Alright, here it is… the post you’ve been waiting for!

Maybe?

Okay, so this is one of the posts (there is so much information, I’ve decided to split step 11 into two posts) that you’ve been working toward diligently for the past 10 weeks if you’ve been following the Mama’s Abundant Money series.

You went through pulling your credit, planning your debt free strategy, budgeting & learning how to navigate cash flow issues, building a rainy day fund, deciding whether you should use a credit card balance transfer or if you should refinance, and you even learned about retirement and college savings accounts.

You’ve done a TON of hard work!! You’ve learned SO much! Along the way, if you did things right, you took a serious look in the mirror and told yourself that, if you’re going to make this work, you’re going to have to commit long term.

Even if you weren’t able to do things on the week of the post (obviously it takes more time than 11 weeks to become debt free and completely get your financial life together!), you’re on one of those topics I just listed and you’re doing what it takes to see it through because you’re SO dang anxious to achieve that financial freedom that will completely change your life!

That type of grit and drive toward the finish is absolutely priceless – as you’ll soon see with your money habits! I have news for you though… there is no finish.

I’m sorry, but there’s not!

One of the most important lessons you can learn through your financial journey is that, even after you’ve completed this step, you’ll always need to revisit your finances.

You’ll always need to go back and fine-tune your budget, check your investments, and re-evaluate what is needed financially for the current situation playing out in your life at that time.

That’s why finances are so HARD! Because they are custom to you and your situation and your goals. No one else’s finances are just like yours because no one else shares your exact history, thoughts, aspirations, and goals.

So, wherever you are in the process of what I’ve laid out over the past 10 weeks, just stick to it. Keep trucking. Don’t be afraid to back-track and reread posts. Revisit and revamp and most importantly, TRY. Fall off the wagon and get back on over and over again.

The person who doesn’t try won’t ever succeed. So by trying, you’re waaaaaaaay closer to success than those who don’t.

With all that being said, here is the second-to-last post (I had to break “Investing” into two posts) of the Mama’s Abundant Money Series. This is going to be 11a, where we will discuss terminology pertaining to investing, and the next one (11b) will walk you through how I actually selected some of mine recently.

What is the Barrier to Entry?

From all the women I’ve talked to and all the clients I’ve coached and all the research I’ve done and all the meet-ups I’ve had, the “money thing” that is most intimidating across the board is investing. 

The rhetoric around investing is foreign to most women not only because we weren’t taught this information growing up, but also because it’s long-been considered a “man’s” job. The articles, language, classes, websites and everything else having to do with investing has historically been targeted toward men, by men, and made to help men. 

I’m no man-hater, but the world is changing. It’s time we women not only talk more openly about money more often and bust the taboos wide open, but that we also dive into these “scary” topics and figure them out so that we are no longer intimidated and locked out of the financial conversations because of societal norms. 

So, here we go, mama. This is where you’re going to learn how to choose investments, decode the machismo mumbo jumbo, and become confident in choosing funds through self-education. 

First up, why do you need to know about investing? 

Inside of every retirement or education savings account are investment options that you must take advantage of in order to begin earning interest. 

There’s no point to opening these types of tax sheltered accounts if you’re not going to take advantage of the earnings potential via the stock market investment options within. 

Compound interest is the best and most achievable way to get unmistakably wealthy, but you’ll never even have a chance at this without understanding how to evaluate and choose mutual funds, exchange traded funds, and/or the other options available. 

Now, let’s get to know some of the crazy terms that every article under the sun throws around, so that instead of being intimidated by the lingo, we actually understand it. 

Stock Market Trade Terms turned into Common Sense

I know I’m not the only one who feels uncomfortable  when a group of people are talking about something that I’m only vaguely familiar with, yet I’m forced to stand there and pretend I know what they are talking about. 

So, learning these simple terms will give you access to that conversation in a strong way, and you’ll never again feel intimidated or like your eyes are glazing over when the topic of investments comes up. 

Just knowing these simple terms gives you insight into the investing world you didn’t even know you were missing. After learning these, you’ll actually notice them used in the financial reports during the on the radio or durning the nightly news hour instead of walking off to refill your wine glass during the stock market segment.  

I’ll go through several really common terms here, but if you come across any others, I highly recommend you pop over to JP Morgan’s Glossary of Investment Terms. 

Asset allocation simply means how an investment is divided among cash and different levels of expected growth/ aggression tailored to your ability to tolerate ups and downs in the market. That ability to handle those sometimes quick increases and decreases in the stock market (volatility) without loosing your cool is called risk tolerance.

Securities, just a fancy name for stocks and bonds, are the investment pieces that represent ownership of a portion of a company. Equity is also just another simple term for stocks. Similarly structured securities are grouped together in what’s called an asset class. 

The most common asset classes are stocks, bonds, and cash equivalents. When you buy stocks, you’re investing in the company and you’ll reap the reward of any loss or growth the company may endure. 

When you purchase bonds, that’s like giving a friend a set amount of money in an exchange for the promise of repayment with a certain amount of interest on a certain date. 

Today’s online investment platforms allow you to take quizzes to identify your risk tolerance and recommend an asset allocation for you, which is so helpful in deciding what percentage of stocks versus bonds in which to invest. 

So, you understood that right? Go back up to those words in bold type, re-read the description, and then re-read the paragraph right above this. 

I want for you to start understanding the terms I defined when they are used in a sentence. That’s the only way you’re going to start getting comfortable with this “foreign” language. 

Once you’re able to identify your preferred asset mix, which is just the different percentages of stocks versus cash equivalents, like bonds, you should own, you’ll be able to have more direction on what you should research and how to achieve the often exclaimed diversification. 

Diversification is simply the practice of not putting all of your eggs in one basket, which is why it’s strongly recommended that you don’t invest in single stocks or even in one single asset class. 

As an example, a person owning funds containing multiple different stocks, plus a percentage of bonds would be drastically more diversified than someone owning only single stocks.

Many companies offer shares of their (single) stock to employees as a benefit. However, the smartest thing to do, and what would best diversify your investments, would be to sell that single company stock and purchase funds (soon to be described below) instead. 

The goal with any investment account, whether it be an education savings fund or a retirement fund, is to have a strong, diversified portfolio. Your personal portfolio is simply the collection of investments you own. Think of it like a stamp collection or photo album. 

If you were to pull baby’s picture album off the shelf and open it up, inside would be a collection of adorable pictures. This is like a portfolio of your baby’s looks, just the same way an investment portfolio is a virtual representation of your investments. 

Okay, I’m hoping dearly that you’re still with me. There are so many terms that are thrown around left-and-right in the investment arena, and I want to make sure you have the opportunity to get comfortable with them. 

Comfort with the terms and language is likely the biggest barrier you’re facing – trust me. Because otherwise, once we get you actually investing, statistics show that women make fantastic decisions. 

Actually, studies show when women do invest, they outperform men by a whole percentage point per year. So, mama, we have GOT to quit being hesitant! 

Understanding, and being comfortable with all these crazy terms is the first tiny step to gaining confidence when it comes to investing. 

Alright, on to the next set of fun, lol, yes, I’m weird,

I do think this is fun. 

Most investment opportunities will also come with the choice to have actively managed funds or passive funds. Actively managed funds are managed by a manager or management team, and they buy and sell securities within the fund on your behalf based on their experience and data provided to them about the stock market trends and other economic factors. 

Passively managed funds simply follow the market index, and the fund’s gains and losses will be very similar to what the stock market is experiencing. There’s a great article written by one of my favorite ladies, that explains the difference in more detail, incase you’re wondering. 

The debate of active versus passive funds brings up the subject of fees. Most investments have some amount of fees, whether obvious or not, the brokers, and managers make money off of the investments that they hold or mange and that fee will come out of your earnings. 

While you likely won’t even see the fee because they are deducted from your investment either when you buy the fund or before its returns are calculated, they still exist. You can easily dive into front-end and back-end fees, and even no-load funds, but everything in this world costs something, and this is where you would just decide how much those fees mean to you. 

We will talk more about fees in the next post, but it’s about the same to me as deciding whether to go to Kroger versus Aldi or if I should buy Green Giant canned goods or the store brand. Granted, this has to do with much more money, but I prefer you to make choices based on your research and understanding of your purchase instead of focusing on fees. 

My Top Two Takeaways about Personal Finance

Now that we’re past all of the terminology mumbo jumbo and have addressed the fee situation, we can look forward to the real action- choosing your investments!In the next post, we’re going to walk through the thought process I experience when choosing mutual funds and exchange traded funds. But before you get too anxious, I want you to take a step back and realize a couple of things: 1) You’re never done. Remember what I said above about always having to revisit and revamp your finances? So, if your budget gets blown one month, or you didn’t have excess to contribute to retirement last week, don’t get discouraged. The whole financial “thing” is an ongoing piece of work for everyone, including myself. 2) Action means everything. I’ve touched on this several times throughout the series, so I hope you’re beginning to understand the importance by now. The universe rewards action. When you actually complete that transfer, open that account, skip that frivolous purchase, or pay off that debt, you get to reap the rewards. Just knowing what you should be doing isn’t enough. Make sure that you aren’t just reading this and not taking action. 

From the bottom of my soul, I hope that you have a more thorough understanding of the terms often used related to investing. I wish you confidence in situations where you’re exposed to a conversation about money. 

As always, I’d love to hear from you. Drop a comment below or shoot me an email to tell me about one of your Mama’s Abundant Money wins!