Time to Raise Your Investing IQ

The 2012-2013 Prudential research study  “Financial Experience & Behaviors Among Women” is out.  This new study explores the responses of 1400 women aged 25-68. Despite a broader pool of respondents compared to past studies, the overall insight gleaned remain constant:  Women, for the most part, are not confident in making financial decisions.

The study claims that “the majority of women (53%)  are primary breadwinners.  Among these primary breadwinners, approximately 30% consistently self-identify as lacking knowledge of financial products, including:  stocks, bonds and mutual funds.  Among all the women interviewed 70% characterize themselves as savers rather investors.  Further, 59% are “only interested in guaranteed FDIC-insured products”  and less than one-quarter of all women interviewed claimed to enjoy the “sport” of investing.

But, the glaring inconsistency for the the study respondents is revealed in the opening summary under the headline:  “Women’s financial priorities differ.”  According to the study women are very concerned with passing on money to heirs and not becoming a financial burden to their families. The study concludes, “this tendency to take care of others first can compromise their families’ futures.”

But it is not the tendency of women “to take care of others first” that will compromise their families’ futures but rather their lack of knowledge of how to invest for their futures.  This can only be accomplished by educating ourselves on the options available.  With money market rates hovering at less than 1.0% (currently averaging around 0.75%) investors cannot expect to save their way into prosperity.   Additionally, Bill Gross, the manager of the world’s largest bond fund declared (again) last week that “the three-decade-long bond price rally likely ended April 29th” according to The Wall Street Journal.  If that is true, then bond prices will decline (as interest rates rise) and those invested in anything other than short-term bond funds or money market accounts will experience a decline in the value of their investment.  That leaves stocks.

This column has stressed repeatedly that stock investments are necessary to produce long-term returns in excess of inflation.  In this way women will ensure they are not a financial burden and generate excess wealth to pass along to their family.  The May 13th edition of Barron’s again published Wharton finance professor and market historian Jeremy Siegel’s research measuring equity returns from 1871-2012.  The median annual equity returns for rolling five, ten, twenty and thirty year periods was 9.4%, 8.6%, 8.1% and 9.2% respectively.  And since 1871 it is also important to note that “all 20-and 30- year spans have been positive.”  Investing is not “sport.”  Investing is a disciplined and prudent preparation for future financial needs.