The best way to become a financial winner

Annie is 57 years old and like many women, notwithstanding that she has worked part time for 26 years, has relatively few cash savings to show for her efforts. In fact, although she is university educated and has worked as a professional all these years, she only has about $20,000 in the bank and a little over $100,000 in her employer super fund. Annie attributes this largely to the fact that school fees for their three sons were funded from her income.

Annie and her husband are going through a rough patch and while she is hopeful that they will stay together, she is understandably feeling quite vulnerable at this time. There is however one big difference between Annie and many other women who have found themselves in a similar situation. Before Annie met her husband and when she was working full-time, she had used her some of her spare cash to purchase shares in the initial public offerings during the 1990s. She invested $2000 each in the Commonwealth Bank, Telstra and healthcare company CSL. With the benefit of time and the reinvestment of all her dividends, these shareholding have now grown in value to almost $700,000.

Annie explained she feels it was just sheer luck that she had spare cash when these companies were first offered to the public. She also explains however that some of her friends also bought into these same floats, but sold out many years ago when the share price increased using to fund car, holidays and other expenses. As a working mother she was too busy to monitor the day-to-day movement of the stocks and as such happily let them run all these years.

While this story may be somewhat of an outlier, there are some useful points.

1. Female advantage

Women have many of the natural tendencies to make them great investors. They are cautious, like to invest in what they know and once they have made a decision they will often stick with it. These are exactly the same attributes that legendary investor Warren Buffett credits for his success. This link between Buffett and feminine investment traits is usefully captured in the book provocatively titled Warren Buffett Invests Like a Girl. Focusing on building confidence as investors, based on natural strengths, will help more women make the steps to become financially independent.

2. Start early

When we are young many of us assume we will have more money for investment when we get older and enjoy higher salaries. The truth is, while incomes in your 20s and 30s are lower, so are your fixed costs such as childcare and mortgage repayments. Not only are you likely to have more discretionary funds when you are young but making investments at this age harnesses the value of compounding. The reality is that investments you make in your 20s and 30s are worth eight to 10 times as much as investments made in your 50s and 60s. If you want genuine financial independence, start early and retain control of your own financial decisions.

3. Relationships and money

The most recent Relationships Australia survey suggests that the number one cause of separation and divorce is tension over money. Coming to a relationship with not only financial assets but a strong sense of financial priorities and financial discipline is a great way to build a robust foundation for any relationship. This starts from the very beginning with economists at Emory University finding from a survey of more than 3000 couples that those who spent more on their wedding ceremonies were more likely to later split up. Of course, they could not prove that the expensive wedding caused divorce. Only that there was a correlation.

We all secretly hope for a financial windfall – a lottery winning, an inheritance, an unexpected business success. However the reality is that, by far and away, the most likely way to become a financial winner is to make good quality growth investments and then get out of the way and let time do the work. And while Annie has some tough decisions ahead, her decision to buy and hold shares have bought her many more choices than she might have had.

Catherine Robson is a financial planner with Affinity Private. Twitter: @CatherineAtAff.