Girls That Invest

1. Investing Outperforms Saving: Beat Inflation and Grow Wealth

It's the definition of making your money work hard for you, rather than just working hard for your money.

Inflation erodes savings. Simply saving money in a bank account often leads to a loss of purchasing power due to inflation. The value of cash decreases annually, typically around 2%, meaning that goods and services become more expensive over time. Investing, on the other hand, offers the potential to outpace inflation and preserve or even increase wealth.

Compounding interest accelerates growth. Investing allows you to take advantage of compounding interest, where your earnings generate further earnings. This exponential growth can significantly accelerate your progress toward financial goals. For example, investing $600 a month with an 8% annual return can result in $1.94 million over 40 years, compared to $438,866 in a 2% savings account.

Reach goals faster. Investing provides a greater return than saving, allowing you to reach financial goals much faster. The time it takes to make $1 million by saving $600 a month is 138 years, while investing the same amount with an 8% return takes only 32 years. This difference highlights the power of investing in achieving long-term financial objectives.

2. Overcome Investing Myths: Knowledge Dispels Fear

You don't lose money in the stock market unless you sell your shares for less than what you paid for them.

Myth busting. Many misconceptions surround investing, such as the belief that it's like gambling or that you'll lose all your money. These myths often stem from a lack of understanding and can deter people from getting started. It's important to separate fact from fiction and approach investing with informed decisions.

The market recovers. History shows that the stock market has always recovered from crashes. Major crashes like the 1929 Wall Street Crash, the 1987 Black Monday crash, the 2001 Dotcom Bubble, the 2008 Global Financial Crisis, and the 2020 COVID-19 crash have all been followed by market recoveries. Investors who held their positions during these downturns ultimately recouped their losses and often saw significant gains.

Investing vs. Gambling. Investing involves intentional choices, research, and risk mitigation, while gambling is based on chance and speculation. Investors can research companies, analyze their performance, and make informed decisions based on merit. Gambling relies on luck and offers fewer ways to control risk.

3. Build a Solid Financial Foundation Before Investing

Investors in training understand that when it comes to their money habits, it's all about preservation over deprivation.

The 5 Bricks. Before diving into investing, it's crucial to establish a solid financial foundation. This involves five key steps:

• Knowing what's coming in and going out (budgeting)
• Tackling high-interest debt
• Automating your money
• Creating a rainy day fund
• Sorting out your retirement account

Value-based spending. Instead of strict budgeting, focus on value-based spending, allocating money towards things that are important to you. This approach promotes a more sustainable and enjoyable financial lifestyle. It's about finding a balance in your spending and saving habits so that both parts of you are fulfilled.

Tackling high-interest debt. High-interest debt, such as credit card debt, can significantly hinder investment growth. Prioritizing the repayment of debt with interest rates above 7% is crucial before aggressively pursuing investment opportunities. This ensures that your investment gains aren't offset by high-interest payments.

4. Stock Market Basics: Understanding the Game

The stock market is just a facilitator that allows people to buy and sell shares amongst each other.

Lemonade Stand Analogy. The stock market can be understood through a simple analogy: imagine owning a lemonade stand and needing capital to expand. Selling shares of your company to investors is like an IPO (initial public offering), providing funds for growth without incurring debt.

Stock Exchanges. A stock exchange is a location where stocks or shares are exchanged, i.e. bought and sold. The stock market can be made up of a number of exchanges. For example, the US stock market is made up of 13 US exchanges, such as their famous New York Stock Exchange or the NASDAQ exchange.

Tulip Mania. The world's first modern IPO occurred in March 1602 with the Dutch East India Company. The Dutch East India Company also played a huge role in the stock market's first economic bubble. A bubble, like the Dotcom Bubble mentioned in chapter 2, is when the price of something keeps getting higher and higher based on speculation, ultimately becoming unsustainable and quickly dropping in price.

5. Investment Types: Choose What Aligns With Your Goals

Investing is just the idea that you throw some money into something, and you hope more money comes out.

Stocks/Shares. Represent ownership in a company, offering potential for capital gains and dividends. They come in various categories, including growth stocks, blue-chip stocks, sector stocks, and large-cap, mid-cap, and small-cap stocks.

Bonds. Represent loans to governments or companies, providing fixed interest payments and lower risk than stocks. They are a debt instrument representing a loan by you, the investor, to a borrower, such as a government.

Mutual Funds. Baskets of investments managed by professionals, offering diversification but often with higher fees. Mutual funds pool money from many investors and invest them on their behalf.

Index Funds. Passively managed funds that track a specific market index, such as the S&P 500, offering low fees and broad diversification. An index fund follows an index, which is just a list.

ETFs (Exchange-Traded Funds). Similar to index funds but traded like stocks, offering flexibility and lower minimum investments. ETFs are like shadows to index funds.

REITs (Real Estate Investment Trusts). Funds that invest in real estate, providing exposure to the real estate market without direct property ownership. REITs are a great way for people to get some exposure into the world of real estate without being a landlord.

Hedge Funds. Actively managed funds that use riskier strategies to potentially outperform the market, typically with high fees and limited accessibility. Hedge funds are just mutual funds — but on steroids.

Commodities and Alternative Investments. Include metals, agricultural products, art, and other non-traditional assets, offering diversification and inflation hedging.

6. Capital Gains and Dividends: Two Paths to Profit

With dividends and capital gains, companies usually prefer to give you one or the other; they don't like to give you both.

Capital Gains. Profit earned from selling an asset for a higher price than its purchase price. Capital gains are simple to understand. If you bought a home for $500 000 and it sold for $600 000, you made a capital gain of $100 000.

Dividends. Payments made by companies to shareholders, typically quarterly, representing a share of the company's profits. Dividends are the other way you make money in the stock market, and they're a true form of passive income.

Blended Funds. Funds that aim to provide a balance of both capital gains and dividends. Blended funds are picked to have a mixture of some growth companies that provide dividends, but also some companies that reinvest their dividends so they can continue to grow and create capital gains (and potentially even larger dividends later on).

FIRE (Financial Independence, Retire Early). An extreme form of investing that aims to build a portfolio large enough to live off 4% of its annual return, enabling early retirement. The FIRE movement is built off the idea that you can build up an investing portfolio large enough that it acts like an unlimited little pot of gold.

7. Market Fluctuations: Understanding Risk and Reward

For a long‐term investor, markets will go up and down, it's just what happens.

Market Movements. Stock prices fluctuate due to supply and demand, company earnings, and investor sentiment. Understanding these factors helps investors navigate market volatility. There are three main causes for stock and fund price fluctuations: supply and demand, company earnings, investor sentiment.

Macro Factors. Economic growth, unemployment, inflation, and interest rates significantly impact the stock market. Monitoring these factors can provide insights into market trends. The most important to consider are these four macro factors: economic growth, unemployment, inflation, high interest rates.

Measuring Risk. Beta is a stock ratio that determines how risky or volatile a company is compared to others. Beta is a stock ratio that determines how risky or volatile a company is compared to others.

Risk Tolerance. Aligning investment choices with your personal risk tolerance is crucial for long-term success. Investors in training choose what they invest in based on their time frame.

8. Ethical Investing: Align Your Portfolio With Your Values

You basically get to decide if a company or fund meets your ethical standards, and you choose if you want to engage with them or not.

Ethical Investing. Investing in companies and funds based on your own values and morals. Ethical investing takes into account your religious, cultural, social and moral beliefs.

Socially Responsible Investing (SRI). Focuses on investing in sustainable business practices, considering environmental, social, and governance (ESG) factors. An example of SRI investing is Environmental, Social and Governance (ESG) investing.

Impact Investing. Investing in companies or organizations that benefit society. Impact investing is all about investing in companies or organizations that benefit society.

Screening. Positive screening involves choosing companies that support causes you care about, while negative screening involves avoiding companies with practices you disagree with. Positive screening is the simple act of choosing what causes matter to you and investing in companies that meet those criteria.

Greenwashing. Be aware of greenwashing, where companies falsely market themselves as ethical to attract investors. It's important to not only be an ethical investor, but a vigilant one too.

9. Invest Like a Girl: Strategies for Success

Women are told we’re risk averse, but we’re not. We’re just risk aware.

Passive Investing. Female investors tend to prefer passive investing through index funds, offering diversification and lower fees. With passive investing into index funds or ETFs, you end up diversifying your portfolio naturally as well.

Dollar Cost Averaging. Investing a fixed amount regularly, regardless of market fluctuations, to reduce the impact of timing the market. Female investors are able to control this urge to stay updated on the small movements of their portfolios and end up being better off for it.

Emotional Control. Maintaining emotional discipline during market volatility is crucial for avoiding impulsive decisions. Female investors are able to control this urge to stay updated on the small movements of their portfolios and end up being better off for it.

Avoid FOMO. Resisting the fear of missing out (FOMO) and sticking to a well-defined investment strategy. Female investors are less likely to succumb to peer pressure in investing and are more likely to hold on to their investing strategy.

Less Frequent Trading. Trading less frequently and investing for the long term. Female investors increase their earnings by trading (i.e. buying and selling) less frequently.

Invest in What You Understand. Focusing on investments you understand and avoiding complex or speculative assets. Female investors are able to control this urge to stay updated on the small movements of their portfolios and end up being better off for it.

10. Lazy Investing: Simplicity for Long-Term Growth

The lazy investor, or three fund portfolio, is an investing strategy coined by John Bogle, the guy who invented index funds.

Active vs. Passive. Active investing involves trying to beat the market through stock selection, while passive investing aims to match market returns through index funds. Active investors are trying to beat the market average by choosing stocks, putting time and energy into reading company financial statements, skimming through balance sheets, looking at a company's assets and debt and reviewing how the company controls its cash flow.

Three-Fund Portfolio. A simple and effective strategy involving three ETFs: a broad US market index ETF, a broad international market index ETF, and a bond ETF. The three funds that a lazy portfolio has are: a broad US market index ETF, a broad international market index ETF, a bond ETF.

Asset Allocation. Adjusting the percentage of each fund based on your risk tolerance and investment goals. A rough way to work this out as a lazy investor is to take the decade of your age and subtract it from 100. This is how much should go towards stocks.

Benefits. The lazy investor strategy offers ease of use, adjustable risk levels, and high diversification for low fees. The advantages of this approach are: it's an easy set‐and‐forget method, you can adjust your risk level, it offers high diversification for low fees.

Last updated: April 10, 2025