While I knew a bit about Ukraine’s communist roots and its promising position as an emerging capital market, I initially knew little about the country. I also didn’t speak Russian or Ukrainian.
I’ve since become knowledgeable about the country, its politics and developed a great love and respect for its people. But the at-the-time blinding truth and reason for me accepting the assignment was this: I had racked up a ridiculous credit card debt. Given my paltry salary and beyond-my-means spending, paying off such a debt seemed insurmountable, if not a complete impossibility. In short, I was up the proverbial creek without a paddle. Skipping out on the bill seemed like a good idea, at the time. What can I tell you? I was 24.
While I eventually did pay off my credit card debt, I remember one particular evening sitting around in a local, Ukrainian bar with some other ex-pats – all of whom were male, swilling vodka and waxing poetic about the world’s problems, despite the fact our young lives and minds had little experience in such matters.
Still, there was one thing that all of these guys did seem to know about. Or at least, know a lot more about than me. And that was money. Quite simply, they were making more, living on less, saving and investing as much as they possibly could. They were also talking about their money strategies as easily and openly as women talk about every other topic -- besides money. I was intrigued. It was pretty clear that, unlike me, not one of them had accepted the assignment because they had to pay off a credit card bill.
I decided right then and there that if I ever had to make some life-changing event again – particularly if it involved uprooting my life – it would be because I wanted to do so, not because I didn’t have a choice. But to do that, I needed to get smarter about money. Specifically, making and investing it.
Ninety percent of the expats in the program were male. Most were newly-minted MBAs. They were the up-and-coming “Old Boys Network,” all looking for the next big deal. I picked three of them who I thought were the nicest and most knowledgeable around the subject of investing and offered them a deal: I would give them tips on how to attract worthwhile women, if they would teach me about investing. The caveat: my tips would be practical, and so must theirs. To my surprise, they all agreed. As I write this, 20 years later, it sounds a little (a lot!) strange that I would have set up such an arrangement. But, it worked. I think we all learned a lot that year.
Here are seven particularly memorable tips they gave me:
1. You’ve Got to Be In It To Win It: First and foremost, don’t try to time the market. You need to make a commitment to invest. Be all in, all the time. (I’ll get to how you do that in a second). No one truly knows what the market will do next. Commit to investing what you’ve got now and regularly adding more – no matter how small you think those amounts may be. Over the long-term, investing smart is the surest way to reach your financial goals.
2. Set Your Own Goal: Many people have this fuzzy, vague vision of “I need money for retirement,” or “I need to make $1million,” but are often unclear on what their exact goal should be. Worse, they accept wisdom of said “experts” to tell them. The fact is the money you need for retirement – to afford the things you actually will NEED-- like food and healthcare, will likely shock you, especially when you consider $10 today will be worth far less tomorrow. The money you need to afford the things you WANT will definitely shock you. Check what your actual goal should be here.
3. The “Magic” of Compound Interest: Many people – and women in particular – think they need thousands of dollars to invest. This is not true. You’ve heard stories of people who started investing in their 20s with $200 or even a $50 investment. Their success is a result of money invested over time and compound interest.
For example, if you invest $250 a month, every month (or $3,000 a year) at 9% interest, you will have $3,270, after one year. Rather than withdraw that money, you keep it invested for 20 years. Because you continue to earn money on your principal amount and the interest, with a consistent average of 9%, you end up with $171,388 in 20 years. This is, needless to say, a lot better than the $65k you would have, if you put the same amount of money in a savings account. Consider if you double your investment money to $500 a month (or $6,000 a year). In 20 years’ time you will have accrued $342,777. Now you’re getting somewhere.
4. The Importance of Returns: There was a lot of discussion among my “old boys network” colleagues whether one could beat the market over the long-term. When referring to the “market” they meant the average annual return of the S&P 500, which is historically 9%. Although, most people only stand a chance of getting 6-8% after all the advisor and/or fund fees are taken out.
I could see why they were fighting about it, as the difference in returns can translate to hundreds of thousands, if not millions of dollars difference in your end result. Using our $250 a month investment example above, you see that 9% returns – over 20 years – will ultimately yield $171,388. That same exact $250 invested over the same exact period at a 16% return yields $314,559. Quite a difference, right?
Now, let’s say you already have some money saved and invested – around $50k -- and you’re 20 years from retirement. You get more aggressive and start saving $10k a year or $800 a month. A 9% return yields $871,131 vs. a 16% return which yields $2,089,682. Again, check the calculator to analyze your own situation and what you have to gain.
At any rate, the tip was clear: try to achieve the highest returns possible without getting too risky. The principal amount of money you have and rate of return are the most important, and variable, factors to your success.
5. Two-Bucket Strategy: Having made the point about achieving high returns, it is equally important that you invest smart. Higher returns - or growth stocks - can sometimes mean higher risks. Risk can be a good thing – with great rewards – if you’re smart about it. It is critically important to develop a strategy that protects you in the short-term and provides the growth you need in the long-term. This is essentially a two-bucket strategy, which is:
a. Short-term: Money needed in less than 5 years should be invested conservatively. Your returns on this money will be lower, because you are invested in CDs and more conservative funds. However, in doing so, you are by-and-large protecting yourself from the (sometimes great) fluctuations of the stock market. That’s because the market always historically recovers in less than 5 years. This was true even after the greatest crash of all-time, in 1929.
b. Long-term: Money needed in more than 5 years should be 100% invested in growth stocks, regardless of age. This is the money that will grow and you need to grow.
6. Understand Where Your Money Is Invested & Why: I actually don’t know many women who are do-it-yourself investors. There may be a lot of reasons for this. But at the end of the day, it’s your money, and no one is going to be more concerned about protecting and growing your money than you. Too often, women throw their money into a 401(k) or 529 plan – good tax-deferral options but often offer terrible investment returns, or hire a financial advisor and let him/her “get on with it.” Do you know what you’re invested in? What your returns have been and what to expect over the coming years in both a good/bull and bad/bear market? Are those returns sufficient to reach your goal? Does your goal give you breathing room for the unexpected? Are you making as much as you can? Do you know the things you are doing that are not the best possible uses of your money – like paying off your mortgage early? Do you know how much your investing is costing you (i.e. in some cases fees can cost anywhere from $60,000-$1million!). All things to know. If you don’t, find out.
7. Don’t Be Afraid to Move Your Money: Women are excellent money managers and money “movers,” as I call them. We are very adept at moving money from one part of the monthly budget to cover another part. We usually know exactly where to decrease spending, shave costs and how to end up with the exact same results. However, we don’t apply these same talents when it comes to investing. We invest through our 401(k) or hand our money to a financial advisor. We then assume what we’ve done is good enough. It’s not. It won’t be. And if you took a little time now to get more involved, I could almost promise you would spend far less time managing your monthly cash and likely less time working in general, if you invest well.
A personal example is when my financial advisor – a guy who had “inherited” my investment accounts, didn’t bother to call me to discuss my accounts for 6 months. Once I finally got him on the phone, he then told me that I was “doing well” (though he seemed unsure of my returns and thought 5% was good) and explained to me what kind of investor I was (or should be). He also was overly interested in my and my husband’s respective incomes, and when I asked about his fee structure, he tried to upsell me on some product. He also was just generally condescending. I pulled all of my investments – all of them – out from his control and moved 80% of the amount to an online system (Baton Investing, if you’re wondering). Truth is, I could have kept my money with him, made my 5% (7% less his 2% commission), but I thought my money could do better. Also, I KNEW an online system wasn’t going to annoy me or be condescending.
Change was a little scary at first, but necessary. I am up – and while the whole stock market is up right now – I am much happier with my current returns, which are significantly higher than the S&P and nearly 3 times the returns I had when using a financial advisor. And frankly, while I'm sure some advisors are good, I am very glad to no longer have to listen to that particular advisor explain why everything he did was right. To me, the proof is in the pudding.
So here’s to my initial team of “financial advisors” -- all of whom remain good friends to this day, and their tips. Their advice has helped me tremendously. I hope it will help you, too.
Patty McDonough Kennedy is a mom, entrepreneur, speaker and investor. CEO of Kennedy Spencer (www.kennedyspencer.net), and a dual American-Irish citizen, she has lived and worked in the U.S., Eastern & Western Europe and Africa, and learned some good lessons along the way. Her blog ((Laugh Lines)) about business, money, parenting & life is read in 50 countries.