We chatted to Jo-Anne Bailey from Franklin Templeton Investments to find out what women need to do take charge of their financial affairs and invest wisely.
Do women have special investment needs?
The principles of investment planning — like starting early, having a long-term plan and investing regularly — are the same for men and women, but there are a few factors that need to be taken into account when it comes to investing for women.
Why is investing for women often different to investing for men?
- Women tend to live longer than men (81 years compared to around 77)
- Their careers can be interrupted by family needs
- More often than not, female investors prefer a more conservative investment strategy. We’re not entirely sure why this is the case, but some economists suggest it comes down to biology (more oestrogen = more risk aversion), but more likely it’s due to the ever-present gender wage gap (smaller salaries = less to invest with).
Your financial picture
Investing for women is a lot like looking at a map in a shopping centre, coupled with a “you are here” arrow. Looking at your financial picture is like looking at one of these maps — but with one big exception: it’s up to you and your financial adviser to draw the map and pinpoint where you are, so you know how to get where you want to go.
The 3 most important aspects of this picture are:
- Your risk tolerance
- Your time frame
- Your personal circumstances.
Your risk tolerance
- Your “risk tolerance” is basically how comfortable you are with an investment option. The risk spectrum ranges from ‘safe’, with little risk of loss or volatility (like a money market fund), to very ‘risky’, volatile investments (some equity funds or sector funds).
- When it comes to investing for women, you need to determine your own comfort zone. For example, if you don’t like to be awake all night wondering about your investment, you can invest in moderate risk funds managed by investment fund managers.
- Also, you need to keep inflation and taxation in mind. With the so-called ‘safe’ but low-return investments, you can actually end up worse-off, thanks to related inflation rates, taxes and fees.
Your time frame
- When we talk about an investment’s time frame, we mean the time between when you make the initial investment and when you’ll need the money.
- If you start an investment with the goal of paying university fees for your child, it would work something like this: if the child is two years old now, you’ll need the money starting in about 16 years’ time; if that child is 15 now, you’ll need the money starting in about three years.
Your life stage
Knowing where you are in life will determine what type of investment strategy you should use.
- You are single, young and have started earning
- You are taking control of your finances for the first time.
Marriage and kids
- You are married or going to be married
- You have children or planning to have them
- You have to plan for your children’s education or marriage
- You want to buy a new house.
- You are divorced or separated from your partner
- You are widowed
- You need to take the responsibility of raising your children on your own.
- You are retired or going to retire
- You want to plan for your retirement
Read more: 5 hobbies that could be making you money
Your net worth
At a minimum, your financial picture should show you how your assets stack up against your liabilities. In other words, if you had to pay off everything you owe right now, how much would be left over?
- Your assets: Make a list of everything you own that has monetary value. Beside each item, write what it’s worth in cash. The list should include investment assets like stocks, bonds, or mutual funds. It should also include property such as your home or other real estate, vehicles, jewelry, art and antiques. Add the amounts in the list to determine the total value of your assets.
- Your liabilities: A list of liabilities will include all your debts and the amount owed for each one. The bond on a home is the largest liability for many people. Other debts include credit card balances, unpaid bills and car loans. When the list is complete, add those numbers to get a rand amount for your total liabilities.
- Your net worth: Subtract your liabilities from your assets and the resulting amount is your net worth. Ideally, your net worth will be a positive number, but it’s possible to have a negative net worth if liabilities exceed assets. This figure is the basis for your financial picture and will help you determine how much you need to invest to meet your financial goals.
Selecting your asset mix
- Asset allocation means dedicating certain percentages of your holdings to broad asset categories like stocks, bonds, real estate and cash as a way to achieve your financial goals while managing risk.
- This strategy can work because different categories behave differently. Stocks, for instance, offer potential for both growth and income, while bonds typically offer stability and income. The benefits of different categories can be combined into a portfolio with a level of risk you find acceptable.
What allocation is right for you?
- Asset allocation helps investors balance the investment returns they want with an acceptable level of risk. Your asset allocation should be based on your investment goals, time frame and risk tolerance.
- In retirement, you might want to emphasise bonds and cash for income and stability. But don’t overlook stocks, because you need to keep up with inflation.
- If you won’t need your money for 25 years, an investment adviser might recommend an asset allocation of 100% stocks. That wouldn’t mean investing in only one stock. You’d still want your portfolio to be diversified across a variety of stocks.
Preparing for emergencies
- Life is full of curve balls, like job losses and divorce, so don’t forget to set aside money for emergencies.
- Aim to build an emergency reserve that can sustain you for three to six months.