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Financially Sound: Much Ado About The Stock Market
Ah, Spring has arrived, and a woman's fancy turns to ... investing? With the stock market holding steady above the 13,000 mark, investing is indeed on many women's minds. But what's the best way for you to participate in the stock market? Should you invest in a mutual fund or try your hand at buying an individual stock? While there's no one right way to invest, asking yourself the following questions can help you being to understand what's right for you.
by Cherith Hanna
June 1, 2007
How much do I have to invest?
Many mutual fund families offer automatic investing programs, deducting a small
fixed amount from your paycheck to buy shares of their funds. Other funds have a minimum investment
amount, usually between $1,000 and $2,500. If you buy a no-load mutual fund, you pay no up front
fees, but an annualized fee called an expense ratio will be deducted from the amount you invest.
The average equity fund expense ratio is 1.5 percent. To create a similarly diversified portfolio
using individual stocks is a far more expensive proposition since the average mutual fund has 169
holdings. Trading
costs vary depending on whether you use a discount of full-service broker and how many
shares you buy, but one expert puts the cost at about $25,000, just to create a portfolio of 15 to
20 stocks.
What is my tax situation?
When you invest in a mutual fund outside of a retirement plan, tax time can mean an
unexpected liability if you’re not careful since all interest and dividends paid out by the fund
are taxable to you. So be sure to include tax efficiency in your search criteria. Two websites that
rate a fund’s tax efficiency are
www.morningstar.com
and
www.lipperweb.com. Carole
Cox, senior vice president and portfolio manager for Atlanta-based lobalt Investments, says
that the use of individual stock holdings or Exchange Traded Funds (ETFs) can allow you to better
control the tax implications of your investment portfolio.
What’s the value of my time?
Investing in individual stocks is not for the time-challenged. You need to do your
research up front and monitor the stock’s performance on an ongoing basis. One way to get your feet
wet is to invest in a company you are very passionate about since you’re more likely to follow the
stock closely. You can easily research stocks on the web at sites like www.wsj.com (The Wall Street
Journal online) and Yahoo Finance. While buying a mutual fund is your homework. Websites such
as Morningstar and Lipper can help you rank the thousands of funds according to criteria such as
performance, costs and longevity. For a very good mutual fund primer, read “A Guide to
Understanding Mutual Funds” (available at
www.ici.org).
What does my conscience tell me?
Many women are interested in investing in companies that are both fiscally and socially
responsible. Buying individual shares of those companies is an easy and direct way to support those
companies. You can also vote your conscience through socially responsible mutual funds such as
those offered by the Calvert fund family. Among other criteria, Calvert looks for companies with
strong track records in human rights, community outreach and economic success to include in their
portfolios.
What’s my tolerance for risk?
Buying individual stocks usually means greater risk. If your shares lower in value, you don’t
have other investments to balance out that potential loss. While mutual funds also carry risk,
that risk is spread across hundreds of holdings; when some stock holdings are up, others are down
and vice versa.
Food for thought
With a little research, thoughtful choices and a little patience, you can succeed
in the market. But if you’re just not comfortable choosing your own investments, consider engaging
a professional financial advisor to help you or joining a local investing club.
