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A Plan To Work Out Your Investing Muscles, Starting Today

Manisha Thakor
Posted on Aug 10, 2010

You work hard for your money.  You’ve heard over and over that you need to “invest” to make sure your money is working hard for you. If, however, your gut reaction to hearing yet another financial expert tell you to plunge head first into the markets is, “I’m just not that in to you,” you’ve got a point.  So why the heck should you invest?

Not Investing Is Like Letting Your Muscles Atrophy

Suppose you come home from work one day and say, “I’ve had it.” You flop on your bed with some munchies and the remote control… and decide not to get up for thirty years. When you finally do stand up, you fall over because your muscles have atrophied due to lack of use. Believe it or not, the same happens to your money if you just stick it under the proverbial mattress (or leave it in a low interest savings account, money market fund, or CD).  Literally.

Watch Out For The Financial Termites

The culprit is inflation, which is just the term for prices going up each year.  On average, over the past fifty years, inflation has averaged roughly 3%. Suppose you had $1,000 with you when you flopped on that bed.  In thirty years, if inflation averaged 3%, you’d still have the same $1,000 when you stood up.  However, it would only buy as much as $400 would today.  And, that’s if inflation were only 3%. If inflation averaged 5%, your money would only buy as much as $230 would today. Inflation is the equivalent of financial termites munching away at your foundation.

Get Financially Buff

The biggest reason to invest is to make sure your money grows at least as fast as inflation. That’s the equivalent of being able to stay in the same size jeans in your twenties, thirties, and forties. Keeping the status quo.  But, if you do a really good job of investing, you can get your money to grow even faster than inflation. That’s the financial equivalent of sporting Michelle Obama arms. Say, for instance, that when you flopped on that bed you put your money into a balanced index fund with a nice mix of stocks and bonds. Suppose it grew at 7% per year.  After thirty years, you’d have over $7,600… as opposed to a pile of money that would only buy you as much as $400 would today. The reason to invest is the same reason we go to the gym to work out—to make our (money) muscles as strong as possible.

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  • carolinewaxler

    Manisha, when did you first start investing and what was the first thing you bought?

    • http://www.ManishaThakor.com ManishaThakor

      I first opened my IRA when I was around 11 or 12 years old… at Fidelity. Thanks to my parents for teaching me about personal finance (and especially the power of compounding early on)… money I earned from babysitting or lawn mowing would go in there. This was back in the days before index funds had really taken off so I was invested in a blue chip, dividend paying diversified active mutual fund.

      My investing style has evolved since then. During my portfolio management days I bought individual stocks (primarily dividend paying, high quality ones) but since going out on my own to promote the issue of women's economic empowerment I've embraced index funds and target date retirement funds as my investment vehicles of choice. Low cost, low hassle, and performance that beats depending on the time period close to 90% of active managers – a great package!

      • carolinewaxler

        Thanks, Manisha!

  • Berrygrl

    “Financially buff.” Love it. Also the idea of flopping on my couch for thirty years…

    • http://www.ManishaThakor.com ManishaThakor

      I'm so with you on that couch – so long as we have our laptops so we can stay on top of our portfolios :) . And teaming up with a girlfriend on that couch to bounce financial planning ideas off of is a great way to keep motivated!

      • totes de bags

        Agreed! And also I'd prefer if that couch were….on a beach

        • http://www.ManishaThakor.com ManishaThakor

          The beauty of investing early, often, and wisely – is that the beach really can be a reality for us women. With our longer life spans, if we start to save and invest regularly in our 20s, 30s, and 40s… there is no reason you shouldn't be able to kick back on the beach and sip a martini in your golden years!

  • Berrygrl

    “Financially buff.” Love it. Also the idea of flopping on my couch for thirty years…

  • Briana

    I think if more people thought about their money with these ideas/images in mind, more women would start investing IMMEDIATELY

    • http://www.ManishaThakor.com ManishaThakor

      Briana – powerful stuff, isn't it! Thanks so much for sharing your reactions. My feeling is the most high impact way for us to support each other is to keep spreading the word, woman to woman, about the importance of saving and investing early. So tell one woman you love about these images and/or this post – and then ask here to pass it along to one more and so forth. This kind of word of mouth messaging can really lift the financial tide for all women. Hear us roar with financial strength!

  • coco

    seems that most people aren't even getting 3% raises to keep up with inflation over the last few years.

    • http://www.ManishaThakor.com ManishaThakor

      Coco, you bring up a really interesting point. This rough economy has had many casualties – the annual “cost of living increase” being a classic example. Some economists will point out that “technically” inflation over the past few years has not averaged 3% (in fact it was not so long ago that the Federal Reserve was worried about DE-flation…) and this is why raises have been lower.. But just as a 5 foot tall person who can't swim could drown while crossing a river that averages 3 feet (but has one spot that's over 6 feet deep) – an average inflation rate of <3% for the past few years can hide many items (childcare, healthcare, tuition) that have clearly risen faster than 3%. This is a long winded way of say that while many companies will say they've not given 3% annual raises because the average rate of inflation has been less than 3% – I hear you that this isn't helpful if your costs are heavy in one of the areas where inflation has been prevalent.

  • Molly

    Manisha-
    You are a fantastic writer and I really look forward to reading more pieces from you. I particularly enjoy your analogies and visual images: “stay in the same size jeans…”. Excellent job.

    • http://www.ManishaThakor.com ManishaThakor

      Thanks for your kind words Molly – one thing I feel VERY strongly about after having worked in financial services for 15 years and as a portfolio manager is that the lingo / choices / discussion around investing has become way to complicated. I'll do my darndest on this blog to give you powerful every day analogies that put investing into proper perspective – something every one of us women can do with a bit of self education and a solid chaser of common sense. More to come!

  • Luis126745

    But you have to prevent any muscle injury for over training or do it the wrong move. keep that in mind.
    yeah thats true but i always wonder if woman are better at investing than men, and actually i would like to challenge you to invest in the stock market trhough this site: http://www.fool.com
    and then compare your results with mine, its a nice investing site, i invite you to register there with a nickname, come on.
    Luis Ezequiel.

    • http://www.ManishaThakor.com ManishaThakor

      Hi Luis – 100% agreed, working out without warming up is VERY dangerous. So are doing exercises that are beyond one's skill level. As a former portfolio manager, I see many people buying individual stocks who would be better suited buying index funds or target date retirement funds. When it comes to buying individual stocks I think an investor (male or female) should ONLY do this if: (a) They are willing to devote 10+ hours a week to studying and staying on top of their companies and/or (b) they are doing with money they are prepared to potentially lose. At this stage in my life, I am using solely index funds and target date funds so you can track “my performance” by simply looking at the S&P 500 and Vanguard's 2040 Fund. On the subject of men vs. women on the investing front, you might enjoy this article from the New York Times: http://www.nytimes.com/2010/03/14/business/14ma… (“How Men’s Overconfidence Hurts Them as Investors”) – and not to start gender wars :) I'd adjust that title to say how INVESTOR'S overconfidence hurts them rather than single out me. The market is a tough beast to wrestle with. Thanks so much for sharing your thoughts

      • Luis126745

        Thank you Manisha, i have developed a very simple strategic that consists of substracting the large cap dividend aristocratic consumer staples from the s&p500 and i build a portfolio consisting of pepsico, coca cola, philip morris, colgate, gillete, and then slashed the holdings limiting to those that they have products that they are used several times a day because of their addictive nature resulting in coca cola, pepsico, and philip morris(companies dated back to 1847, 1886 , 1898 with no real competition with huge margins and pricing power). i feel confident owning one third of the money into each one. good luck, am i crazy or somewhat right?

        • Luis126745

          Also if i have to choose one of them i will choose pepsico because of their more diversified product line into consumer foods and beverages products and lower payout ratio that gives me confidence of future dividend increases, and because of the higher ROE than its peers.(coke)
          Pepsi doesnt have the litigation risk and its pretty well diversified into 200 countries rather than relying into the euro like PM.
          FOOD & BEVERAGE industry was an industry that always works as opposed to biotecnology or pharmaceutical or oil that they are very erratic and receipe for corporate profit swings. Coca cola has the domestic demand falling while it relies on international growth to spurr growth. Pepsi performs well in all the markets because of its snacks and non CSD beverages. Also it leads into management decision regarding cutting costs ideas (buying bottling plants) and coke always late to the party like in the non CSD sector. Also note the PE ratio(an indicator of quality and growth possibilities) of both stocks narrowing recently only giving a marginal premium to coke (16.98 for PEP vs 17.51 for KO). My bet is that this gap will dissappear over time and both companies will be valued as same quality by the market.