Building Your Personal Finance Closet
As you first start to look at your investment strategies when you embark on your journey in life planning, you might feel overwhelmed. What are the best investments? Just like building the perfect wardrobe, building a great portfolio takes time, persistence, and passion. If you’re like me, you’re always on the hunt for the perfect mix of classic closet workhorses, (a little black dress, a pair of leopard pumps,) trendy pieces, (a fringe belt,) and killer accessories (diamond cluster earrings, a dramatic cocktail ring).
Building your investment portfolio is really no different. The same philosophies apply. You will always be building on a mix of traditional, trendy, and original. How you mix and match is up to you — based on your lifestyle, goals, comfort level with risk, and personal interests.
Here are some examples of investment staples that should find a place in every girl’s closet…er…portfolio.
The Little Black Dress:
These investment pieces are traditional, almost always in style, typically with desirable anticipated returns.
I love LBDs and you can never have enough of them! No matter what the cut, they never go out of style. My favorite designers in this category are Carolina Herrera, Max Mara and Sportmax. Investment-wise, these are the large company, high quality stocks in your portfolio that historically pay higher dividends. Companies that we all buy products from everyday. The payoff from these “LBD Investments” have historically been viable and more consistent.
Stock investing involves risk, including loss of principal and the payment of dividends is not guaranteed. Companies may reduce or eliminate dividends at any time.
These are relaxed pieces. Low-maintenance with a slow-but-steady pay out.
Who doesn’t like a relaxed blouse with a breezy drape and distressed jeans!? Don’t let this look fool you. Proportions and prints need to be just right or it can look hideous. My favorite designer in this category is Isabella Marant or Joie. Your “BoHo Investment” portfolio is made up of Bonds. Bonds are typically viewed as safer and boring but just like the clothes, their proportions need to be managed to avoid a portfolio too heavy in lower-risk and slow returns.
Bonds are subject to credit, market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.Couture:
Classic investment pieces that are high-style and high reward.
These are the high fashion names we all aspire to have in our wardrobe. My faves here are a long list: Chanel, Alexander McQueen, Valentino, Prada, Balenciaga just to name a few. Investments in this category are your high-quality, large growth stocks. Stocks you pay full price for but will have strong potential to grow. Moreover, just like their fashion counterparts, it is not likely they will go out of style easily or in the foreseeable future and can be counted on to turn heads.
Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions of the issuing companies growth of earnings potential.
These choices, both in your closet and portfolio are risky, exciting, and potentially dangerous.
These are clothes or accessories that are “hot” for the season but have the potential to be a staple. Example: I remember when Leopard print was “trendy” in the late ‘90s. WE all loved it so much that we couldn’t stop wearing it and now it is considered a fashion staple! For those of you who know me, I LOVE fringe…..anything fringe! (I am currently betting that fringe is going to be the next staple.) So what are examples of “Fast Fashion” investments? Real Estate Investment Trusts and other alternative investments. Please note: this category requires close attention. Things can go south FAST. So keep your eye on your investment to ensure it is paying off as hoped. If paired with the right investments, this category can give your portfolio that extra kick and balance out your less volatile, more consistent anticipated returns like the LBD or Couture Investments.
Alternative investments may not be suitable for all investors and should be considered as an investment for the risk portion of the investor’s portfolio. Investing in real estate investment trusts (REITS) involves risk such as potential illiquidity and may not be suitable for all investors.
These fashions and finances are hot discoveries that are dicey but rewarding when they pay off.
Consider your emerging designer investments in tandem with trendy fashion or a new designer that is cool, little known, but with big potential. My favorite designers here are Marni, Veronica Beard, Altuzarra, Dorothee Schumacher and Jason Wu. These are comparable to your small and midsize company stocks and also international stocks. These investments are on their way toward seeking bigger potential returns. Your willingness to be patient for the possible payoff is key.
The prices of small and mid-cap stocks are generally more volatile than large cap stocks. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for all investments in emerging markets.
Investment and clothing choices that are perfect any day.
Have you every looked in your closet on a Saturday and thought, “I have nothing to wear!” The fact is we need the emergency go-to outfit that is “safe” and just ok but gets us through a lazy day while looking cute. My favs are: Lululemon or Gap Soft T-shirts with my boyfriend jeans or a JCrew blazer, paired with a cute scarf or accessory. You just can’t lose! This fashion “do” can be likened to money market cash reserves. Cash that you can access fast and feel good about using when times get tough. You must have a stash at your local bank for that rainy day.