Note from Catalyst Branding + Business Consulting Founder, Jennifer Maggiore: I am so happy that we get to share this sage advice on how to invest wisely from financial expert Barbara Huson. I was lucky enough to meet her a couple years ago, and along the way to developing a deep friendship, she has consistently provided me with financial advice that has gotten me out of extreme debt and transitioned my family into growing generational wealth.
Unfortunately, though, many of my clients continue to struggle with money – even the high earners. As women entrepreneurs, it is absolutely critical that we charge what we’re worth, increase our salaries and learn to grow what we keep. If you’d like to learn more from Barbara, get instant access to her recorded call, “Blasting Through Blocks, Building Wealth + Boosting Well-Being.” This is not an ad. I wish I could connect every woman entrepreneur with Barbara. Enjoy!
Guest post written by Barbara Huson, The Leading Authority on Women and Wealth
I promise. You don’t need a boat load of money to build wealth. What you do need is to: Spend less; Save more; Invest wisely.
The first two are self-explanatory. Investing, however, is where most people trip up. Because it feels so risky.
Let me share with you 5 tips that really helped me finally understand investing and managing risk (with links to learn more). Note to entrepreneurs: pay close attention to tip #4.
1. EDUCATE YOURSELF
There are only 5 places to invest (called asset classes)—stocks, bonds, real estate, cash and commodities. Your first task is to learn the difference between these assets classes.
2. DON’T KEEP EVERYTHING IN CASH
Cash in the bank, or under the mattress, may feel “safe.” But long term, you’re putting yourself at great risk. To ensure you don’t outlive your money, at least a portion needs to be in assets that grow faster than inflation and taxes take it away. If inflation averages 3% and your money is sitting in an account paying 1%, your buying power will significantly shrink over time.
3. UNDERSTAND THE RULE OF 72
This rule explains how long it will take to double your money—by dividing the interest rate or compound return into 72. Let’s say you own a fund that returns 8% annually. 72 divided by 8 equals 9…so it’ll take 9 years to double your money. Put that same amount in the bank, paying 1% interest, it’ll take 72 years to double.
4. MINIMIZE MARKET RISK
The biggest risk entrepreneurs make is investing primarily or exclusively in your business, especially if it’s a start-up. Sure the market is risky. But you can significantly diminish the risk of loss and increase the potential for gain, by doing 2 things:
Have a longer time frame. Money you need is less than 3 years should be in cash. Everything else should be invested.
Be well diversified, spreading your money among different asset classes.
5. SEEK SUPPORT
The whole point of investing is to make sure your money is adequately allocated to meet your short and long term goals. To figure out the best diversification for you, consult a Fee Only Certified Financial Planner.