Investing for *women*: will someone mansplain it for me?
January 7, 2017 8:58 AM   Subscribe

I am new to America (I'm French). I know next to nothing about investing and find it very intimidating. I am slowly wrapping my head around it all. But I need help.

For the first time in my life I am thinking about investing my money - (my cash has always been in my bank). I am thinking about investing a bit every month (say, $1,000 to begin with, and then $300 a month to begin with).

I was looking at female-specific investing firms, like Ellevest, which make it sound straightforward and easy. But I've also heard it was stupid and much better to invest straight in mutual funds on the Vanguard website, for example. What's the less stupid thing to do?

My profile:

- I'd think I'd be a conservative-sh investor - no crazy risks
- Between 30-35 years old
- I'd like to save for both my retirement and, say, a downpayment
- I'd like to slowly understand the mechanics of investing and i would like to be able to check progress online
- In an emergency I'd like to be able to withdraw some of the investment
- Am confused about investing on my own (how?) v having a company doing it for me

Bonus question: After a 401K (I have one at work), I have no idea what a Roth IRA is - should I look into it? Should I stick to mutual funds? US vs international stocks?

Any pointers, articles, explanations very welcome (and please talk to me like I am five years old, you're allowed to mansplain on this one).
posted by Sijeka to Work & Money (20 answers total) 39 users marked this as a favorite
 
I'm sure there are some women here who can very competently explain this to you as well . . .
posted by bookmammal at 9:02 AM on January 7, 2017 [21 favorites]


How about some womansplaining?

A great place to start is the Bogleheads website, which has a wiki with basic information, recommended books, and a forum. It's dedicated to low cost, do it yourself investing, with vanguard funds highly recommended.

Do you expect to stay in the US when you are retired? That will affect some decisions you make.

A work 401k is a good idea, especially if you have a match from your employer and your plan has low cost funds. Do you know if you have a match?

Jinx bookmammal.
posted by medusa at 9:05 AM on January 7, 2017 [8 favorites]


Keep your eyes on management fees. An investment vehicle that earns 3% a year isn't that great if the management fees are 2%. The fees are often hidden in fine print, and there can be multiple layers of them.

Vanguard index funds are an excellent way to go - they have diversified funds with low fees.

If you pick indidividual stocks on your own, realize that's for entertainment value, just like Vegas.

Skip the honey-voiced investment advisor - they tack on extra fees and steer you to things that gain them extra commission. That well-appointment office is being paid for by you.

Get a competent CPA to do long-term planning. Do you want the money to be taxed now, or later? What tax bracket do you expect to be in 30 years from now?

Take advantage of Roth IRAs as much as you can - you pay taxes on the way in, and then it grows tax free, and you are not taxed on the way out. It's an absolute giveaway to the wealthy as Mitt Romney well knows. A regular IRA is untaxed on the way in, but you will pay taxes on all of it - principal and earnings - on the way out.

Read A Random Walk down Wall Street for basic background.
posted by metaseeker at 9:23 AM on January 7, 2017 [3 favorites]


What you want for retirement (which is what your 401(k) is for) is a fund that adjusts the types of investments it holds as you get closer to retirement. These are called "target date" or "target retirement" funds. You should just choose the one that targets a year close to when you want to retire and invest everything in that. Set up regular contributions and forget about it.

For shorter-term goals like a down payment you should just use a savings account. The stock market fluctuates, so there is a good chance that you could actually lose money in the short term if you invest in the market. A savings account is a lousy investment, but it beats losing money.
posted by kindall at 9:26 AM on January 7, 2017 [1 favorite]


Are you planning on retiring in the US or in France?
posted by k8t at 9:38 AM on January 7, 2017 [3 favorites]


If you like nitty-gritty details, here is an example on what a full-service firm will recommend, and how you can do better. It's a redacted version of what my brilliant CPA friend sent as advice to an older relative who had a fancy investment proposal from a major investment firm - one that rhymes with Storgan Manley.

1. Fees, or what you can end up paying, for the privilege of being Mansplained to:

The single largest fund manager out there, who incidentally has a very good reputation, is named Vanguard. Over the past 25 years, they became the largest by focusing on very low cost investing and very low fees.

The comparable service of an advisor available to talk at any time from Vanguard costs 0.3% of your balance per year, whereas the Storgan Manley advisor costs 1.39% of your balance per year. On a $530,000 portfolio that means that you would pay the Storgan Manley advisor $7,367 per year, and you would pay the Vanguard advisor $1,590.

On top of that, each fund charges a "Manager Fee / Expense Ratio" and many of the funds that are being recommended are good, but expensive. The weighted average of the Storgan Manley fees at this level is 0.67% of your balance per year, whereas Vanguard will most probably land in the 0.12% percent of your balance per year. That means the funds in the Storgan Manley account would charge about $3,560 per year, and the Vanguard funds would charge about $640.

2. Cash Position:

Another thing to look at is the recommendations for cash and very short fixed income. This report is recommending putting $26,500 into IPPXX that has had 1 year returns of .25%, 5 year returns of .08%, and 10 year returns of 1.17%. And the advisor is going to charge you 1.39% of the balance to do this for you. That means you would have lost approximately 1.14% of that $26,500 in the past year, lost 1.31% per year of that $26,500 for the past 5 years, or lost .22% of that $26,500 for the past 10 years.

If you take that exact same amount of money to whatever your local credit union is and put it into a basic savings account you will be far better off and won't have to pay anyone anything to do so.

The same case applies to MYFRX, into which they are recommending putting $42,400. In the 1, 5, or 10 year time frame, the earnings have not even covered the 1.39% advisor fee that you will be charged. Add those two together, and they are recommending you invest about $70K into funds where you have a very low chance of even paying their management fee. My credit union pays 0.85% on basic savings accounts.

If they can't put cash and short term investments in accounts that earn more after the advisor fees than you can get at a federally insured credit union, I would not give them that money to manage.

3. On Portfolio Allocation:

They are currently allocating 12% of the portfolio to large cap growth and 12% percent to large cap value, along with 2% to mid cap growth and 2% to mid cap value, and 1% to small cap growth and 1% to small cap growth.

I would tell them to change that to
- 10% to large cap growth and 10% to large cap growth
- nothing to mid cap or small cap
- 8% to a low cost US total market index fund. There are a number of good choices from Fidelity (FSTMX charges .1%), Schwab (SWTSX charges .09%) and Vangaurd (VTSMX charges 0.17%).

That will make your portfolio far simpler by completely removing four positions and replacing it with one with far lower fees.
posted by metaseeker at 9:53 AM on January 7, 2017 [5 favorites]


The nice thing about something like Ellevest is that they take the time to give you clear feedback on how the investments contribute to goals you might have. This is what you are getting with that service. It has slightly higher fees that other robo-traders, but unlike other robo-traders they put in effort to help you contextualize your investments.

The most important thing to do is to invest your money somewhere. Personally I like the idea of Ellevest and would have used it if I'd seen it, I have most of my non-401k money in wealthfront which is a similar robo-trader but more complicated and I feel ultimately less transparent. A lot of people think that just going with Vangard is the way to go. If you feel overwhelmed by choices though, just pick something. Investing in any of these options (ellevest or betterment or the ilk, vanguard, whatever) is better than not investing at all.
posted by ch1x0r at 9:54 AM on January 7, 2017


If you're not sure you'll be in the US when you retire, and you want to be able to withdraw it in an emergency, an IRA (Roth or otherwise) might not be the best choice for you. If I were in your shoes, I would look into opening a brokerage account, and I'd do it with Vanguard because their fees are low and their customer service is good, and you'd also be able to invest in their funds. A brokerage account will give you the ability to withdraw your money and move it around without penalties (but doesn't give you the tax advantages you'd get with an IRA, so there's a tradeoff there).

Vanguard's target retirement funds are great for people who want to be hands off and invest in something relatively low risk. (Aside: Vanguard's minimum to open is $3K now I believe, so your plan to open it with $1000 will need to change if you go with Vanguard.) For laypeople (i.e. people who aren't well researched finance geeks), generally the less you have to touch your investment the better. Following individual stocks is a gamble, and a well diversified fund like what Vanguard's target retirement funds are will give you a good mix of investment products that are chosen and managed by finance geeks who do their research. People like you and me don't have to lift a finger.

Index funds are also great (VTSMX is Vanguard's banner index fund) because they grow at pace with the market, but I'd feel kind of iffy about socking all your money into an index fund right now. If you google VTSMX you can see that it's about the highest it's ever been, and there's no telling what kind of rollercoaster ride the economy is about to go on once Trump is in office.

For a basic savings account, I would recommend the Barclay's Dream Account. It's online only, but transfers are easy in and out of whatever bank you use for your checking account. Barclay's has the best APY rates around right now, and the Dream Account gives you an extra APY % bonus for regular deposits. It's the best account for saving up for a particular target.


The most important thing for you right now though is to realize that you're an adult and this is your money, and you are fully 100% capable of deciding what to do with it. You have agency here and you definitely don't need to be patronized to.
posted by phunniemee at 9:55 AM on January 7, 2017 [6 favorites]


For the down payment, what I've been told is to keep your money in cash (a savings or money market account) if you'll need it in two years or less.
posted by salvia at 10:01 AM on January 7, 2017 [1 favorite]


I can't recommend Vanguard highly enough. If I had a relative or friend with money to invest and no idea how, I would send them to Vanguard. By far, they have the simplest explanations, most straightforward website (for monitoring your stuff), and the lowest fees. If you have $50k to invest, they will give you a personal advisor, but if you aren't at that level I think you can "do it yourself" very easily with a few mutual funds or a "target date" fund like others are mentioning here.

There are two main things I think you want to understand:

1. Types of accounts. This is mainly a function of tax and retirement laws. There are special types of accounts you can open that have different tax advantages (i.e., you pay less taxes or no taxes on the money) but there are restrictions on when you can taken the money out (i.e., you have to wait until you retire). Which type of account you want will depend a lot on how much money you have to save. For a middle-of-the road income person, for retirement money, I would think you want to first max-out your 401(k) (about $18,000 in savings per year), which is a retirement account. Then if you have more to invest for retirement, you would choose either a Roth IRA or regular IRA. For a non-retirement account -- i.e., just regular non-retirement money you want to invest -- I would d open a basic mutual fund investing account at Vanguard.

2. Types of investments. This is simpler than 1. Vanguard is mainly set up to sell mutual funds, which are investment vehicles that generally invest money in private companies. Vanguard sells mostly index funds, which means they invest in a giant number of companies without trying to pick the best companies to invest in - this is very cheap and tends to perform better over time than trying to pick the winners. You can buy mutual funds in any type of account (retirement or not). You could also buy stocks or bonds directly (i.e., choose specific companies yourself), but, frankly, most people are terrible at this. There is also something called an ETF, which isn't much different from a mutual fund for any reason that would matter. If I were just starting out, I would probably invest in either a "Total Market" mutual fund (these buy stock in basically all public companies) or a Vanguard "Target Date" fund, which buy a mix of stock and bonds.

In my opinion, Vanguard is just so good and customer-friendly, I wouldn't choose something other than them just because it is marketed toward women.
posted by Mid at 11:09 AM on January 7, 2017 [3 favorites]


Seconding the Bogleheads and Vanguard strategies mentioned above.

1. Find a Certified Financial Planner to help plan your finances. DO NOT use a broker unless you need more hand holding and are ok with paying much higher fees.

2. Set up an account at a low fee brokerage (Vanguard and Fidelity are 2) so you can buy, hold and sell stocks.

3. Invest in an S&P index fund (ETF or Exchange Traded Fund which is easier to sell than a mutual fund and has way lower fees). The S&P is a group of the top 500 companies so they are less volatile (prices going up and down) than a larger group. You can put some into a larger group of funds like a Whole Index Fund or a Global Index Fund but stick with an ETF.

4. Most important, invest for the long term. Do not sell when the market dives. Do not invest money that you can't do without because it isn't a question of if the market will fall, it's when and for how long.
posted by jabo at 11:16 AM on January 7, 2017 [1 favorite]


First off, investment vehicles don't have gender detectors so investment advice will have nothing to do with being a woman, meaning you can look for ideas online without having to keep it in mind. Yay.

Second, where are you going to retire? Have you worked as a paid employee in France? This is even more important than people who don't know France realize, because here in France, a lot of companies provide a PEE (plan d'épargne entreprise). They're investment portfolios whose composition you can choose, which is also something a lot of people don't necessarily realize even when they know about the PEE. It's meant to be for retirement. If you leave a place, for whatever reason, the PEE stays open but no longer earns interest. In other words, it's good to move the money that was in PEE to another investment vehicle, whether it's a transfer to your new company's PEE or to something offered by your bank.

If you worked in France and didn't have a PEE, you were still cotisant à la retraite. Did you look into what you had paid into (les cotisations) your retirement before leaving? You know how many trimestres de cotisation you'll need for a full retirement? Big huge follow-up question: do you realize that US retirement is less favorable than the French one? You basically have to do it yourself in the States in order to ensure stability, even when Social Security provides. (In the US, "social security" is retirement. Not healthcare.) Whereas in France you can at least count on a minimum that's indexed on cost of living, as well as all the other social protections available (housing, healthcare). Did you know that while you can transfer the number of trimesters worked in the States to French retirement, it won't account for the salary earned? Meaning the French retirement will use the least favorable calculations for those trimesters.

You've a lot to think about before shunting money into American accounts.
posted by fraula at 11:45 AM on January 7, 2017 [10 favorites]


This is a funny and cautionary tale of how people have gotten screwed over. Helaine Olen's Pound Foolish: Exposing the Dark Side of the Personal Finance Industry. Olen knows her stuff.
posted by spamandkimchi at 12:15 PM on January 7, 2017


Vanguard index fund and stop worrying about it. The most important thing you can do investment wise is max out your IRA contribution. Not just to get your employer match but to get the full tax benifits.

The difference between Roth IRA and standard IRA is when tax is taken. A Roth IRA is a bet that taxes now will be more advantages than the taxes when you retire (American income taxes will have to go up someday - state and federal debt will demand it at some point). A standard IRA is the belief that taxes later will be more advantages (typically people earn less when they retire)

You won't outperform an index fund unless you are brilliant, lucky and invest a huge amount of time.

Other sexy sounding funds will nail you with huge fees and provide worse returns.

Read Elizabeth Warren's book.
posted by srboisvert at 12:22 PM on January 7, 2017 [3 favorites]


A couple of points not included above:

If your employer does any matching at all in your 401(k), make sure you contribute enough to capture all of their matching, otherwise you are giving that money away.

As further evidence that an index fund is the way to go if you are in it for the longish term, Warren Buffett made a million dollar bet in 2008 that an index fund would out-perform a top money management firm's pick of funds. As of last May he was killing it. (The article also discusses why he was right).

Something you will have to do as you get older is reassess how risky you want your retirement investments to be. Typically, you invest more in stocks - which have a high potential for gains and losses - early on, and as you get older you move more to very safe, but very low-yield potential stuff, like bonds and cash. I have no idea how good they are, but Vanguard offers some funds, named according to the year you think you will retire, that do that shift for you over time.
posted by rtimmel at 1:02 PM on January 7, 2017 [1 favorite]


K8t and others asking: No idea where I plan on retiring. I worked for 10 years in the UK and have contributed to a pension there too. I actually never worked in France.

My work matches my 401K contributions at 4%.

Everyone else: thank you and keep the advice coming!
posted by Sijeka at 1:41 PM on January 7, 2017


I love this question! I agree with the larger point most are making that investing shouldn't be gendered, but anecdotally, I've heard it suggested that women (once they get over their fear of finances) often do better with their investments than men do. Investing is one area where overconfidence can lead to very bad results; women tend to be much more cautious, which leads to behaviors (like choosing primarily index funds and staying the course during market downturns) that result in more stable returns. There's nothing to feel intimidated about, but your attitude of caution here is an asset; use it to your advantage!

(Note that my answer doesn't take into account the possibility of retiring in another country; I don't know what happens to retirement accounts in that case, so you'll want to look into that.)

I may be repeating some other answers here, but some basics: A "Roth" anything (Roth IRA, Roth 401k) means that you put in money after taxes, and you don't pay taxes when you withdraw it during retirement. (Regular IRAs and 401ks are the opposite; you get a tax break on the money now and are taxed on withdrawals once you retire.) Thus a lot of people recommend Roth IRAs/Roth 401ks for young people, since you can reasonably expect to be in a higher tax bracket once you get older, so it's better to pay taxes now. If you have a 401k through work, opening a Roth IRA is sort of a way of hedging your bets - you'll have one account of each type.

I'm assuming you're taking advantage of any employer matching funds for your 401k. If not, that's the first thing you should do.

I'm another Vanguard lover. My Roth IRA is with them, and it's currently entirely in the Vanguard 500 index fund. (My 401k is more diverse.) A general guideline for expense ratios (the amount that gets eaten up by operating costs) is that it should be below 1%. Pretty much everything Vanguard offers is way below that - this index fund has an expense ratio of 0.16%, and when you have more than $10k invested, that goes down to 0.05%. That Ellevest site has some slick marketing (and does make some good points about the different salary trajectories of men vs women), but I guess my feeling is that my investment strategy is simple enough that it doesn't matter whether my salary peaks at 40 or at 55; I'm still going for slow and steady growth with index funds. If you were thinking of investing with some other fancy company that would optimize everything for your personal life path, Ellevest looks like it might be a good alternative, but I'm not at all convinced of the necessity of something like that.

You can contribute up to $5500 to a Roth IRA each year as a single person. If you open one with Vanguard, do it before April 15! That's the last day to contribute for the 2016 tax year, so if you put in that $3000 all at once that's required for most of their index funds, it will count for 2016, and then you can continue to contribute small amounts each month for 2017 without hitting the limit.

As for saving for a down payment, I recently did a bunch of research on this for myself, and came to the reluctant conclusion that a regular old savings account (or possibly CDs, which aren't any more exciting) was probably the best option. I probably won't be looking to buy property for several years, but in the world of investing that's still a very short time, and you run the risk of a market downturn wiping out a chunk of your money right before you're ready to buy.

Good luck!
posted by sunset in snow country at 5:27 PM on January 7, 2017 [3 favorites]


If the only thing you got from this was 1. Savings/CD's for down payment, 2. Vanguard Index Fund for everything else, and 3. Max out your 401k matching, you will be good to go.

In case you'd like to understand a bit more of what all this is about, here are some basic concepts

1. Inflation

If you take $1000, and stuff it under the mattress, it will be 100% safe and stay exactly $1000 in 20 years.

(The dog just stretched in her sleep and hit Enter with her paw so now the Edit clock is ticking)

Well in 20 years everything will be more expensive, and $1000 doesn't buy you as much.

What to do?! You have to invest in something that bears interest.

2. Risk

Higher risk gives higher returns. If you put $1000 in the hot tech stock of the day, you might get very lucky or very unlucky, and it could end up being $10 or $10000 in 10 years. If you put $1000 in a boring savings account, you are guaranteed 0.85% every year.


posted by metaseeker at 5:42 PM on January 7, 2017




2. Risk (continued)

Every investment vehicle lies along the continuum of risk from safest to riskiest. In general, the safe, boring ones have low returns. The flashy, risky ones have high potential returns but can also tank disastrously.

Here is the rough scale for bonds:
~1% - CD's and I-bonds
~2% - Longer term CD's
~3% - Blue-chip or state government bonds
~4% - Corporate bonds
~5% - High-yield bond funds (riskier because they are leveraged)
~6-8% - Private mortgages

For stocks, you can figure on about 7% a year, but the range can go from -40% to +25% per year. For example, when the bottom fell out in 2008, if you were in an S&P 500 index fund, you would have lost 25% of your money.

The relationship between risk and return is pretty much ironclad. It's the same principle as "there is no such thing as a free lunch". If anyone offers you a low-risk, high-return investment, it's too good to be true. See under: Bernie Madoff.

3. Being Smart

So why bother? Can you still save or make money by being smart, as a small-scale investor?

Here are the places that you can win a little:
a. Fees
b. Taxes
c. Hedging and diversifying - this is pretty much done for you inside the Vanguard fund

An Aside: Did you know, you can buy savings bonds directly from the government - it's all there at TreasuryDirect.gov. They are backed by the full faith and credit of the U.S. government, and there are no or very low fees.

For example, I-bonds can be purchase in $25 increments. They are flexible, low-return, super-safe, and indexed to inflation. When you need the cash, you can get it to your bank account within a day or two.

T-bonds and T-bills are longer maturity, less liquid, but have higher returns, and are sold in bigger (~$10,000) increments.

---

OK, Specific Recommendations for you, from supersmart CPA friend (Why are you asking all these questions? What's her situation again? Here's what she needs to do!):

1. There's a first-time homebuyer exemption for IRAs, for up to $10,000 for a down payment on a home. There are also exemptions for medical expenses. Check to make sure you qualify. If so, then go ahead and put everything into the IRA.

With Roth IRAs, you can withdraw the principal at any time without penalty. With a regular IRA, you will pay taxes upon taking the distribution even for an exemption. If you are pretty sure you want to buy a home, then use the Roth IRA.

2. Open a Roth IRA account with Vanguard, get a targeted date long-term retirement index fund, and make sure it's rated highly by Morningstar.

3. If you'd like to build a rainy-day fund, for example in case you lose your job, then also start an I-bond, and put $50 a month into it.

4. If you have ANY credit cards at all, pay them off monthly! There's no point worrying about investment strategies if you are paying >10% interest on credit card balances.

P.S. I am a woman. My CPA friend is a man. Consider yourself hermaphro-splained.

posted by metaseeker at 7:46 PM on January 7, 2017 [1 favorite]


You may also want to consider The Index Card. It's a nice summary of personal finance for the long term.
posted by BobtheThief at 6:17 PM on January 8, 2017


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