For this week’s edition of FinanciElle “Statements”, I had the opportunity to interview Aysha van de Paer.
Aysha van de Paer is the Founder of a blog on investing for women , www.ayshavdp.com. She writes about why investing is so important and how to do it right.
Before getting into the blogging sphere, Aysha spent over a decade working in Private Equity Real Estate for established investment and consulting firms around the world.
Having lived and studied in New York, San Francisco, Zurich, Dubai, Amsterdam, and the UK, she encountered very early the many challenges of managing her personal finances while living abroad.
In early 2017, Aysha lost her husband Karl in a road accident while she was expecting their second child, the new financial reality that followed inspired her to start her blog.
By sharing her personal story and knowledge about investing, she hopes to inspire many millennial women to invest and achieve financial security.
Paolina: What is the right investing mindset and what steps can women take to get there?
1) Investing is a MUST
Many women have a complex relationship with money, with many thinking that ‘money is not important.’ Or that trying to get a lot of money is something for ‘greedy and mean’ people.
The first thing to understand is that investing is very important for everyone. In particular, it is a must for anyone in order to reach financial security, rather than extreme wealth and luxury.
It is even more critical for women to invest as we need to compensate for the many financial challenges and disadvantages we encounter through life compared to men; issues such as the gender pay gap, discrimination when it comes to promotions, diminished earnings due to parental leaves and reduced working time related to children, and more.
(for more details on that, see my article 12 Reasons Women Must Invest)
All of these factors have an impact on our financial present AND future. Importantly, it means that women contribute less to pension schemes than men do, and unfortunately, women need more money than men for retirement, because women tend to live longer than men and due to inflation, not investing means losing money over time.
And because of inflation, not investing means losing money over time.
Just saving money is not enough. Investing is a must for women to compensate for
financial challenges and inflation when it comes to retirement.
2) Women are better investors than men
As women, we tend to think that investing is not for us. There are many reasons for this, including the way the world of ‘investing’ is depicted on television.
When we imagine a successful investor, we typically think about a man in a fancy business suit who sits in an office tower in New York watching several screens and trading on a continuous basis, and so many women refrain from investing because they feel disconnected from this image.
Women not only think that they don’t have the qualifications and experience required, but they also find that investing is something too ‘aggressive’ for them and not reflecting their values; however, research has proven that the way to invest successfully is entirely different than what most of us think.
The most successful investors invest for the long term in a well-diversified portfolio and minimize the fees associated with investing, and women are much better at doing just that and sticking to it for the long haul compared to men, which has been proven by numerous studies.
Not only is investing for women, but it turns out that we are BETTER at it than men.
So, if investing with success is rather simple, why isn’t everybody doing it? Well, there are several reasons for this.
One of them is that the traditional financial institutions, and other so-called financial experts such as financial advisors and insurance brokers, have a keen interest in making sure that people stick to their old beliefs; they want everyone to think that investing is very hard and scary and that only experts like themselves can invest well.
Many of these financial experts will go at length to explain that they have extensive resources; including financial research experts and experienced portfolio managers to take advantage of market opportunities and, primarily, to protect your money during market crashes.
It is tough to keep cool when being given such a speech by someone (usually an older man, of course!) in a fancy suit and with years of experience.
This is when it is crucial to remember that despite what they say, research has proven over and over that you are better off staying away from such experts and their very high fees.
Paolina: What are three things that every woman should know/learn/understand about investing?
1) Long term through thick and thin
As mentioned above, investing for the long term is key to investing with success. Let’s look at what this means in further details.
Ideally, you invest your savings in a low-cost portfolio of index funds or exchange-traded funds (ETFs), either by yourself on an online trading platform or through an online robo advisor.
Then, every month or every quarter, you invest your new savings into your portfolio, you do this consistently for decades, and you do this regardless of whether the stock market is high or low, or whether there is a recession looming. You also keep doing it when you encounter life changes or challenges, such as job loss, career changes, parental leaves, divorce, etc.
Ideally, you would keep the level of your contributions steady or even increase them over time. If you need to, you could temporarily decrease them. In any case, you should keep your money invested for the long term.
When you invest this way, you take advantage of the following two important things:
Dollar cost averaging: As you invest consistently over time, you avoid investing a big chunk of money at the wrong time, i.e., when the market and prices are too high. Also, your money automatically buys more shares when the stock market is down, and fewer shares when the stock market is up; all of this increase your investment performance over time.
Compounding: ‘Compounding’ means that an investment earns a return not only on the amount initially invested but also on the accumulated earnings of previous periods. Let’s look at an example:
After Year 1: $10,000 x 10% = $11,000
After Year 2: $11,000 x 10% = $12,100
After Year 3: $12,100 x 10% = $13,310
After Year 4: $13,310 x 10% = $14,641
After Year 5: $14,640 x 10% = $16,105
And the magic of compounding amplifies the longer your money is invested. After 30 years, you would end up with a mind-blowing total of $174,494.
“Compound interest is the eighth wonder of the world. She who understands it, earns it… she who doesn’t pays it” – Albert Einstein
2) Low fees are key to success
One of the main reasons traditional financial investment funds under-perform index funds and ETFs is that they charge very high fees, 2% here, 1% there… It may not sound like much, but at the end of the day, fees have a material impact on investment returns, especially in the long run.
In addition to management fees, other fees can creep up in traditional investment products, such as issuing and redemption fees, transaction fees, safekeeping fees, and currency exchange fees.
This means that a fund with an advertised annual management commission of “only” 1.5% can easily reach total fees of 2.5% or more each year, over time, say 30 to 40 years, having to pay 2.5% per year in fees means that you give away 30%-50% of the value of your portfolio. And that’s not OK.
This is why investing through low-cost alternatives such as index funds and ETFs is the best way to go.
3) Passive investing or getting our emotions in check
Let’s discuss passive versus active investing.
Active investing is what most traditional financial firms do. It means choosing which shares to invest in, based on research, analysis, and gut feeling, as well as deciding when to invest in these shares and when to sell them. While active investing seems to make sense somehow, it typically results in (much) worse performance than passive investing. This is mostly because active investing costs more; However, there is more to it: the human factor.
It turns out that our emotional state is our worst enemy when it comes to investing. We tend to become over-confident and invest more when the stock market goes up and do the opposite when the market goes down. And individuals and professionals alike are prone to it. Unfortunately, buying high and selling low is the best way to
ruin investment performance.
Passive investing, on the other hand, means investing in the market as a whole. And this can be done by investing through an index fund or an ETF. An ETF is a type of investment fund that invests in securities traded on the stock market. The portfolio is constructed to match or track the components of a market index, such as the Standard & Poor’s 500 Index.
The S&P 500 is an index of the 500 largest publicly traded companies in the US, each weighted proportionally to their market value. So, instead of having a portfolio manager buying and selling shares or bonds on behalf of the fund, the portfolio is automatically invested to reflect the composition of the index it is tracking; and because everything happens automatically, the costs of ETFs and index funds are much lower than
those of actively managed funds.
As a result, rather than trying to make quick wins, the investor sits patiently on her well-diversified and low-cost portfolio which steadily makes money over time.
Paolina: What’s one piece of advice you have for women whose biggest challenge when it comes to investing is:
I am afraid to lose money:
This feeling is normal.
Every beginner investor feels the same. What matters is to understand that over the long haul, say 20 or 30 years, the stock market goes up. This is because companies keep innovating with new technologies, new processes, and new products, which in turn creates value and wealth, and this is why companies, when taken as a whole, become more profitable over time.
The majority of large companies listed on the stock exchange pay dividends each year to
investors. These dividends can (and should!) be reinvested each time.
As a result, the combination of:
1) the general uptrend of the market due to innovation and increased productivity:
2) reinvesting dividends and interest; and
3) dollar-cost averaging (i.e., investing small amounts regularly)
can only result in a steady increase in the value of the portfolio, especially when invested at a low cost in a diversified portfolio.
I don’t know enough about investing
The principles of sound investing are much easier to understand and learn than what most people think. It is very much possible to learn all the essential concepts by reading a few good books.
I created my blog on investing to make it even more accessible to women in Europe and
around the world. Good books on the topic include:
1) Worth It: Your Life, Your Money, Your Terms by Amanda Steinberg
2) Money Master the Game : 7 Simple Steps to Financial Freedom by Tony Robbins
3) Millionaire Expat : How To Build Wealth Living Overseas by Andrew Hallam (a wealth of practical information for non-Americans and expats)
All three books are easy to digest and understand. I find that the more books I read on money and investing, the more confident I become about investing my own money.
The hardest is probably taking the first steps to get started; however, once you are passed this hurdle, you may well discover that investing is not that complicated!
I don’t have enough money to invest
This is a common belief as well, and a very inaccurate one!
It is possible to get started with investing with very little money, say USD 1,000 or even less, by investing in index funds or ETFs. This can be done by investing either directly through an online trading platform or via an online robo advisor.
Actually, starting to invest early in life with little money is a great thing, it means that
you can learn how to invest very early and can build wealth over many decades. Also, it is often less intimidating to start investing in small amounts than to start all at once with a big chunk of money.
People who only start investing once they have accumulated a significant amount of money are a favorite target for financial institutions. The financial ‘sharks’ use their lack of knowledge and experience about investing to scare them into letting them manage their portfolio, which typically results in very high fees and average performance.
What matters is not how much you can invest. What matters is that you get started as early as possible, with the money you have. Over time, you will be able to increase your contributions, and you will be able to do so in just a few clicks.