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How to get started investing in 5 easy steps (for single moms)

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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. One recent survey by publisher GoBankingRates found that more than half of women do not save at all.

Emma’s quick take on investing

I am on a personal mission to get women to save and invest more.

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:

  1. On average, women live longer.
  2. Women are disproportionately more likely to be responsible for children and aging relatives.
  3. 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?! 

Before you jump into investing, also make sure you have these financial bases covered (or are on your way):

  1. Are working on paying off debt.
  2. Have at least $1,000 in an emergency fund.

1. Ready to invest like a woman? Establish financial goals

OK, are you wondering how to begin investing? Here are the first three steps to learn the investing for single moms:

  • Make long-term financial goals: pay off debt, save for a home, retire
  • Make short-term financial goals: pay off small sums of debt, create a budget, refinance larger loans, make a purchase like a home repair or vacation
  • Make a plan to fund these goals (including growing your income, as well as living on a budget)

2. Figure out which investment accounts you need or want

Next, these are investment accounts where you could start investing:

  • Employer-sponsored plans — this is a retirement fund or heal savings account through your job
  • Self-employed accounts — a self-employed 401k, a cash balance pension fund or an IRA that self-employed workers establish and fund 
  • Brokerage accounts — this might be through a brokerage like Fidelity or T. Rowe Price where you buy and sell equities. It is not typically tax-advantaged  

Employer-supported 401k or IRAs are an excellent option to start investing for several reasons:

  1. Contributions to these investments are typically matched by your employer. Ignoring that is leaving cash on the table. 
  2. These retirement contributions are typically tax-deferred, or tax exempt. 
  3. 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. More on retirement planning here.

3. If you don’t have an employer-sponsored retirement plan, consider a brokerage account.

If you don’t have an employer-sponsored retirement plan, or are self-employed, or are interested in investing on your own, you can invest via a brokerage account.

Ellevest is a financial education platform that also offers financial coaching, a savings account and insurance products.

With Ellevest, you will get investing advice for women

This is an online brokerage that specifically targets women as the client through its marketing, education material and pitch that women's financial trajectories are different than mens', since we typically take time off for children and aging parents — and help pay for their care and college.

In addition to the savings offered through Ellevest’s debit card, Ellevest Plus and Executive members can open a retirement account for no additional cost as part of their monthly membership. 

Ellevest offers both traditional and Roth IRAs and will recommend which type you should open based on your total household income. Its retirement algorithm factors in variables that affect women — pay gaps, breaks in employment (like time off for maternity leave), and longer lifespans. 

Learn more in our Ellevest review.

4. Review all investment options.

Lauren Niestradt, a Certified Financial Planner and senior portfolio manager at Truepoint Wealth Council in Cincinnati, Ohio, says women who want to invest should look at how different investment options make sense for their ultimate financial goals. That includes determining a comfortable risk level they can stick with in times of stock market volatility.

These are her recommendations for women looking to invest: 

  • Bonds: Retired women or women nearing retirement should make sure they have at least five years’ worth of their annual spending needs on the bond side of their portfolio to ensure they can go through a prolonged stock market downturn and not need to pull funds from the stock side of their portfolio. 
  • Stocks: When choosing investments to get exposure to the stock markets, choose low-cost and broadly diversified stocks to reduce overall risk. Broadly diversified means having exposure to both U.S. and international markets, large and small company stocks and growth and value stocks. “By being broadly diversified and owning investments that aren’t perfectly correlated with each other, clients reduce their risk of significant drops in portfolio value if a certain area of the market is dropping more than other areas,” Niestradt says.
  • ETFs and index funds: Women can use low-cost exchange traded funds (ETFs) and index funds to build a low-cost, diversified portfolio that can generate a strong, positive return over the long run.

The goal is slow and steady growth: Buy and hold, with some occasional rebalancing.

“They do not need to try to get rich quick by making speculative investments in cryptocurrency or the next Game Stop,” Niestradt says.

Marigny deMauriac, a CFP and CEO of deMAURIAC financial consulting firm, says determining what to invest in largely depends on the purpose of the funds you are investing and your timeframe for when you will need to spend those funds. 

“For example, I wouldn't invest cash that I need in one year the same way I invest cash I won't need until I'm 65,” deMauriac says. 

She recommends opening a high-yield savings account for immediate emergency needs and looking into rates on I bonds for near-term goals like buying a new car or saving for a home deposit. I bonds have a fixed rate of return and a variable inflation rate based on changes in the Consumer Price Index.

I bonds earn interest for 30 years unless you cash them first. While you can cash I bonds after a year, you’ll lose the previous three months’ interest if you withdraw before five years.

For long-term investments, deMauriac recommends designing a diverse portfolio that aligns with your values. 

“​​For example, some folks may want to exclude oil and gas from a portfolio and may wish to specifically include companies that have met certain criteria for having women in leadership and on their board,” she says.

There are many low-cost, exchange-traded funds, including those with retirement target-dates, that are value-based. 

Mutual funds

A stock fund, typically called a “mutual fund” is a group of stocks and bonds that are traded as one entity on a stock exchange.

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.

How to survive financially as a single mom: 11 steps to a richer life

Index funds

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. 

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.

One of the big benefits of ETFs and index funds is that the fees are extremely low.

Your employer retirement benefit may offer an ETF as an option.

Real estate investments

Many people like to diversify their portfolios with real estate. This can include rental properties, investing in REITs, or real estate investment trusts (mutual funds focused on real estate), flipping properties, as well as viewing their personal property as an investment for the future. 

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 is often considered a safe, modest investment to balance out a larger portfolio — especially since gold has typically moved in opposition to the stock market. However, this is not necessarily true.

The long-term stats (since 2005), gold, as represented by GLD has had over 20% higher volatility than the S&P 500. Remember that gold doesn’t pay a dividend or interest, but can be a strategic diversifier to a portfolio.

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?

5. Consider investing advice for women from financial experts.

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.

More financial advice for women 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.

Below is a break-down of how to do just that, whether through an employer plan, or on your own.

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 Ellevest, 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. Ellevest 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 Ellevest, 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 Ellevest, 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 you're 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.

Investments for women FAQs

What is the best investment for women?

The best investment for women is the same investment for me: a diversified portfolio, maximized employer match, target-date, low-fee index fund. 

Why should women start investing?

Women should invest to give themselves the security of a future of choices. This peace of mind today gives us confidence to take measured risk in our choices today: in career and business, investing in our homes and free time. The sooner you start investing means the more wealth and choice you have long-term

What is keeping women from investing?

Women are either burned with being sole breadwinners for their families with lower incomes (as are most single moms), or feel that because they earn less than their husbands or partners, they shouldn’t bother to invest. Also, many women submit to a culture of dependence and unconsciously assume that they will be rescued financially. 

Bottom line: When it comes to investments for women, just start!

Congratulations – you now have the basic tools to take charge of your financial future. Don’t be intimidated by money “experts” who’d rather keep you in the dark and collect fat fees to do what you could be doing for yourself. 

You may choose to work with a fee-only financial advisor, or manage a straight-forward portfolio yourself. 


 
What is the best investment for women?

The best investment for women is the same investment for me: a diversified portfolio, maximized employer match, target-date, low-fee index fund.

Why should women start investing?

Women should invest to give themselves the security of a future of choices. This peace of mind today gives us confidence to take measured risk in our choices today: in career and business, investing in our homes and free time. The sooner you start investing means the more wealth and choice you have long-term.

What is keeping women from investing?

Women are either burned with being sole breadwinners for their families with lower incomes (as are most single moms), or feel that because they earn less than their husbands or partners, they shouldn’t bother to invest. Also, many women submit to a culture of dependence and unconsciously assume that they will be rescued financially.

Wealthysinglemommy.com founder Emma Johnson is an award-winning business journalist, activist, author and expert. A former Associated Press reporter and MSN Money columnist, Emma has appeared on CNBC, New York Times, Wall Street Journal, NPR, TIME, The Doctors, Elle, 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. As an expert on divorce and gender, Emma presented at the United Nations Summit for Gender Equality and multiple state legislature hearings. More about Emma's credentials.

4 Comments

Such a powerful listen (and read!) Packed full of amazing information. Also agree Ellevest is really doing a great job with very personalised services for professional women.

YES YES YES – ALL THE YESES!!!!

The business I’ve just started is ALL ABOUT THIS! all of it. For women. I’m so glad women are starting to talk about this because we need to! For our sakes and for our futures! More women than men live on their own by the age of 85 and there are more divorces than ever post 60. We need to sort this sh*t out so thank you!!!!

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