For many women, investments can be a daunting topic, leading some to shy away from it. Maybe it is because traditionally it has been quite common for a male partner to take charge of the household’s finances. While ignorance can be bliss, we have seen some instances where the wife is left in a precarious financial position after the passing of her husband, while she had no idea of their dire situation.
It is crucial for women not only to be involved in managing the household budget but also to gain a deeper understanding of their overall financial position, including their financial plan and investment portfolio.
Several reasons highlight the importance of women taking care of their own financial well-being. Women generally have longer life expectancies compared to men, necessitating additional capital to provide income during their longer retirement period. Additionally, in many instances their careers are interrupted by caring for their small children, resulting in a shorter time to achieve their financial goals. According to the United Association of SA (UASA), the gender gap in terms of income inequality is still between 23% and 35% in South Africa. This means that women are earning less and have a shorter time to save but need more capital for their future.
However, there are certain traits that give female investors an advantage. Women tend to be more focused on making informed, long-term decisions compared to men, who may be somewhat more impulsive and chase short-term returns. Women also tend to be more patient and open to seeking expert advice for their investment journey.
The first important step for women in their investment journey is to determine their investment needs and objectives. Whether saving for retirement, a holiday or a child’s education, having a clear destination allows for the creation of a roadmap for getting there.
This roadmap is the financial plan, which involves some important considerations such as assessing how much to save on regular basis to reach specific goals. It should also consider the appropriateness of various financial products, such as retirement annuities, discretionary investment plans or endowments.
Each of these products have a specific set of characteristics and a good understanding of it can help an investor to maximise its benefits. A good example of this is the tax benefits offered when saving for retirement in a retirement annuity. Not only can contributions to a retirement annuity be deducted from taxable income, but it also grows free from tax on interest, dividends and capital gains.
Risk tolerance is another important consideration in a financial plan. An investor should not only evaluate how much risk she can afford from a financial perspective, but also contemplate how much risk she personally feels comfortable with. An investment should not lead to sleepless nights. Risk tolerance will play an important role in determining the allocation to different asset classes, such as equities, property, bonds and cash. If the investor’s aim is to achieve long-term capital growth, her portfolio should have sufficient allocation to growth assets, such as local and offshore equities and property. A trusted financial adviser can play a crucial role in assessing and advising on all of the different aspects of a financial plan.
Setting goals and creating a financial plan is a good start but will not guarantee investment success. This will rather be determined by an investor’s ability to stick to the plan. An investment plan should be dynamic in nature, accommodating a detour when it is warranted by a shift in the investor’s personal circumstances or by changes in market conditions. It should also be measurable to ensure that the investor remains on track to meet her end goals.
There are two more important factors to consider when investing. Firstly, make sure of the quality of the underlying service provider, investment or asset. There are many pitfalls when greed cause investors to take unnecessary risks. Successful investing takes time and will test an investor’s patience from time to time. If an investment prospect sounds too good to be true, it most probably is. The second is diversification, which is often described as the only free lunch in investing. A properly diversified portfolio is essential in managing risk effectively.
By having a clear goal, a carefully considered investment plan, seeking appropriate guidance and maintaining endurance, women can possess all the hallmarks of successful investors and secure their financial future.
Jaanre Muller, Wealth Manager at PSG Hermanus
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