Investing Starts with Mastering the Basics

 

Globally, women control an increasingly large proportion of the world’s wealth.¹

 

By 2030, women are expected to control about 38% of all retail financial assets in the U.S., up from 31% in 2018.¹ Another survey found that in 2023, 60% of American women were invested in the stock market, up from 44% just five years earlier.²

 

As more women take control of their financial future, it pays to review some basic investing concepts. For women just entering the investing space, mastering these concepts will prove beneficial—and offer the key to understanding how to connect portfolio choices to long-term financial goals.

 

The following is not investment advice. Rather, it provides a baseline of knowledge that we hope will help as you work with a Wealth Advisor to develop your customized plan. 

The Four Building Blocks of Investing

To build confidence, it pays to understand the four basic building blocks of any portfolio and how they connect with each other. Once you understand these, you can work toward building an investment plan that aligns with your goals.

1. Fixed Income

Fixed income is the steadiest portion of your portfolio. It provides regular, predictable payments, typically through interest, and the return of your principal at maturity. This low-risk option allows you to plan on a set amount of funds and income being available. There are three key types of fixed income:

 

Cash. The most flexible part of your portfolio. As part of fixed income, most people usually hold cash for the short-term in highly-liquid, interest-bearing accounts, like savings accounts or money market accounts. It’s very low risk.

 

Certificates of Deposit (CDs). This is a low-risk, interest-bearing deposit that offers a fixed interest rate for a set term. In exchange for receiving a fixed rate, however, you cannot withdraw money before maturity without incurring an early-withdrawal penalty.

 

Bonds. With a bond, you’re lending money to a government or corporation. In return, you receive regular interest payments and a guaranteed repayment of principal at maturity. This option offers stability and income potential, while being considered a much lower risk compared to equities. Bonds are often the cornerstone of the fixed income portion of a portfolio.

2. Equities

Equities are considered growth-oriented investments, meaning they’re designed to increase in value over long periods. However, equity prices move up and down more dramatically than fixed income, but over time they have historically rewarded long-term investors.

 

Why is this? Equities give you an ownership stake in a company, through ownership of stock. With a stock, you’re purchasing a small stake in a company, so you participate directly in its success and failures. This offers you the potential for higher returns than bonds—but it comes with a higher risk.

3. Diversification Tools

A strong portfolio contains a mix of different equities and fixed income options—we’ll get into why this is the case a little later. There are two popular diversification tools, both of which allow you to easily purchase a more diversified mix of investments: Mutual funds and Exchange Traded Funds (ETFs).

 

Mutual funds are professionally managed portfolios that can help you simplify your investment process; they trade once daily.

 

ETFs also provide diversification; they trade on the market throughout the day like stocks and typically have lower fees than mutual funds.

4. Tax Treatment

When you understand the different brokerage account options and tax treatments, you’re able to make an informed choice that allows you to hone your investment strategy.

 

Taxable Brokerage Accounts. You use post-tax dollars to contribute to these accounts. The trades you make within these accounts are taxed as short- or long-term capital gains. Short-term capital gains (equities you held for less than a year) are taxed as ordinary income, at your regular income tax rate. Long-term capital gains (equities you held for a year or more) are also taxed by income thresholds, but at rates lower than ordinary income. As a result, there is a tax advantage to holding on to an equity for over a year.

 

Traditional Individual Retirement Accounts (IRAs) and 401(k)s. These retirement accounts allow you to have earnings deducted from your taxable income for the year in which you make the contribution. This provides a clear tax benefit. Then, the funds grow tax-free within your account—there are no taxes on trades or dividends—and the funds are then taxed as income when you withdraw them at retirement.

 

Roth IRAs and Roth 401(k)s. These accounts allow you to use post-tax dollars to contribute to your retirement. The funds are allowed to grow tax-free within your account, with no taxes on trades or dividends, and they’re not taxed when you withdraw them at retirement. This can provide a very powerful tax benefit.

Constructing a Portfolio Aligned to Your Goals

Now that you know the core building blocks of a portfolio, it’s time to put them into action. We have some key concepts to discuss with your Wealth Advisor.

Risk Tolerance

How willing are you to stomach the possibility of major losses in your portfolio, if it also means you have an opportunity for major gains? Your answer is your risk tolerance. People who want big opportunities have a higher risk tolerance, while people who want a steadier portfolio have a lower risk tolerance.

 

While there’s no right answer for risk tolerance, the extreme on either end can have negative consequences. Those who pursue very high rewards face the very real possibility of crashing and burning. However, those who are extremely conservative often end up losing money when inflation is factored in. Neither is ideal.

 

Instead, you want to calibrate your risk tolerance to your temperament and your financial goals. Talk with your Wealth Advisor about a strategy that fits your situation.

Asset Allocation

Asset allocation refers to the mix of investment types you have. How much of your portfolio is composed of equities versus fixed income? How much cash do you keep?

 

Typically, people on the younger side tend to have a high ratio of equities compared to fixed income. This is because younger people have longer to invest, so they value the growth potential of equities, without sweating the ups and downs that come along with them.

 

In contrast, older investors typically emphasize fixed income more heavily, since they value the security that comes with lower-risk options. That said, older investors often still have some equities to gain access to enhanced upside.

Diversification

Diversification, in its most simplified form, simply means not keeping all your eggs in one basket. For example, if you were to invest all your money in the stock of one company, your portfolio would be tied to the success of that company—you would not be diversified. Even if you invested in just one sector of the economy, your portfolio would rise and fall based on just that industry—and that’s problematic.

 

Instead, a diversified portfolio allows you access to much more of the world’s economy, so that your personal fortunes are less likely to fluctuate based on the results of one, or two, or even several companies or industries. Typically, experts advise diversifying across sectors of the economy, as well as asset classes and regions of the world.

 

Your Wealth Advisor can help you develop the right mix for you, based on your short- and long-term financial goals.

Rebalancing

Rebalancing your portfolio entails making sure that your assets are allocated according to your investment plan. While this may seem simple, if you do nothing, your allocation can become misaligned.

 

Why? If you have a well-diversified portfolio, different parts of your portfolio will naturally grow at different rates. Over a year or two, this can result in an unbalanced portfolio. You can fix this by selling a portion of your overperforming funds and using the proceeds to rebalance your asset allocation to align with your investment goals.

 

Most advisors recommend rebalancing annually, though in some situations doing it more or less frequently may make sense. Your Wealth Advisor can help you determine what’s right for you. 

Lump Sum Investing vs. Dollar Cost Averaging

Lump sum investing is just like it sounds—when you have an amount you want to invest, regardless of the size, you just plop it in the market. Some people are hesitant to do this, however. They worry that they’re not buying at the optimal time—they don’t want to purchase an equity at its peak. But timing the market is nearly impossible, even for professionals. 

 

Enter dollar cost averaging. This technique allows you to make smaller purchases at set, regular intervals over an extended period of time. Ultimately, you invest the same amount, with some of the purchases likely taking place during dips in the market and some likely during peaks. By spacing out the purchases, your goal is to average out the cost you pay per share.

 

A real-world example: After the sale of a home, you have $120,000 you’d like to invest. With lump sum investing, you’d simply roll the whole amount into the market, in accordance with your investment plan. With dollar cost averaging, maybe instead you’d put in $10,000 per month, on the first of the month, for one year. While you wouldn’t be totally invested right away, you’d be able to purchase at different moments in the market, giving you potential exposure to highs and lows. 

 

Dollar cost averaging ameliorates an important psychological barrier: the fear of buying high or investing too much at once. It provides a disciplined approach to adding money to your portfolio. However, studies generally demonstrate that lump sum investing overall generates a higher return because the lump sum investor has more money in the market for longer.

Is Investing the Right Decision for You?

An investment portfolio can be a powerful tool for pursuing long-term financial goals. As you understand the concepts, it becomes easier to see how your investment strategies connect to your overall financial plan. If this feels intimidating, your Wealth Advisor should be able to keep you well-informed—and help you grow as an investor. If you’re ready to get started, please just reach out.

 

¹ “The new face of wealth: The rise of the female investor,” by Cristina Catania, Jill Zucker, et al. Published by McKinsey & Company on May 8, 2025. Available at https://www.mckinsey.com/industries/financial-services/our-insights/the-new-face-of-wealth-the-rise-of-the-female-investor

² “Women and investing in 2024: Here’s everything you need to know,” by Georgina Tzanetos, published by Bankrate on March 26, 2024. Available at https://www.bankrate.com/investing/women-and-investing/