If you are an American woman, the sooner you learn about investing your money, the better off you will be.
U.S. Census Bureau statistics show that three out of four poor elderly Americans are women, and recent studies indicate that women who do invest are too timid and overly conservative, particularly about stocks.
Good Morning America contributor Mellody Hobson, president of Ariel Capital Management, a Chicago investment firm, has some tips to keep women from becoming one of the statistics. First off, she explains, women tend to lag behind financially because of their roles as caretakers.
The Mommy Tax
"There's an enormous amount of time and money lost raising children," Hobson said. "For every year a woman is out of the work force and at home caring for a child, she must work five extra years to recover lost income."
The average woman spends 15 percent of her career out of the paid work force, caring for children and parents, according to the Women's Institute for a Secure Retirement. For each child that a college-educated working woman raises at home, she loses the equivalent of $1 million, author and economics reporter Ann Crittenden wrote in a new book, The Price of Motherhood.
Experts call it the "mommy tax," a combination of lost wages, including presumed raises and promotions. But there's another reason women lag behind in financial savvy: the white knight syndrome, Hobson says.
After marriage, many women defer all investing decisions to their husband — to their detriment.
"They may buy the diapers and pay the household bills, but they steer clear of the family's investment decisions," Hobson said. "The average wife outlives her husband by seven years. And for a growing number of American women, that white knight never even comes along. More women will stay single or become single than ever before."
Safe vs. Savvy
For many women, learning to invest is often prompted by a crisis in the household, such as a divorce or a death. And women who do invest seem to be timid about it, often choosing safe rather than savvy forms of investment, Hobson said.
She gives the example of a 25-year-old woman saving over a 40-year period. If she invested $1,000 one time only in a savings account with 3.8 percent return over 40 years, that money would grow to $4,450.
That same $1,000 invested in small company stocks like Reebok and Energizer — typically fast-growing companies that have not yet become industry giants — would have yielded $107,313 over that same 40-year period. That's a 12.4 percent annual rate of return. Hobson's advice: women cannot afford to ignore this kind of investment.
Invest in What You Know
She suggests that women invest in what they know, and has three examples of companies women might invest in. They are:
American Greetings: Women buy 83 percent of all greeting cards, and there are only two major card companies. The other one, Hallmark, is privately held. The stock is rebounding wonderfully after a tough year last year, Hobson said.
This year American Greetings is up 20.4 percent, during a time when the S&P 500 is down 4.7 percent. Last year the stock was down 32 percent because of the threat of the Internet, which has since faded.
Toys R Us: New Toys R Us CEO John Eyler just came from another famous toy company, FAO Schwarz, and its major Internet competitor, E Toys recently went bankrupt. The company is also on the rebound after a long difficult stretch. The stock is up 49 percent, and last year it was up 67.2 percent.
Sara Lee: It might be known for its cheesecake, but Sara Lee also owns Hanes, Leggs, Just My Size, the WonderBra, Playtex, and other well-known female brands. The stock is the largest company in the world named for a real woman. Lee, a grandmother, is still alive.
Her father named the stock for her when she was just 8 years old. This year, the stock has gone a little stale, which is why Hobson says she sees it as a tremendous buying opportunity. This year Sara Lee is down 17.2 percent, following a very strong year last year, in which it was up 36 percent.
Tips on Getting Started
To get started, first of all, take an inventory of where you are. In thinking about your investments, set an annual time to devote to the money in your life, Hobson said.
It can be at tax time, when you clean out your closets. Remember, getting your financial house in order is even more important than getting your shoes lined up in your closet. People spend so much time price comparing at the grocery store, getting the best deal on a blender, and planning what to wear to a party.
Reassess your priorities now, Hobson says.