Learn the Language of Paper Assets
Why you can and should start investing in paper assets
A lot of women I meet have an irrational fear of paper stocks. I can't count the number of times I've heard someone say, "I'm not smart enough" or "I don't understand all the financial jargon…it might as well be a different language!" Their fear and lack of knowledge hold them back from investing in the easiest and most accessible asset in the market.
Investing in paper assets is incredibly easy, and believe me when I say anyone can do it. In fact, you can go online right now and buy or sell a share of stock. You could download one of many investing apps, and at the touch of a button, you could be an investor.
Of course, it's not really that simple. The tricky part is deciding when and what stocks to buy and sell. That requires a bit more work and education.
So yes, learning to invest in paper assets is a lot like learning a new language. And just like learning a new language, anyone and everyone can do it. You just have to start educating yourself, and soon you'll be speaking fluently like a native.
Invest like a nun
I read a fantastic article in the Wall Street Journal this week about a small convent in Germany whose sisters took their finances into their own hands and became expert investors.
The convent used to survive by selling milk and candles, and collecting interest from deposits, but when interest rates started going down, Sister Lioba realized they needed a new strategy to keep them from going under.
Today, she runs a portfolio of €2 million, or $2.1 million, from her convent office. The amazing thing is, she learned how to do it all by herself.
"I started by googling what a swap is," Sister Lioba says, referring to a derivative that allows an investor to exchange the income stream of one asset with that of another.
The 54-year-old then began studying the financial pages of German newspapers and her bank's research notes.
"I now understand every third sentence instead every 10th when I started," she says.
Sister Lioba doesn't have a background in finance. In fact, she studied psychology and served as a trauma psychologist before entering the convent. She started her journey into paper assets by purchasing a share in one stock, and teaching herself to understand the financial jargon.
I was so inspired by Sister Lioba's story of how she taught herself about investing and was able to increase the convent's income to help them thrive. Her story is just one of many that prove that any woman with the will to increase her finances can find a way to succeed.
The pros of paper assets
Before you start investing, take a minute to learn a few pros and cons of paper assets to help you decide whether they are right for you.
First, there are many positives to investing in paper assets.
- Liquid - Paper assets are quick to get into and quick to get out of.
- Easy Entry - It doesn't take a lot of time or effort to begin investing.
- Cash Flow - Certain paper vehicles, like stocks that pay dividends, can provide long-term cash flow if you learn the strategy.
- Tax Advantages - Paper assets held longer than a year are taxed at the lower long-term capital-gains rates. The same goes for dividends.
- Home-based Business - Like I said before, you can invest in stocks any time, anywhere, through an app or on your computer. This means you can include your spouse, friends, children, or go it solo.
The cons of paper assets
Every investment type has its downsides too. Make sure you are aware of these potential negatives of paper assets.
- No Control - You have control over which stocks you buy and when you sell, but you have no control over how the company you invest in performs.
- Volatility - Stock prices can rise and fall dramatically, and are subject to many outside factors.
- No Leverage - The average investor cannot borrow money to purchase paper assets. You must put in your own money to own the asset.
- High Fees and Commissions - Fees and commissions are charged on the majority of trades, whether you are buying or selling.
How to get started
Now that you understand a few pros and cons of paper assets, it's time to get started. If you decide that paper assets are right for you, the best place to start is by deepening your financial knowledge, and learning everything you can about this particular investment.
Like learning anything new, start by learning the terminology. This is where most people get tripped up. They walk into a financial advisor's office, and get thrown into an overwhelming conversation about derivatives, mutual funds, corporate bonds, and dividend yields. What often happens is the potential investor gets frustrated or scared, and they decide to just give their money to the advisor to invest for them.
Even if you have a financial advisor you trust completely, you should never blindly hand your money over to someone. If you decide to put any money into a paper asset, you should at the very least have a basic understanding of the terms and phrases of that investment, so that you can understand where your money is going and what it is doing.
Ideally, you want to have enough financial knowledge that you can invest and control your money yourself. Whether that's the path for you, or you want to work with a financial advisor, you need to learn the language.
You can start with our free rich dad glossary. Here you'll find simple definitions for a wide variety of phrases and terms. Once you understand some of these basic terms, you can move on to some of the many books or courses that can take your education further.
Study, study, study
When you had a big test in school, how did you prepare? You studied! Think of investing in paper assets as a test. Before you start putting your money in the market, take some time to study what's going on currently and what has happened in the past.
You should extensively study any stock that you're interested in. How does the company make money? What industry are they in? Who are their competitors? How has their stock performed in the past? What trends do you notice? If you don't understand how the company makes money, then don't invest in that company.
I know a lot of people who started investing by buying stocks in companies they knew personally. For example, one of my first stocks I purchased was Coca-Cola. I knew Coca-Cola. I liked their products. I understand how they functioned as a company. Other people I know invest in Apple because they use their computers and like their company. Still others might opt for brands they read about in the news a lot.
As long as you do your homework, there's no reason you shouldn't be able to invest in some great stocks.
Studying and educating yourself is great, but at some point you have to take the leap and put your money where your knowledge is.
The opportunities for investing are endless. You could invest through a traditional financial advisor, as long as you find one you trust and have a good relationship with.
You could also opt to invest for yourself, online or through numerous apps. Robinhood is one such app that lets you trade stocks for free, without paying fees.
Invest to your comfort level. Some investing platforms have a minimum amount of money you have to invest, but others, like Acorns, let you invest spare change.
Once you have the financial education, you can take control of your investments, and no longer being flying in the dark. Now, you'll be able to understand what's going on in the paper asset world, and be able to take control of your money.