Financial Wisdom for Women: Why Defense Wins the Wealth Game

by Sherry Finkel Murphy CFP®, RICP®, ChFC®

I teach women about money so they can make the best financial decisions with knowledge and confidence. If you want to change your money mindset, that’s the work of a therapist or coach. Doing unhealthy or unproductive things with money (and food, while we’re at it) is a different challenge. My job is to reduce the stress we place on ourselves when we don’t act intentionally with our money, whether we have a little or a lot. We need knowledge of money mechanics and financial planning best practices.

Offense Sells Tickets, Defense Wins Championships

“Offense sells tickets and defense wins championships” is a sports adage that can be aptly applied to financial planning. I’m considering this as I see the newest iteration of bright and shiny financial opportunities being marketed to women. Please trust that I’m leading the vanguard of women learning to activate our wealth. I’m a big fan of fearlessness and the outsized reward that comes with outsized risk. You might think I’d be delighted by the way women’s networks are being used to promote investment opportunities, whether crypto, private equity, real estate, or the traditional stock market.

My challenge with this is that very few people win the wealth-building game by only playing offense. In fact, it’s having a solid defense that enables them to accept the risk of engaging in the opportunities presented. As a result of this uptick in marketing financial opportunities to women, I’m not happy to see seminars and webinars that promote wealth creation without the disclaimer that you should consider any investment within the context of your greater financial plan. In other words, do you have the defense in place to accept the risk that may challenge the time horizon, liquidity, and gain/loss of your investment principal? If you lose this investment, do you have enough other assets to survive and thrive? If this investment takes a long time to deliver a return, do you have the runway to wait for it to mature? If this investment is illiquid, do you have other sources of cash to use? For women who are excited about these investing opportunities, you’ll need to ask yourself if you have enough of a defensive base to enable you to accept the risk.

Best Practice: Building a Strong Financial Defense

Who you are and what context you bring to your financial plan determines how strong your defensive game needs to be, to avail yourself of risky investment opportunities. Are you a member of a two-income household? Do you have substantial liquidity or a cash buffer? (I wrote about cash buffering as a defensive strategy against market downturns; you can find that here.) Do you have enough other wealth that this risky investment represents only a small portion of your overall portfolio?

Here are some important defensive components that will balance out your risky investments. If you cannot accomplish these defensive tactics, you are not ready to accept increased risk and will be relying on luck alone:

Emergency Fund: Every woman should build an emergency fund that represents at least 3–6 months of fixed expenses. This is for loss of income or something truly unexpected, like driving through a gravel pit and requiring four new tires. It’s not for co-mingling with short-term savings.

Insurances: In addition to mandated insurance for cars, homes, and businesses, women should have enough life insurance, disability income insurance, health insurance, and long-term care insurance to provide a backstop for worst-case planning. People who are serious about wealth building use permanent life insurance in their financial plans.

Sources of Liquidity: Having credit doesn’t mean you have to use it. When you have assets, you have something to protect. Women who are serious about wealth building should have lines of credit available for opportunities and emergencies. These might be home equity lines of credit, brokerage margin lines of credit, or other asset-backed sources of loans you can access in a pinch or in advance of selling an investment to raise cash.

Conservative and Blue-Chip Investments: Diversification is a key piece of defense, wherein you hold stocks and bonds (individual or funds/ETFs) representing different asset classes whose behavior is not correlated. This means that when one asset class goes down, another is going up.

Forget You Fund: All women should have a Forget You Fund (sometimes pronounced with a different F-word). This is a “separate-from-the-family-or-partner” account that can be used for three situations: leaving a toxic home environment and funding a hotel room; leaving a toxic work environment before the next employment is lined up; and start-up capital for a next act. It’s important, even if you are partnered or have family, to have funds of your own.

Madrina Molly: Financial Wisdom for Women of a Certain Age(ncy)

I offer Madrina Molly membership to give women the education they deserve but aren’t receiving from the financial industry. I address concepts that open your eyes and make it easier to determine how to manage (and grow) your wealth. I encourage more women to accept the risk/reward of investing. But the best way to prepare yourself for the risk of a deep exposure to any risky asset class (private equity, credit, debt, crypto, real estate, etc.) is to have a diversified financial base and a strong defense lined up. Your risky investment is the offense that sells the tickets and creates the runs you produce. All of your defensive components represent the hours of practice, the fielding strategy, run prevention, and protective equipment necessary to win the game.