Investing can be intimidating to anyone who hasn’t gone through the process before. But are there certain things that especially hold women back from investing? Michelle Hung, from the Sassy Investor, dives into the female mindset when it comes to investing including how women perceive the stock market and if they’re waiting too long to start investing.

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Tom: Michelle, welcome to The Maple Money Show.

Michelle: Thanks, Tom. Thanks for having me.

Tom: I wanted to bring you on the show so we could go through some of the investing mistakes women make. Obviously, there’s a lot of investing mistakes that everybody makes but I wanted your opinion on what’s unique about a woman when she’s looking at getting into investing? What’s the first major investing mistake you believe women make or don’t make?

Michelle: Yes, for sure. You briefly mentioned it. It’s not investing. They’re starting too late and there are just a number of reasons as to why. Talking to a lot of women of all ages, the most common one I get from my older clients– the ones near retirement or in retirement is that they wish they had started earlier. And then I started talking to the younger generations like Gen-X and Gen-Y and just asking them why they’re not investing. A lot of the excuses or reasons are that they don’t know where to start or they don’t know how to manage their money. Or they’re scared and felt like there weren’t enough resources out there for them. This is why I started the Sassy Investor because a lot of times they’ll ask me what to invest in and I tell them. But, are they going to do it? Probably not. And that’s because they don’t know how to. That’s one of the most common mistakes. What I found was that women were very good at saving money. That just goes back to when we were very young. I think we’re all pretty good at saving because when you collect your first coins from grandma, or grandpa gives you a nickel or something, we start being good at collecting. We’re good at saving, naturally. Of course, with the exception of when debt is introduced, like with credit cards and all that stuff, for the most part, a lot of women are generally good at saving. But how do they put that money to work? The problem being they’re not educated enough or they’re scared. We’re talking about people’s life resources here. They’re scared and they’re hanging onto it. They don’t want to lose money because of all the myths out there about losing money. When I tell them they have to invest in the stock market they say, “But, I don’t want to lose all my money.” I tell them they’re not going to lose all their money. There are these stigmas’s out there that kind of scare them away from doing it. One of the things I like to equate it to is once you start, you’re good. It’s like the first time we made a purchase online. The very first time you put your credit card in, you’re so scared. We think, “Okay, I’m going to put in my credit card number. What’s going to happen? Is it going to get lost in cyberspace forever? My identity is going to get stolen and my life will be over.” It’s kind of like that. But once they start doing it and get used to it, it becomes a habit. And nowadays you can even automate the process where you select which ETFs to invest in and every month they’ll just automatically just do it. Or they’ll automatically transfer money from your bank account to your brokerage account. And that’s a really good habit as well.

Tom: Do you recommend robo-advisors as well for this?

Michelle: Yeah, I recommend just putting your money to work, period. It’s better than having it sit in a savings account or a checking account doing nothing.

Tom: Yeah, for sure. I often recommend robo-advice. That’s why I brought it up. For anyone that hasn’t started investing yet, it’s the easiest way to hop right in. Like you said, once you start, you start. And if you set a monthly deposit to that robo-advisor, it’s done.

Michelle: Exactly.

Tom: What’s the next major mistake women make?

Michelle: The second one is being too conservative. I think a lot of that comes from that fear of not wanting to lose money. When I asked young women, “Are you a risky person or are you risk adverse?” They’d say, “I’m risk adverse. I don’t want to lose any of my money.” And there are in their 20s. That’s where the education part comes from. I tell them they’re not going to lose all their money. The only way you lose all your money is if you sink it all into one stock and that stock goes to zero. Or, if you put money in a general index fund or even a mutual fund and then the markets go down. And then you sell it– that’s when you lose money. So again, it’s the education part. I came across this blog once that was about this girl who was talking about how she was in her teens, around 18 or so. She wanted to invest so she goes to the bank and says to the teller, “I want to invest.” And they ask her if she’s a risky person or not risky? She tells them she’s not risky– she doesn’t want to lose her money. So the teller puts the young lady in a bond fund. Then she complains 10 years later that she made no money. First of all, the person at the bank just didn’t bother to educate her and let her know that she was not going to make anything. I always say, if you’re in your 20s, you have no business being in bonds. For all the risks involved you get such mediocre returns. You have to take risk because; over the long-run you’re going to earn a better return. Historically, equities have earned higher returns than bonds so you have to take the risk because a couple of percentage makes a huge difference over the long-term and you are actually selling yourself short. If you’re thinking of being risk adverse by not putting your money to work and you’re just going to invest in bonds or let that money sitting in GICs because you don’t want to lose money, you’re not doing yourself any favors. A couple of percentage points can actually be a deal breaker. It can make or break your retirement over the long-run.

Tom: With something like bonds, the way I see it is, the real risk there is if you’re invested mostly (or in this case, completely) in bonds the real risk is that you’re not going to keep up with inflation.

Michelle: Exactly.

Tom: To me, that sounds worse than whether my investments make 10 percent or 4 percent.

Michelle: For sure. We’re in an environment where rates are just going to go up and that’s going to kill bond prices. When interest rates go up, bond prices go down. And of course, they don’t know that either. They just equate bonds with being rate. But there are a number of risks involved. It’s all about having a balance. I’m not saying you shouldn’t invest in bonds. Bonds and equities move in opposite directions. You have a little bit of a safety net if you’re invested in a lot of equities and don’t want too much volatility in your portfolio. You just tell them to put some money into some bond ETFs. You just have that balance. It reduces your returns a bit, but it reduces the overall volatility in your portfolio.

Tom: Yeah, I like that classic “coach potato” sort of thing where it’s 25 percent bonds, 25 percent Canada, 25 percent U.S., and 25 percent International. I think during that quarter bonds is more than enough until you’re actually looking at winding down towards retirement.

Michelle: Exactly. And you bring up a good point in diversifying geographically as well. That’s one of the points I talk about a lot. We all have this home-based bias where we are Canadians and everything is so safe here. But, we’re not immune to any economic downturn. Our economy is very much different compared to the U.S. and compared to a lot of countries in Asia and Europe. You have to diversify out of your country as well. We live here, we work here. We get paid in Canadian dollars. It’s all of our eggs in one basket, geographically, so you have to diversify outside of your country as well. It’s a misconception a lot of people have and it’s one of those things where I have to educate them as well because they say, “I’m familiar with Canada. Our banks are so safe. In stores they’re familiar with the brands.” We’re very resource based.

Tom: Exactly.

Michelle: We have a lot of oil and gas, a lot of mining and exploration. We’re not very heavy in tech as the U.S. is. If you want exposure to some better returns then invest in the U.S. too.

Tom: I’m here in Alberta and we’ve seen how oil’s doing nowadays…

Michelle: Exactly.

Tom: That’s a big part of the Canadian economy. You’re right. If you’re investing mostly in Canada you’re totally going up and down. Just like you wouldn’t want to necessarily invest too much in the company you work for. If you work at a certain store you wouldn’t want to invest just that alone. If something happens to that company you’re going to be losing your job and your investment.

Michelle: Exactly, 100 percent. Yeah. And if all that is happening and your portfolio has a lot in Canadian stocks, it’s like a triple whammy. Everything’s going bad… That actually happened to me. I worked for a Canadian brokerage firm where I had equity in my firm. We were very much paced to the resource industry because I worked in mining and exploration and investment banking. So all that entire industry went down and I lost my job. My equity went to almost nothing. But then I looked at my portfolio. And at that time, about 90 percent of my portfolio was in U.S. stocks so all I could do was smile because I was okay. I was good. Everything else at home can be really crappy but I look at my portfolio and I’m happy.

Tom: For sure. Some of the things we covered here sounds like it can be influenced by media, like the idea Canadian banks are safe. It kind of reminds me of 2008, 2009 when the rest of the world seemed to be falling apart. Canadian banks did relatively well. And, speaking of 2008, it’s also the idea you can lose a lot of money on the stock market. I’m thinking that maybe the media is probably influencing a lot of people and it’s probably not helping.

Michelle: Yeah, they glorify everything that’s doing really well and just magnify everything. And that’s how bubbles are formed. And when things are not doing well they also magnify that. They scare people. They hype-up people and scare the living crap out of them. So it certainly doesn’t help. It’s like Bitcoin. What’s going on with Bitcoin? I don’t see any headlines out there now but a year ago everybody was talking about it. Every other headline I saw was about Bitcoin when it was almost at $20,000 US and now it’s tanked. There were the occasional headliners, but not so much anymore. Now, no one is touching it.

Tom: Everyone’s moved on to marijuana stocks now.

Michelle: Exactly, yeah.

Tom: Too many of them are probably overvalued. There are all these startups that probably won’t even exist.

Michelle: Yeah. Again, I don’t see a lot of those headlines anymore. So they are poised for a bit of a correction. There is overvaluation. It’s just whatever is hot, whatever everyone wants to hear about, whatever is popular. That’s what they talk about. But they do just magnify everything. I always say; if it’s already headlining and everyone’s talking about it, stay away from it.

Tom: Yes, it’s too late.

Michelle: Wait for it to die down a bit. Then, when no one is talking about it, maybe get in.

Tom: I was giving a talk here in Calgary and someone asked me about investing in Bitcoin right in the height of it, I believe in November of last year. I said, sure I would have loved to have been in early but it’s too late now. It’s just like I would have liked to have bet on black in Roulette– sometimes these things just don’t work out.

Michelle: Hindsight is 20-20.

Tom: Exactly. I do like your suggestion on getting into ETFs, Bitcoin and marijuana stocks because, sure, it’s kind of boring. But boring is good.

Michelle: Boring stocks make the most money because they’re so simple. Take the (CNR) Canadian National Railway for example. They just go from point A to point B trucking things around. That’s it. And that company pretty much prints money. It’s a cash-cow and there’s nothing wrong with making money. But like I always say, you want to build the core first, and your core should have a few ETFS. Maybe some of the more popular ones like the S&P 500 or some of the TSX composite. It’s a core. There’s nothing super sexy about it. But that’s what you should have because the markets have returned, on average, 8 to 10 percent per year over its entire history. And that’s a flat-line average. But you want that at the bare minimum. For a lot of women, the money is just sitting in a savings account so I tell them to at least do the bare minimum and invest in just a few ETFs. If you don’t want to look at investing in anything else just put in the bare minimum. But then there are a lot of women saying, “Well, they’re asking me about marijuana and about Bitcoin or Crypto currency.” Stuff that’s hitting the headlines is interesting because those people are making money and who doesn’t want to make money? I say, start with building a core first, and then dabble around these higher risk types of investments. But, if you want to earn above average returns you’re going to have to put in a little bit more effort. You have to do your research because you have to be confident in what you’re investing in. You can’t just go with what the media are saying. That’s how you lose money. That’s how a lot of people lose money in these types of products.

Tom: Let’s go onto the next investing mistake you have.

Michelle: The last one would be high-cost mutual funds. The average mutual fund in Canada is around just over 2.2 percent. And that’s really high. If you invested $500 a month and earned the average return and you were paying 2 percent per year on your fund, over a period of 20 years you would have paid about $44,000 in fees. And that’s high if the average cost of the mutual funds is over 2 percent. But there are ETFs out there that are .2 percent—a fraction of the cost. Imagine the amount of money you’re saving. That money could be in your pocket. That could make or break your retirement. If you’re falling short $100,000 or $200,000 when you’re 65 it’s a big deal.

Tom: Yes, for sure.

Michelle: That’s one of the things that the banks will always sell you because, traditionally, they’ve been around the longest time. A lot of people make money off mutual funds. But nowadays there are lots of ETFs—a lot of low-cost funds out there and they are getting cheaper and cheaper. It really is a race to the bottom when it comes to fees because people are starting to realize there are index funds that literally just copy an index. There is so little work involved. It’s not labor-intensive, so are we really paying for portfolio managers to be active? No. These fees are a race to the bottom. If you’re paying over 2 percent, you should really consider getting out. I teach people how to replicate their portfolio based on the mutual fund portfolio they currently have.

Tom: I’ve seen people with these portfolios of mutual funds where they’re all 2 percent, plus. But they’re almost trying to index really because they think they need this mutual fund and that mutual fund and they’re going to get nice and diversified. By then you pretty much do have the index but you’re paying for, like you said, all these mutual fund managers and that’s where the fees are going. That’s commissions to the person that sold it to you and the person that’s going to run it for you.

Michelle: Exactly. But, ultimately, everyone’s invested in the same thing. If you’re a Canadian portfolio manager managing a Canadian fund, you’re going to be invested in banks. You’re going to be invested in big oil companies here and in the U.S. You’re going to be invested Facebook, Google… Everyone is invested in the same thing so why are you paying a premium to be invested in the same thing? We’re going to be diversified but why pay a premium for it?

Tom: If someone doesn’t want to get into ETFs and having to buy them like stocks then index funds such as the TD series, makes perfect sense. You’re still comfortable with the traditional bank and it’s still really a mutual fund. But like you said, it’s based on the index and probably at half a percent or less.

Michelle: For sure.

Tom: This all reminds me something my friend Jimmy always mentions; retire happy. Does the idea that all this investing women should really be doing it as well and not just letting their husband do it? Because, everybody has a separate retirement. You might be a married couple and think you’re going to retire together and everything is going to be so great but there are a couple things wrong with that. Normally, people don’t retire at the same time. Also, one of you is going to die before the other. For investing all the way into retirement you’ve really got to treat them as individual things. You might picture the both of you sitting on a beach but the things happen.

Michelle: Yeah, and you may not end up together. The divorce rate is so high. I thought I was going to be with my—well, he’s my ex now. We were together for 12 years and I thought we were going to live happily ever after until it wasn’t the case.

Tom: Hey, there you go.

Michelle: Back then we had individual RRSPs, individual TSFAs for a reason. It’s for an individual. Again, anything can happen. You just don’t know. Your partner could get into an accident and may not wake up. You just have to look after yourself as well. It drives me crazy when I meet a woman and she says. “Oh, my husband’s the CFO.” You have to be the CFO as well. It’s a share partnership. It is managing your life’s resources. Some of my older clients say they wish they had started earlier because some of them ended up divorced after being married for 30 or 40 years and now they’re on their own. And some of them don’t even know how to make a budget.

Tom: Everybody just needs to hop in there and be involved. That probably works both ways if woman are doing all the finances too. But everybody should treat that a little bit more individually. You’re planning some stuff together but…

Michelle: Exactly.

Tom: Can you let everyone know where they can find you?

Michelle: Yeah, for sure. You can check me out on my website; thesassyinvestor.ca and you can find me on Instagram. My handle is @thesassyinvestor. And I am also on Twitter and LinkedIn.

Tom: Thanks for being on the show.

Michelle: Great. Thank you so much, Tom. Thanks for having me.

Thanks to Michelle for her advice on the unique issues women face when investing. You can find the show notes for this episode at maplemoney.com/michellehung. While this episode is geared towards women, you might know a man or woman that is hesitant about investing. If so, let them know about this episode so we can get more people started with investing. Currently, we only mention our sponsors at the beginning of the episode, but in this case I really think heading to maplemoney.com/wealthsimple is the simplest way to get started in a low-cost, diversified portfolio. Thanks for listening and we’ll see you next week when Maple Money turns 10 years old.