing terminology in the world (just google what you want to know!) or feel comfortable asking your financial planner or advisor any question.
In the sections below, I explain how to get started in the investments.
Acknowledge the fear of money
When you invest your money, you are literally taking it from the safety of the bank and putting it on the roller coaster of the markets.
Once invested, you can expect your money to go up and down like a roller coaster. That is what’s supposed to happen; and just like a roller coaster, you only lose when you get off at the wrong time.
Every single day the value of your investments will go up and down but what you’re seeing are unrealized gains and losses, it’s just a snapshot of what your account is worth on that date and time.
These values become realized when you actually sell your investments. Historically, investments go up over time.
The best way to prevent selling at a low point and losing money is to plan out your goals.
Which leads us to the next step.
Know why you’re investing
I see many women sitting on too much cash because they’re not sure what they’re doing with their money.
I think goal setting may be more difficult than investing for some people, but you should take the time and think about what you want and need your money for.
If you have a goal that is beyond a year away, that is when you should invest.
Setting time horizons for your money is the single greatest thing you can do for your investments because it will dictate exactly how you invest.
I spent years getting educated on investing and helping clients invest, yet most research shows that 90% of your investment returns are based on your asset allocation (how much stock and bonds or other assets you own) and only 10% on your specific assets (owning ETFs, mutual funds or individual stocks).
If you won’t need your money for 1 to 3 years, your asset allocation is conservative, 3-10 years is moderate, and longer than 10 years is aggressive.
You can easily Google mutual funds or exchange-traded funds with these descriptions to find the right choice for you. For example: “conservative short-term ETF,” or “aggressive mutual fund.”
A robo-advisor is a great option
A Robo-advisor is an Internet based portfolio management service that manages your money with minimal human intervention and low fees. Betterment and Wealthsimple are two good examples.
A robo-advisor will align your time goals with asset allocation automatically.
Having a timeframe for when you need your money helps keep the roller-coaster effect to a minimum, and increases your chances of profits
Investing is a roller coaster but there are all types of rides from kiddy coasters (conservative asset allocation) to extreme coasters (aggressive asset allocation) and knowing when you’ll need your money dictates which coaster you put it on.
The best part of investing with a robo-advisor, like Betterment, is that the process is so easy to get started.
Once you set up an account, you answer a series of short questions to determine your risk tolerance and then deposit money. The platform takes care of all the investing, adjusting, and strategy for you.
Just do it
The best way I tell clients to learn about investing is to just do it.
You don’t have to start with a large amount of money. Sites like Betterment, Stash Invest, Acorns and Drive Wealth allow you to invest with little to no minimum amounts.
Start with an amount that makes you feel comfortable and get your feet wet while you watch how your money moves.
If you work for an employer who provides a 401k or 403b you can start there; however, you want to make sure you’ve prepared for shorter-term goals like buying a home or moving before you overfund a long-term goal like retirement.
Ask friends what they’re doing and don’t be afraid to ask for help.
If you have a financial advisor or want to work with one, just make sure that you know exactly what your buying and that you feel comfortable asking as many questions as you need.
It’s your money and you’re entitled to feel confident about how it’s being invested.
How can I afford to retire?
If you haven’t taken time to set up a retirement account, this is your official nudge. If you already have one, make sure your contributions reflect the lifestyle you desire. The U.S. Department of Labor claims that less than 50% of Americans haven’t calculated how much they need to save for retirement. Don’t be in that number.
Try this retirement calculator
Use this retirement calculator from smartasset for guidance based on where you live. If you plan to relocate, you can get a feel for the cost of living in your area of choice.
How to start investing for retirement:
- Savings plan — set up an automatic savings plan that transfers money from checking to your investment accounts at regular intervals to your 401k, IRA, or brokerage or robo-advisor account, including Betterment.
- Max out employer match — many employers offer to match your 401(k) contribution up to a certain percentage. If they match 10%, then contribute at least 10%. Some employers require a vesting period to keep the matched contributions.
- Consolidating credit cards, automating payments and having a true view of your bills will make it clear how much you can afford to store away for retirement.
How to start investing for retirement, step-by-step
You can do this. Here’s how to get started.
How much income do I need in retirement?
A common rule is that you’ll need 80% of your preretirement income to survive. So if you earn $80,000 a year by the time you retire, then you’ll need $64,000 to make it once you stop working. That translates to about $5,333 per month.
But it also depends on your situation. For starters, how much can you expect from Social Security check? The Social Security Administration projects that by 2035 it will be able to pay out only 80% of your benefits, unless Congress acts to fix things. For example, if your check would have been $2,000 a month, you’d get only $1,600. That might not happen – but it could. In other words, it will be great if you get all the money you’re owed, but don’t rely on it.
So many other factors to consider, such as:
- Did you get an early start saving for retirement or are you playing catch-up?
- How many more years before you don't have to at least partially support your kids?
- Any chance you might be helping your parents as they get older?
- Will you have paid off your home before retiring? If so, how much will taxes and maintenance cost if you decide to age in place rather than downsize to a cheaper area?
- Does your post-retirement life include goals like travel, starting a business or helping your kids financially as they build their young-adult lives?
In other words, you might need more than 80% but you also might need less if your expenses are low. For now, just focus on 80% of preretirement income as a reasonable goal. You can always save more money as it becomes available.
Use a retirement savings calculator
Want to know if you’re on track right now to retire comfortably? Find a retirement savings calculator and run the numbers.
The NerdWallet retirement savings calculator is a good example.
How long will my retirement savings last?
Ideally, at least as long as you do! According to the Social Security Administration, a woman who's 30 years old right now can expect to live to about age 82, on average. Assuming you stop working at 65, your retirement savings would need to last at least 17 years.
Of course, you might also retire earlier than 65, or live longer than 82. Some years you might have to take more than you expected out of retirement funds.
In other words: No one really knows. Save as much as you can.
How to save for retirement
As noted earlier, women are actually better investors than men – but as a group, we don’t save as often or as much. Time to take control of our lives, ladies. Here’s how to get started.
How much to save each month for retirement
A general rule is that you should set aside 10% to 15% of your pretax income, which sounds like a lot. That's because it is — especially when you're raising children.
If you’re still in the process of building your career, saving 10% should do the trick. But as your income increases, so should your retirement savings goals.
This can be a challenge even for people who don't have kids. But you need to do it anyway. If it simply isn’t possible to save 10% right now, then try to get as close as you can.
Pro tip: Creating a single mom budget that includes a “savings” category will help prioritize Future You.
Best way to save for retirement
There’s no single “best” way to save for retirement, because everyone’s situation is so different. But things change: You start to earn more, your kids will eventually leave the home, you will pay off your mortgage. So even if you’re not your peak earning years yet, you can still make a good start by taking advantage of an employer-sponsored plan, tax advantages of a 401k or an IRA, and any employer match..
Ideally, you’ll wind up using more than one of the options below – or maybe even all three.
How to save for retirement with an employer-sponsored plan
If you work for a company with a 401k or 403b, ask your HR person for the website to get started. You will choose the amount you want to contribute and select your investment options.
You should choose 100% of your money to be invested – and you don’t have to get complicated. Almost every employer gives you the option to invest in a Target Date fund: a mutual fund that is specifically designed to follow your retirement planning.
For example, if you chose a fund that is target-date 2045, it will make more aggressive (higher-risk) investments now, while you are younger, and more conservative, lower-risk investments as you get closer to retirement. The date on these funds (2045, 2050, 2055, etc.) indicates when you’ll retire, so select the one that sounds good for you and your money will automatically get invested there every month.
Contribute at least up to the employer match, if there is one. Otherwise you’re leaving money on the table.
How to save for retirement on your own
If you’re investing in a retirement account outside of your workplace plan, open an account with an investment firm like Vanguard, Fidelity, or Betterment. You will choose either an IRA or Roth IRA as your account type, and link it to your bank account so you can move money into it regularly.
Next, select your investment options. As with the 401k, you don’t have to make it complicated. You can find Target Date funds at every investment firm; if you choose a robo-advisor like Betterment, they will set your investments for you without you having to think about it. There are hundreds of Target Date funds, and they are a great, low-stress and low-fee way to plan for the future.
Investing outside of a retirement account
If you’re investing outside of a retirement account, open an account with an investment firm like Vanguard, Fidelity, or Betterment and select a brokerage account or general investing account type.
Again, you need to connect your bank account so you can move money easily, and then select your investment options. If you’re investing for a goal that is closer than retirement, then you can pick a shorter-dated Target Date fund or a moderate or conservative investment mix with a robo-advisor.
Get free help with investing
If all of this still sounds difficult or stressful, then pick up the phone and call the 800 number for one of these investment firms.
Tell them you want to open an investment account, and specify what you’re investing for (retirement, medium-term goals, etc.). Have them walk you through the entire process on the phone. If you’re going to give them your money, make them work for it.
Get ready, get set – invest!
Congratulations – you now have the basic tools to take charge of your financial future. Don’t be intimidated by those money “experts” who’d rather keep you in the dark and collect fat fees to do what you could be doing for yourself.
What happens if you don't save for retirement?
What happens if you don’t save for retirement? You’ll likely wind up in big trouble once you stop working.
Don’t make the mistake of thinking, “Well, I’ll just work until I die!” You have no way of knowing how long you’ll be able to work, due to factors like illness or your employability in an ever-changing job market.
If you expect to rely only on social security, you will likely live below the poverty line, and be dependent on your kids or other loved ones.
In the meantime, you are guaranteed to be stressed about your lack of retirement investments between now and retirement age.
You owe it to yourself to do what you can now to increase your chances of having a comfortable retirement — not just for your future you, but for your current mental health, as well as your relationship with those who may fall responsible for your care.
How much does the average American have saved at retirement?
The median amount of retirement savings for women is $23,000, according to “19 Facts About Women’s Retirement Outlook,” a 2019 study from the Transamerica Center for Retirement Studies.
By comparison, the common rule of thumb for what you need for retirement is 80% of your pre-retirement income. So, if you earn $50,000 per year just before you retire, you'll need around $40,000 of income in retirement.
How many retirees have no savings?
The study notes that 31% of women have less than $10,000 – or nothing at all – in retirement savings.
How can I survive in retirement with no money?
Short form: It will be challenging. The average Social Security payment is currently $1,461 per month, or $17,532 per year. Does that sound like enough to live on, even if you owned your home free and clear?
What to do if you don't have enough money to retire
It can be challenging to get started, let alone to play catch-up. But even small steps now can make a huge difference in your quality of life later, as well as your peace of mind now. Financial planning = self care.
You are responsible for your own well-being in retirement. Now is the time to take charge of your money.
What to do if you don't have a pension
Only 22% of workers have pensions, according to the U.S. Bureau of Labor Statistics. Even if you’re a member of that lucky group, your pension probably won’t be enough to live on. (One woman I know is promised a whopping $360 a month from a former journalism job.)
The solution is a mix of solutions:
Workplace retirement plan. Your job may offer a 401(k) and/or IRA plan, which can be a good, easy way to start. Remember: If there’s an employer match, contribute at least that much. It's free money! Another plus is the ease of automation: Each week HR sends a percentage of your paycheck toward your future. If you don’t see it, you won’t miss it (much).
Self-directed retirement saving. You can always open yoru own 401(k), IRA or brokerage account to plan for retirement. For example, a target-date retirement fund administered through a company like Vanguard or a robo-advisor such as Betterment. (More on robo-advisors in a minute.)
Social Security. Despite what you hear, Social Security is not likely to go bankrupt, although starting in 2035 the system might be able to pay only 80 percent of promised benefits. Again, you should be planning for Social Security to be just one retirement income source – not the only one.
Cash savings. Keep some liquid funds on hand in addition to investment funds.
Pension. If you’ve got one, it’s just one more piece of the financial puzzle.
What to do when you don't have a 401(k) or 403(b)
Only 61% of women are offered workplace retirement plans, according to the TCRS study. That’s probably because women are more likely to work part-time (30% of us do, compared to 14% of men).
By contrast, 69% of men have access to a 401(k) or a similar plan.
This might mean you'll have to create your own retirement plans. Sound scary? It doesn’t have to be. We’ve been set up, ladies: Men over age 50 make up most of the financial services industry, and it’s been in their best interest to make investing seem super-difficult. That way they can collect fees for services, some of which might not be in our best interest.
A couple of alternatives:
Open a brokerage account. Again, the target-date fund is your friend!
Consult a robo-advisor. Robo-advisors have a proven record of growing money. You can create a Betterment account with a $0 investment.
Transcript about women and investing with Shannon McLay:
Emma: I’m here with a friend, a fellow single mom, money expert, Shannon McLay. She is the founder of an awesome startup called The Financial Gym, which is a really innovative way of approaching money and retirement investing. I’ll let her explain in a minute about that. Really, the most important thing is that she’s a single mom in New York, like me, and when we hang out, we don’t really talk about business. We talk about business, but not about money, mostly about dating.
Shannon: Because who wants to talk about business? Who wants to talk about kids? Let’s talk about our lives. Right?
Emma: Well, I like to talk about business and men.
Shannon: Same. I love when people are like, “Oh, I didn’t even know you had a kid.” I keep things in order of priority.
Emma: This is super embarrassing, and I’m not going to say her name, but I have a medium-good professional friend. Somebody I know professionally, but I really like and I work with her a lot. We go out for lunch, we talk about business, I know she’s married, I literally do not know whether or not she has a child. I was looking on Facebook because I’m going to see her soon, and some people get weird and don’t put their kids on Facebook at all, and it’s 50/50, I have no idea whether she has a child or not.
Shannon: Now you can’t ask.
Emma: And I know I can’t. Nope.
Shannon: I tell people all the time, don’t assume, even if you know people have kids, don’t assume they want to talk about them. Listen to what people want to talk about. If they want to talk about their business, then that’s really important to them. If they want to talk about golfing, or shopping, that’s really important. Listen to what they want to talk about, not assuming just because they have kids that they want to talk about kids all the time.
Emma: I would say that rule applies if you want to get something out of the other person. If it’s just a friendship and someone wants to talk to me about golf all the time, they need to reconsider that because I don’t know shit about golf and I don’t care either.
Shannon: I’m totally speaking from my sales experience.
Emma: Exactly. I want you to talk about investing for women.
We’ll have you on to talk about dating. Well, let’s talk about dating for a second more. Are you dating anybody?
Shannon: I am dating, we talked about this on my show. I am dating. I’m like you. I’m definitely having my sexual awakening post-divorce, which is fantastic. It only took me until, what? I’m 39 now. It took me a little while to get there, but better late than never. It was funny. A few weeks back I was like, “I’m going to try out Bumble.” I’ve never tried out the online dating thing, I just kind of meet people. I was in between a relationship and I was like, “Yeah. Let me do that.” So, literally I sign up and my iTunes account is still linked to my ex-husband’s, so he gets a notification. He’s like, “What the hell is this, $8.99 for Bumble?” I was like, “Oh yeah. I’ll pay you back.”
It was a Friday night, it was my weekend with my son and I’m drinking wine and swiping, and I’m matching with people and I’m like, “I don’t even know what the hell to say.” I don’t feel like I have interesting one-liners. Then I was so overwhelmed by it. Then I realized that I had the next four weeks, between travel and having my kid, I don’t even have time to date somebody, what the hell am I doing? It started Friday night, my Bumble experience, and it ended on Monday morning. I’m done. Cancel the account, I don’t have time.
Emma: Well, that’s fine and that’s the beauty of online dating.
Shannon: How do you meet people, Emma?
Emma: I always met people online. I’ve had a boyfriend all year, since January, and we’re in October.
Shannon: You’ve had a really stable relationship. Did you meet him online though?
Emma: I met most people online. A few outliers through business. I went on some blind dates.
Shannon: I meet people at bars.
Emma: Yeah, I mean, whatever. There’s dudes around. It’s not hard to meet people, but we also live in New York City, so the pickin’s are generous.
Shannon: They are. And I said too, I really love old guys and I’m 39 and blonde, so I match a lot with them. I like them old.
Emma: I don’t think that being blonde is a prerequisite. Old men like young women, period.
Shannon: Young, period, definitely. I used to be that I didn’t get the whole May-December thing. But as the May person, I totally get it. I think they’re more, I don’t know if more secure, but they’re more even-keeled, and I like the whole mentor thing. I’m sure I have daddy issues. I don’t know. I just like old guys.
Emma: I tried dating younger men. I’m still friends with a couple of them. They weren’t just pool boys, they were totally guys I would go for. Really successful, super bright and charming, great men who happened to be younger. A lot of it for me was my ego. I was like, “What are you doing with this shit-show? Mom bod. This doesn’t even add up. You’re so cute and so successful, go over with 24-year-old, Brittney. That would make sense. This doesn’t make sense.” So, it was a lot of ego for me. It was very interesting and kind of fun, but I don’t know, it just wasn’t a huge romantic thing. I was never going to fall in love with any of these men. Also, I feel like connecting, I can connect intellectually with somebody, I can connect sexually with them, but they’re not going to connect to my life. They don’t get it. They haven’t had as many life experiences or similar life experiences, especially if they’ve never been married or had kids. It’s all good. Whatever floats your boat, but that wasn’t for me.
Shannon: I agree with you. I think it is the life experience thing too. I don’t want to have to explain what it’s like, the kid thing, or for them to be like, “Oh, yeah I totally get it.” and they don’t get it. I don’t have time for that.
Emma: Old dudes can be clueless. There’s a whole discussion in my mom’s group, I think you’re in there, Millionaire Single Moms, and they were talking about all these women refuse to date men who had stay-at-home wives for their first relationships. They felt like one, they were spoiled and couldn’t take care of themselves, and two, they didn’t get that these new women that they’re dating how intense their lives were and what it required to be involved with them, because they had women serving them at their beck and call all the time.
Shannon: That’s a really interesting point. The guys I’ve dated, even my ex-husband, they all have had working moms, and value a working woman. I feel like for me, that’s number one, before anything else. I love to work. Everybody’s got their own thing, live your life, be happy with yourself. Personally I love working and obviously, my business is my passion. If you don’t get that, then it’s a non-starter.
Emma: It really is. Your passion really is women and making money and investing their money. What is that? If you could say the number one reason why women are investing and saving so much at such lower rates than men, what is that one reason?
Emma: What does that even mean? What does that word mean?
Shannon: It’s being mindful of where your money is going. We have people come to The Financial Gym all the time, they’re like, “I don’t know where my money goes. I have suspicions of where it’s going.” I get so angry, because most of marketing, most of products are aimed at women. It’s aimed at making us bad at money. You go to Duane Reade in New York and it’s like, the whole front of the store is the makeup department. It’s all for women to spend money. Where are the dudes going to spend money?
Emma: Wait a minute, timeout. Why? Why are women not mindful? Is it because we are expected to be taken care of by a husband or a father? Go a level deeper.
Shannon: I think there is this assumption or this misnomer that women are not good with money, or that the money experience is not as enjoyable for women as it is for guys. Guys come in and they want to invest, they want to do with their money, they assume they’re doing well with their money. Guys really connect with money and women just seem to have this disconnect and it’s false.
There’s a lot of emotion with money too with women. At the Gym, the two words we hear all the time are fear and shame. “I’m afraid of not paying off my student loan debt.” Or, “I’m ashamed that I make $300,000 and I $80,000 in credit card debt.” Or, “I have nothing saved.”
Shannon: We see all stories. The stories from the Gym are hysterical and not hysterical. We see it all. Our first location right now is in Flatiron, New York; we are across from the Museum of Sex. We said we’re more taboo at the Gym talking about money than they are. They have dildos in the window at the Museum of Sex, and we’re the taboo people on the block. Money is just still taboo. For women, there’s so much emotion tied to money and money choices. Guys are black and white about it.
Emma: Their role is to be the breadwinner, that is a very assumed role. For women, we’re constantly torn. It’s the work/life guilt, the mommy guilt, but it’s all connected to money. One thing I ask women that come on the show to say out loud is, “I like making money. I love making money.” Because we’re told that that’s shameful. We’re greedy, or we’re golddiggers, or we care about material things more. No. Money is security. Money is a mark of success and accomplishment. It’s our ability to care for ourselves, our independence. Money is our political power. If women are not prioritizing earning and achieving professionally, we do not have power in Washington. Planned Parenthood goes away, and Hillary loses. Money is fucking, everything.
Shannon: It’s everything. Think about this, for your listeners, think about how many times you sit in a group with your friends, and the group of you talks about money together.
Shannon: Right? Exactly, and that’s a problem. Guys will sit around and talk about bitcoin or what they’re doing with their investments. They will talk about money as a group when they are out with their dudes. When we get together, we don’t talk about money. Why? Or we talk about how much we’re spending, or we talk about the new thing we bought, but we’re not prioritizing getting excited about your investment portfolio. What I love is, we’re changing that at the Gym. Our clients come in and they’re like, “Look at my Betterment account.” I had one client who literally shows her phone with her app with Betterment, how much her portfolio is up. I’m like, “I love that shit.”
We want women to talk about that and feel confident about it. I think there’s that fear and shame. Women don’t feel as confident talking about money. Well, guys don’t know what they’re talking about either. Okay? They’re just talking about it. That’s the thing I want to say too, they’re like, “Oh, yeah, my boyfriend sits around talking about bitcoin.” They don’t have a fucking clue. They don’t have a clue either, they’re just talking about it and they’re comfortable. I think women are not comfortable talking about things we’re not comfortable talking about, so we just won’t.
Emma: That’s interesting. Quickly though, explain in a nutshell, what is The Financial Gym?
Shannon: The Financial Gym is a physical place where you can go to help with your money. You could have zero dollars in the bank or $5 million in the bank. We have clients who have started like that and it’s a fun, cool place, instead of working with a fuddy-duddy financial advisor, you get paired with a financial trainer. My whole team right now is all female. I freaking love it. I have people who have been raising money in the venture capital space and guys, of course, are like, “Are you concerned that you're going to drive men away with your all-female team?”
Emma: Oh my God.
Shannon: I can’t even tell you how many times I’ve been asked that question. It’s ridiculous. I was like, “A: I don’t fucking care.” is my first response. But “B: First of all, women are half the population. 95 percent of our inbound traffic to the Gym is female. And C: I’d love to hire the dude who wants to sit there in a financial plan meeting with a client when she’s crying, or he’s crying, we’ve had both male and female criers, about their money situation. I can’t wait to meet the dude who’s cool with that.”
Emma: The hugger. The guy who is the hugger is always super skeevy. “I’m a hugger.” I’m like, “Well, what if I’m not a hugger? Don’t I get a fucking say in that? I don’t want your body pressed up against mine, and that’s my right.”
Shannon: Yeah, I can’t wait to meet that dude. He hasn’t presented himself to me yet.
Emma: If you were pimping tampons, “Aren’t you worried you’re going to drive men away with your bazillion dollar tampon company?” I’m so sorry you have to sit through that. I’m sorry.
Shannon: I’m not, it’s funny. It’s funny for me. It breaks up the day, their ridiculousness.
Emma: Wait, so have you gotten funding?
Shannon: Yes, we’ve raised a $1.9 million. I think it’s only like one percent of women business have raised over a million dollars.
Emma: Good girl, I’m so happy for you. I am so happy for you. Congratulations.
Shannon: Thank you. So, we’re going to build more Gyms, and it works like a regular gym. You pay a monthly membership fee. $85 a month and you get a person. That person is like your life coach, your money coach, your best friend, your trainer. It’s an awesome thing. My trainers are amazing, amazing women. People ask me what is a financial trainer? What are you looking for? I tell them I’m looking for somebody who’s compassionate, empathetic, and wants to help people with their money and has a personal finance passion as well. My trainers are the freaking best people on the planet. They care so much for their clients.
It’s like an old-school thing that I’ve heard other financial planners or advisors say, “No one’s going to care more about your money than you.”
Putting the onus on the person, not the advisor, that takes away the advisor's decisions for them. That’s bullshit. First of all, the person helping you with your money should care as much about your money. That’s what I love. My trainers care probably more about a client’s money because they can see the potential of what they can do.
Speaking of mindfulness. I have a woman who started, she makes $300,000 and she’s one of these we call the optimizer client. She thinks she’s doing everything great, maybe she didn’t even know she needed to work on her money. She just had her first quarter review, she’s up $13,000 in three months. She said it was just being aware of the choices she’s making.
We do watch our clients spending. We have a system like Mint.com, so once you get on board they know we’re going to see what’s going on. I always say, “I don’t really care what you’re spending on.” All of our clients are like, “I don’t want to go on a budget. Don’t tell me what to do.” I’m like, “I don’t really give a shit where you spend your money. I just want you spending money on what’s important to you. What you value. I don’t really care what you buy at the end of the day. I just want to make sure that you’re spending it on what you want to spend it on and you’re not wasting it at Duane Reade when you really want to travel the world, but you have no money in your travel account because you’re spending it at Duane Reade.”
Emma: Right, right, right. Here is one thing that you’ve told me, and I’ve seen this firsthand is, very accomplished women with high incomes, very educated astute people, who have no idea about money.
Shannon: I was one of those too, by the way.
Emma: I really want you to break this down. If you are like, “I know I need to start investing and saving for retirement.” Really, I want you to speak at a very, very basic, step-by-step level. What are they doing? What do they do? Assuming they’re not working with a planner. Well, we can talk about whether or not to work with a planner, but what is the first thing they do, and the second thing, and the third thing they do?
Shannon: The first thing they do, and I don’t always say just save for retirement because there’s a lot of life between here and retirement. So, I think the first thing that I think about is, what are you saving for? What do you want in life? I think this is probably the biggest thing we do for our clients at the gym is goal setting. I see this a lot with women. We don’t put big badass goals out there because we just don’t. Guys will be like, “I want to be a millionaire.” They’ll have really big goals, and women are like, “I want to pay off my student loan debt.” Or they don’t even know because they don’t know what they’re capable of.
First thing first, put your goals and your intentions out there. Do you want to own a home? Awesome. Put it out there. You want to have a kid? I always tell people, if you want to have a kid, that is expensive, especially the older you get. Either, you’re going to have fertility issues as a possibility, and every time you do an IVF treatment it’s $10,000 out the door. Or the older you get, you want to have kids, you’re going to freeze eggs. We have a lot of women freezing eggs. That’s a $10,000 per procedure thing. It costs money. So, what are you saving for between here and retirement, and if you’ve got big goals between here and retirement, then you want to save in what we call your medium-term bucket. Then you have retirement, which is long-term. So, that’s first thing’s first, what are you saving for?
Then the biggest problem we have with clients is they’ve got money in their bank account, they’re building up cash, then maybe they have their retirement account, a 401k and meanwhile, they don’t have this medium-term bucket because they’re scared to invest. Meanwhile, if it’s sitting in a bank account you’re actually losing money, because your bank account is probably paying you less than one percent, and inflation is two to three percent. So, if you’ve got money sitting in that bank account, it’s literally losing one to two percent every day.
Emma: What is an average expectation, even if you invest very conservatively? How much can people expect to earn?
Shannon: Six to eight percent, over time. Six to eight percent. And at least you’re going to outperform inflation, because when you invest, especially in the stock market, the stock market’s supposed to beat inflation. That’s why you would invest in the stock market.
It’s scary. The other thing is, people are like, “I don’t want to lose money.” Women say that a lot. “I don’t want to lose money.” And I say, “You don’t want to make money either because the only way you’re going to really make money is investing it. So, put your big girl panties on and do it.”
Then the next steps in what to do is figure out how much you need and then set up the accounts accordingly. Have one account for your medium-term goals, we call that a brokerage account. Then have one for your long-term goals, like retirement. There’s so many sites that make it super easy. I said Betterment, we send a lot of clients to Betterment. It’s a robo-advisor.
Emma: Alright, let’s slow this way down. Medium-term is going to be, maybe it’s just an emergency fund like your roof blows out, or, you want to travel, you want to start a business, that’s going to go in a brokerage account. That’s something you have to take ownership of and manage for sure. You mentioned Betterment, that’s a great company. Fidelity, I’m a client of Fidelity. Whatever.
We need to talk about this, you’re a financial professional and I’m a financial professional, and we’ve talked about this, most of these places, their websites are horrible.
Shannon: They’re horrific.
Emma: They are horrible. They’re so confusing.
Shannon: I called Fidelity, too. Their site sucks.
Emma: Their site so, fucking sucks. It’s important for you and I to say this because we are in this space, supposedly we know what we’re doing, if you are at home listening and you’ve been on Fidelity, or their peers like T. Rowe Price, all of those companies, and you’ve been like, “I’m overwhelmed.” It’s not because you’re dumb, and it’s not because you’re unsophisticated, it’s because they suck.
Shannon: They do suck. It’s so funny you said that about Fidelity too, I say that all the time. I want to send people to Fidelity because I love their mission, I know they support women. I’m a professional and half of what we do with our clients is open accounts, because they’re like, “I don’t know where to go.” Clients come in for follow-up meetings and all we do is open up accounts and walk them through the process. Going to Fidelity, I know what I’m looking for and I can’t find it sometimes. Even just the open an account tab is not noticeable.
Emma: It’s ridiculous.
Shannon: That’s why I send people to Betterment though because it really is kind of dummy proof. Or some of the robo-advisors, they really do make it easy. That’s why I say, you don’t even have to think about it because they’re going to pick your investments for you. If you really get overwhelmed, go there. Take the overwhelming part out of it. Don’t let that get in the way of making money.
Emma: So, Betterment and robo-advisors mean that it’s a computer that is doing what a few years ago a human being would do, which would be managing your portfolio.
You pay a fee, but that fee should be low enough where it makes sense because here’s the big mistake that people make. They’re like, “I’m just going to pick some stocks. Apple’s really hot.” No. It’s so much more complicated. Do not stock pick. That’s like a hobby like day trading is a hobby. That’s fine if you’ve got all the money in the world and you’re interested in that, that’s great. Do it with your kids. Teach them about the markets. But we’re talking, hire a professional. There are so many studies out there that show that is the way to go. Don’t try to do it yourself. So, that is the brokerage account.
If you have an employer and you have a 401k or another retirement plan, take it from there. Then you have limited choices. Half a dozen usually? Talk about that.
Shannon: The brokerage account you’re doing it on your own. The biggest thing I would say is make sure you’re prepared for your medium-term goals before you fixate about retirement. I can’t tell you how many people I have who are like, “I’m maxing out my 401k.” And I’m like, “But you have $20,000 of credit card debt at 24 percent. It doesn’t fucking matter that you’re maxing out your 401k. You are not going to get ahead.” Or, you want to buy a house and it’s like, you’re not going to be able to use the money from your 401k to pay for the house. Prioritize your medium-term goals first and if you can plan for both, great.
The 401k or the 403b if you work for a non-profit are amazing options. The money comes right out of your paycheck and gets invested for you.
With a 401k or a 403b, your company picks your investment options. You don’t have to get cutesy or overthink the process. I think almost all companies now have what’s called target date funds as options, or life goal funds you might see. They’re the funds that you see have dates on them. You might not know it’s a date if you see 2050 or 2055, that’s actually the year 2055. What that’s saying is that you will likely retire in 2050 or 2055. So, pick those target date funds and that’s it. You can have 100 percent of your 401k in that and you could feel good about it. And why? Before I started the Gym, I was a financial advisor at Merrill Lynch, so I know that side of it. I tell people that I worked for a big bad bank, and yeah they really were that big and bad. They are. There are some pretty horrific people working there.
The biggest thing I learned when I was working there is that 90 percent of your investment returns is based on what is called your asset allocation. Your mix of stocks and bonds. Ninety percent is your investment returns. Ten percent is what you actually picked. Did you pick Apple stock? Do you pick an ETF? Do you pick a mutual fund? Who the fuck cares what you pick? People overthink what they pick. Am I investing in the right things? The biggest thing is asset allocation and that’s what a target date fund is going to do. It’s picking the mix of stocks and bonds that you need based on your goal which is retiring at 2055.
“Leave investing to the professionals”
Emma: Wait, we have to break this down even further. Asset allocation means, what? There’s all these classes, domestic versus foreign stock, versus small companies versus large companies, then diversification across different industries. So, oil and gas, and technology, all of these things. The metrics are, there are quantum math guys who are on the spectrum heavily and they make multiple millions of dollars a year, and sit in a windowless room on Wall Street to work on this for you. So, don’t try to overthink it. Diversification because sometimes oil and gas is going to be up and sometimes it’s going to be down, but then hopefully technology will buffer that. Then the market and foreign events and domestic events, the weather, all of these things and a bazillion different points. It’s about diversification so you’re protected. I don’t know about this. What I just said is the extent of what I know about that. Leave it to the professional.
Shannon: You were really impressive sounding, Emma.
Emma: I know. That’s how I make all the big money because I can talk a little bit of shit about a lot of stuff.
Shannon: I like it.
Emma: That’s exactly how I’ve invested. Target date funds with low fees. I have set it to 2045, I’m 40 years old. Some nerd in a room is figuring this out on my behalf for just a little bit of money that I pay him every year.
Shannon: Yeah, and actually, to get even more complicated, you’re actually not really paying it. It’s not coming out of your pocket, it’s just coming out of your returns with the target date funds. It’s fees, but you don’t pay the fees.
Emma: It’s not like I write them a check.
Shannon: Yeah, you don’t write a check, there’s fees involved. It’s worth the fees is what I’m saying because of the asset allocation component. So I do want to get into asset allocation for a quick second, but before that, I want to get into another good reason why women aren’t great in investing or don’t do it enough, is there’s so much fucking jargon out there. It’s jargon that was created decades ago, by dudes, and all it is a script that dudes learn and they just stick to the script. They don’t even really know what they’re talking about. Okay? If you don’t understand what terms like asset allocation, or small-cap stocks, mid-cap stocks, that’s fine. You don’t even need to know it. They do make it confusing for you and I tell people, it’s like Greek. We don’t understand Greek, as women. Most people don’t understand it and they don’t want to understand it. The thing is, the whole industry makes it so convoluted just so they can feel better about you not knowing.
Emma: On purpose, so then you feel intimidated and then you’re gonna go pay somebody some exorbitant amount of fees that you don’t need to be paying.
Shannon: Because they use the jargon. I can’t tell you how many women I met when I was building my practice at Merrill Lynch, and even to date, they have financial advisors and they’re like, “I sit there and the guy goes over the whole presentation. I don’t understand a word he’s saying and then at the end of it he’s like, ‘Do you have any questions?’ And I just say no, but I just say no because I had no idea what he said.”
Emma: You couldn’t even ask a question if she wanted to.
Shannon: Yeah, she wouldn’t. Like, what the fuck would I ask? I don’t even know what he just said. I was like, “This is your money. This is your future. Make that guy explain it to you until you get it.”
Emma: No, she needs to just go to you and find a better advisor, because that guy’s not serving her. He’s not interested in serving her because he’s talking over his head so he feels like a big shot. There’s so many women in this space, and men, I never want to bag on men. The people that really care, and if you really care you’re going to speak at people’s level and connect with them.
Shannon: That’s what I’m saying. If you like your person, I think that’s great, but make sure that they are earning the fee that you’re paying them. Just make sure that you feel comfortable because you don’t want it to be confusing. It doesn’t have to be confusing.
Anyway, all the jargon stuff, we had this event at the Gym a few weeks back, every Wednesday night we do Wine and Learn Wednesday’s where we talk about different topics. Investing 101 is a common one that we do. We had this woman raise her hand, and it’s mostly women who come to the events, this woman raised her hand and she’s like, “I get told all the time I should be investing in the markets. Invest in the markets. What are these markets? Where are they?”
Emma: She thinks it’s like a bazaar, like a flea market.
Shannon: “Where are they? How do I get there?” She felt like she was asking the stupidest question. The whole group, everyone was like, “Yeah, can you answer her question?” That was a really good question. This is the degree of which it’s not connecting with women. I told her, “That’s the greatest question ever.” And I love that so much, so if anyone who is listening to this feels this way, what are the markets? There are actually a number of markets. There’s the stock markets, which is Apple or where you own a company. Sometimes you hear equities, that’s a market. Bond market is like loaning money to companies. There is the commodities markets.
Emma: But what are they? It’s not a physical market. Explain what a market is.
Shannon: They’re pretty much online.
Emma: It’s a virtual marketplace of stocks.
Shannon: Yes. Cryptocurrencies, if you’ve got a dude who is investing in bitcoin or some kind of cryptocurrency, that’s a market. It is a marketplace. They’re online marketplaces where you make money. There are a lot of markets and each of the markets represents different assets. Going back to asset allocation, you want to have a few different assets in your mix in what you’re investing in like Emma was going into about diversification, because that just gives you enough representation so you can sleep well at night.
Emma: Basically, you don’t need to know about the market. I’m here to tell you, if you’re a beginning investor, that’s wonderful and thank you, Shannon, for being here to hold her hand, don’t worry about the markets. If you’re investing in a fund, or you’re working with a broker, they’re working on the markets for you.
Shannon: Yeah, they’re there to pick the markets you need to be in. Exactly. They’re going to pick the markets you need to be in based on our assets. The other thing, going back to overthinking what you’re doing or picking individual stocks, the other imagery that we tell our clients or we give our clients is, when you think about investing, think about your main portfolio as creating this tree. You want to create the tree trunk with your basic investing portfolio. So, the target date funds, or a robo-advisor, ETFs, really basic, basic investing. That’s what Warren Buffett does. You want to create this tree trunk of really kind of “boring” investing. Everybody’s doing it and that’s the way you create this foundation for your wealth. Then after that, if you want to do cryptocurrency like bitcoin, or you want to invest in oil and gas yourself, or real estate, all these things, think about those as your tree branches. Don’t build your whole investment portfolio on a branch. Create this really stable tree trunk and then if you want to buy Apple stock, or you really do like this one company, or Lululemon, or whatever the hell you want to buy. Think about that with the smaller tree branch money.
Emma: And that’s going to be more disposable because again, that’s going to be one stock or one asset, versus a diversified portfolio will have, what? Hundreds and hundreds of different assets.
Shannon: One ETF that I like, and it’s easy to remember, it’s ITOT. Actually, it’s a BlackRock ETF. It’s a total market ETF, so you buy that one that’s like $30 for one share of it, you buy one share of it and you will own 2,000 stocks. You will own Apple, you’ll own Amazon, you’ll own Johnson & Johnson, it’s like with one stock. Just buy one of those and you have everything. You don’t even have to think about it. Go into that. There’s a Vanguard total market index II, or there’s the S&P index, you could just buy one and be done and not even have to think about it.
Emma: So, the takeaway is, I would say, and I want to know what your takeaway here is, one: If you’re intimidated by the market, it’s no wonder why. You’re so normal. Most women are, most people are. Do not ever feel ashamed about that. Two: there are ways to make this easier than you think. It pays to pay. It doesn’t mean you should pay just anybody, but do your research and find somebody that is affordable and is going to speak your language and start doing it.
Shannon: Can I say when it makes sense to have an advisor?
Emma: Please, yes.
Shannon: We don’t manage our client’s money, we either empower them to do it on their own or we work with clients who have advisors. Where I think it makes sense to have an advisor or a financial planner is if they are going to look at their whole life for you and kind of help you manage it all and put it all together. We have clients who come in and I say it’s like they throw puzzle pieces at us. They’ve got all these different pieces of their puzzle that they can’t put together themselves. Everybody is busy. We all have a lot of shit going on in our lives and they throw the pieces out, then what we do is, when we do a financial plan it’s like we’re putting it all together.
We’re making it make sense. Work with somebody who is going to help it make sense. If you just have somebody and you’re paying somebody just to invest your money, you’re probably overpaying and you could move all your money to a robo-advisor and save a lot of money, and they’re going to invest it for you a lot cheaper. If you are paying for someone to invest your money and you’re comfortable paying that fee to them, make sure that you feel good and you feel really confident about what they’re doing and never be afraid to ask questions. Everything they say, say, “I’m sorry, what did that mean?” Who cares what they think about you? Who cares if they think you’re an idiot?
Emma: You’re the client. It’s your money.
“You’re the client. You are not an idiot.”
Shannon: You’re the client. You are not an idiot. I became a financial advisor at Merrill Lynch six years ago. I didn’t know what the fuck an ETF was. I worked in trading floors for 13 years, and I would work with guys they’d say, “Oh, just put all your money in an ETF.” I’m like, “Oh yeah, I’m going to put it in an ETF.” I didn’t know what an ETF was, and I was in the industry. It is okay to not know what these things are.
Emma: Shannon McLay, The Financial Gym. How can people find you?
Shannon: Yes, they can find us online at financialgym.com or if you’re in New York, come stop in for some wine and hang out with us. We’re also on Twitter @FinancialGym, we’re on Instagram @TheFinancialGym and we’re just breaking down the jargon and having fun along the way and empowering, especially women, with money. I feel like I have the greatest job ever.
Emma: Well, it’s important. It’s part of the work we’re all doing and I’m grateful to you, so thank you.
Shannon: Thank you.
Wealthysinglemommy.com founder Emma Johnson is an award-winning business journalist, activist and author. A former Associated Press reporter and MSN Money columnist, Emma has appeared on CNBC, New York Times, Wall Street Journal, NPR, TIME, The Doctors, MONEY, O, The Oprah Magazine. Winner of Parents magazine’s “Best of the Web” and a New York Observer “Most Eligible New Yorker,” her #1 bestseller, The Kickass Single Mom (Penguin), was a New York Post Must Read. A popular speaker, Emma presented at the United Nations Summit for Gender Equality. Emma's Top Single Mom Resources.