The educated investor

Dorie Fain, The Daily Record Newswire

The month of August certainly offered a good deal of conversation for stock market investors. The challenges of the global economy finally made their way to the U.S. markets, and stocks began reacting with huge daily swings along with a few days of big drops early in the trading day. The news outlets took full advantage of these events, trying to drive fear straight through our televisions, radios and newspapers and leaving many people wondering if this would be the big correction that has been called for and was somewhat overdue.

As I carried on business as usual, my office did receive a few messages of support and concern from well-wishers who must have imagined that clients were calling like crazy and that the week was made more challenging by the events in the markets. This is not at all what happened. The only calls from clients that came in were those asking if this was the time to buy, as we have talked about when the markets go way down. This being the logical, ideal time if you have money to invest also must be coupled with a bit of courage in the face of the media storm that promotes fear, doom and gloom.

 Timing and time frame

All of this brings me to the importance of educating clients about what to expect as stock market investors. The first important point is to genuinely understand what time and timing have to do with our investments. Knowing the appropriate time horizon before adding money is critical to understanding the relevance of the short term market movements and what if any impact these have on our investment success. When we understand what we need our money to do for us and how much time we have for that to happen, it makes the short term actions of the market fit into a far more contextual box.

The second important point is how this process can go very differently for men and women. Too often, I am asked to review a women’s investment portfolio and find that these portfolios are commonly underinvested and underexposed to growth — as in stocks. This means that women’s portfolios are being invested in more “conservative” investments, and, as a result, the growth in these portfolios ends up falling far short of their growth-portfolio peers.

All too often, it happens in this way … a woman experiences a life event — a death, a divorce, an inheritance. She meets with a new financial professional, either because she has just come into money or because she is shopping around for a new someone to work with. He asks her a series of questions that play right into her fears about all that she has been told, read, and listened to throughout her life. She is adamant that she can’t afford to lose any of this money, she doesn’t want to take any risk and she needs to be sure that whatever happens, she doesn’t regret her decision to trust this adviser. This well-meaning adviser concludes that she is a “conservative” investor, recommends a portfolio that will meet the client’s stated goals, and in the near term, a happy client relationship is born.

What it really means

When I talk with clients about what they really mean by taking no risk translates very differently than the literal translation that can lead to this conservative portfolio —  as in an all-bond portfolio or a fixed-rate annuity. The meanings vary, though ultimately once the information is shared as to how the markets work, why time horizon is so critical and how the stock market becomes far more predictable when looking over many years rather than days or weeks, people can handle a more growth-oriented portfolio than they initially realize. When we can employ a historical view of the efficiency of the markets behavior over extended cycles, women start to open up to the possibilities of how their assets can grow and how empowering it is to be invested in a way that genuinely takes care of ourselves over the long term.

I understand why clients feel that short-term safety will keep them safe for the long term. Though actually taking too little risk is another form of trouble when we enter into our later years and find that our money simply hasn’t kept up and our purchasing power is compromised. I also understand how advisers can impose their view of what women need based on genuinely good intentions. I imagine that advisers see a mother, grandmother, sister, wife or daughter in those shoes and would rather play it safe than take the next step to truly educate, where in the long run, I see the most equal footing for investors.


Dorie Fain is the founder and CEO of &Wealth, a boutique financial advisory firm dedicated to women who are recreating their lives. With offices in New York City and Baltimore, &Wealth has helped hundreds of women who are managing the inherent complexities of the wealth management process.