Sure we all know we’re supposed to be investing, and we know we’re supposed to diversify, but does that just mean contributing to your 401K? It doesn’t have to! Let’s talk about some interesting ways young, working women can invest in new ways that are consistent with their values.
Approximate read time: 5 minutes
In 2023, Fidelity found that women are opening brokerage and retirement accounts much earlier than before, which makes sense. We’re living longer than ever, but there are other factors at play here too.
We typically work fewer years and live longer than men, meaning more non-earning years. But we’re also increasingly single, which means we don’t have a partner’s income, pension, or retirement investments to support us. But investing like your grandfather did may not be accessible now, and some kinds of investing might not even align with your values.
So how do I talk with my financial coaching clients about novel and ethical ways to invest? We’ll talk about a few of my favorites, but first, let’s define two terms.
Stock: When you own a stock (or even a tiny portion of one as in a mutual fund) you own part of a business, which means you own part of the risk of that business. That risk means you may lose your initial investment, but the potential (not guaranteed) return may be higher than the other alternative, a bond.
Bond: When you own a bond, you own a debt. Someone (or some entity like a business or government) will need to pay you back. Bonds are typically safer (although no investment is without risk), but their returns are typically lower.
Tips From a Financial Coach on Non-Traditional Ways Women Can Invest
Outside of your vanilla, 401(k)s, IRAs, and mutual funds, these are my three favorite ways I’ve seen women investing!
I love small-to-micro investing like SMBX and others. These platforms (if reputable) grow emerging economies, support small businesses, and provide a modest (but not guaranteed) return.
SMBX is a bond marketplace, which means your investment is likely pretty safe, but I recommend still doing your due diligence if you choose to invest in a business through one of these platforms.
Do you love your local indie coffee shop, yoga studio, or bookstore? Is that favorite local spot needing to expand or otherwise grow? There are multiple ways you can invest in your community.
You can invest as a part owner with some level of control over the business as well as assuming some level of risk. You can also invest by loaning money to this community business. While you wouldn’t have any control over the business, typically your returns are less risky if you own a debt.
Either way, you and the business owner should both have attorneys to make sure you’re protected.
Your Own Business
This is risky, yes. But if you have a purpose or calling in life, building a business is probably the most significant investment you can make. This may require some level of time AND monetary investment, as well as investments in your own knowledge and experience.
How Can Women Investors Discern if These Investments Are Within Their Risk Profile?
I recommend taking some time to run through a formula called Expected Value (EV). EVt does a good job of approximating what you might expect as a return and can be “tuned” to your risk tolerance (or how likely you think a project is to succeed).
This formula gets better as you input better-informed data.
This is a garbage-in-garbage-out kind of thing, but can be useful. I would not recommend using only EVs to make investment choices, though, just an element of your decision-making process. If you’d like to do a deep dive into Expected Value, start here. But here is a very very VERY simplistic example of Expected Value just to get you started.
Expected Value is the value of a variable multiplied by the probability of that variable occurring. Let’s say I’m considering opening a virtual assistant company. I do a little back-o-the-napkin number crunching and come up with rough numbers that show this company potentially could be worth 1 million dollars. That’s the variable. And let’s say I estimate the probability that this will be a company valued at 1 million dollars is 10%.
$1,000,000 X .10= $100,000
If my investment of time and money is less than $100,000 this may be a good investment (bet).
If I do a little market research, and find that the probability is higher or lower, or the potential value of the company is higher or lower, that new information changes the calculus. Again, the more information you have the better the Expected Value formula works.
What Are Some Ways Women Can Support Other Women With Their
Investing through part-ownership or loans in beloved community businesses is a great way to potentially get a return while supporting your community. Focusing on women-owned businesses is even better!
But no matter which investments you choose, there may be a learning curve.
Ready to Get Started?
Start small. Like microscopically small. Try out micro-investing to test out your risk tolerance. The other thing I’d recommend is to only start investing outside a 401k or Roth if you have an adaptive, personalized budgeting/spending system in place.
Without that underlying foundation it may be difficult to “see into the future”, and to know if your money might be best used somewhere else besides investments (targeted savings, paying off debt, or even increasing lifestyle or experiences). It’s important to balance the future-focused seduction of investments with your life right now.
If you’re ready to dip your toes in investing outside of your 401k, a Roth, or a mutual fund, it’s worth your time to find investments that not only suit your risk tolerance but are aligned with your values.
Next recommended article: Changing your Debt Mindset
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