Mutual Funds A Natural Fit In Womens Financial Strategy

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Women face unique realities when it comes to finances. Even though women participate and contribute to employer-sponsored retirement plans at the same rate as men, statistics show women tend to earn less money than men, so their returns can be lower.

Also, many women see their financial life threatened by widowhood or divorce, which can impact their retirement wealth.

Most experts agree that in order for women to help secure their own financial future, women should begin by educating themselves. They could do this by attending investment seminars, reading financial books and magazines and most importantly, by asking questions about financial issues.

Advisors should remind women clients to invest in their own name. There are some practical reasons for women to keep accounts in their own name. Should a womans estate become large enough, joint assets might be subject to taxes when she or her spouse dies. In addition, if her spouse becomes incapacitated, she cant sell jointly owned assets unless shes prepared durable powers of attorney.

In addition, holding individual investments in her own name will help her take responsibility for her financial future.

Before she gets started, a woman client should think about what she wants from her investments. Is she concerned about short-term goals like buying a car? Or does she want to build a nest egg for retirement? Her goals and time frame for achieving them will help determine how much investment risk she should assume. If she has a substantial time horizon for achieving her goals, shell have the luxury of focusing on the long-term performance of her investments, making short-term market swings easier to tolerate.

Women clients should be warned against the temptation to be too conservative. Many women let fear of a market downturn drive them to make investment decisions that are too conservative for their investment timeline.

The risks of being too conservative are just as great as the risks of being too aggressive. Heres why: a hypothetical investment that returns 5%, with an after-tax yield of 3%, provides a return of zero assuming a modest inflation rate of 3%.

While investments in stocks may appear volatile in the short-term, they have historically outperformed all other investments over 10 years or longer. Thats why stocks or mutual funds are essential ingredients in most investment portfolios. Ask the average investor about his or her portfolio and youll likely hear the names of mutual funds.

Mutual funds have become a popular investment vehicle in recent years, with 83 million Americans in 48.4 million households owning shares, according to the Investment Company Institute, Washington. In fact, the fund trade group reported that by February 2002, the nations mutual fund assets increased to $6.92 trillion.

Mutual fund investing gives the investor several advantages. One is diversification. Most mutual funds invest in many securities that fulfill the funds objective. With a more diversified portfolio, the fund is less dependent on any one security achieving its goal and is less vulnerable to a drop in any one securitys price.

Another advantage is professional management. This relieves fund investors of the time-consuming and potentially risky task of researching various securities and deciding when to buy and sell.

A third advantage is liquidity. An investor can sell her mutual fund shares on any business day.

An advisor should remind her client that investors generally pay costs one of two ways: in shareholder fees and annual operating expenses.

Women clients should expect a comprehensive financial plan that explores areas such as investment planning, tax and retirement planning and estate planning. A client should be sure that her plan explores the areas that matter most to her. She should also expect a plan that is presented in an easy-to-read, understandable format with clear recommendations that can be acted upon.

A fee-for-advice program should include periodic updates to inform clients of their progress and allow them to alter their course should their goals change.

, ChFC, is a senior financial advisor and licensed asset allocation analyst with American Express Financial Advisors Inc. He can be reached via e-mail at Michael.X.Bonevento@AEXP.com


Reproduced from National Underwriter Life & Health/Financial Services Edition, April 22, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.