Men and women are born with distinctively different sets of hormones. With the dawn of human civilization women were responsible to take care of the family and its wellbeing, whereas men were primarily taking care of earning, to meet the physiological needs of the family. Hence by very nature women are a bit more protective, and their risk taking appetite is lower than men. It is quite argumentative to narrow down to a conclusion that women are better investors than men or not. Many researches have shown that women are conservative while men are aggressive investors. Any extreme is harmful, maintaining the balance is essential. Being very conservative does not allow the money to perform the way it can, and being very aggressive might lead to capital erosion. Hence a balanced approach to investing is required.
Because of their genes they are certainly safe players than men when it comes down to managing personal finances. Women are very selective and cautious in choosing the asset class in which they would put their money.
In a survey conducted by a UK based company SavvyWoman.co.uk, when asked about choice of investments amongst men and women respondents about their preferential class of investment. The result showed that if given 100000 pounds, women are mostly unaware of where they would invest. They would certainly prefer other modes of investment rather than going for share based investments.
A difference in the investment behaviour can be noted from the above graph, any guesses why? Let us evaluate:
- Women have different perspectives and values than men.
- Research indicates women tend to be more altruistic while men tend to be more competitive. It is reasonable to expect these and other value differences between the genders would translate into different attitudes towards financial planning and managing financial assets.
- Women don’t talk finance with their friends, while men take up this topic quite often. Its psychology that women don’t feel comfortable talking on this topic because of limited knowledge and interest whereas men deliberately take up this topic to boast about their knowledge and interest.
- Women tend to be a bit too conservative and to be on a safer side they park their funds in less risky investment options like fixed interest instruments, Savings account etc., rather than equity linked options. Most women fear equity markets and are unaware of how to invest in equity markets. For them trading in shares mean high potential losses. Capital is very dear to them and they fear losing it at any cost. But being very conservative doesn’t help. If anything, they stunt the growth opportunities and the savings get trapped in low return generating instruments.
- On the other hand Men always feel that they are well informed and know how to manage their finances well. A psychological bent towards direct equity investments, high risk appetite and overconfidence on market timing leads them into trouble at times. A good proportion of men investing in the capital markets often leverage their investments which is not sensible and appropriate way of investment.
To avoid such behaviour women are advised to follow certain thumb-rules. The below mentioned points would definitely help them do better.
Know your finances: Investments mean sacrificing today for tomorrow. Jumping into a deep pool before learning how to swim will drown you. Keep a track of your expenses, emergency funds, and debts to pay off before investing. In other words, “Know what you own, and know why you own it.”- According to Peter Lynch.
Start early start small: Do not wait for the right time or huge money. Investments can be initiated with small amounts. Whatever you save today helps you make your tomorrow better. Money begets money. It earns for itself. While you earn, allow your saved money to earn for itself. Start with a small amount, invest regularly and in no time it would become a big portfolio. We have often heard about the statement - every drop counts and this is quite true when it comes to investments.
Get educated: Learning always help. Try gathering information and knowledge from reliable sources. Going for a course on investment management does help. Reading books, financial newspapers, articles, web blogs and pages do help. Keeping yourself updated helps in taking better decisions. Invest time before investing money, do research and take informed decisions. After all, “An investment in knowledge pays the best interest.”- Benjamin Franklin
Do not compete: Competition doesn’t help when you are investing. Do not compare your kitty with that of your friends and associates. We all are different and so is our goals and investment patterns and thus it is obvious that our returns would vary too. Getting emotional and panicky by looking at what others are earning is not great. Instead it is advisable to go in for rational decisions and do what suits you best. Don’t let your fear or greed limit your returns or inflate your losses.
Go for a diversified portfolio: Depending upon the age and profile one should plan to diversify the portfolio. At young age when the investment horizon is long one can plan to direct major portion of investible funds towards equity and keeping a small portion towards bonds and fixed instruments. In long term, capital markets give better return than any other available asset class. Asset allocation is dependent on your goals and risk tolerance.
Liquidity: It is prudent to remember the purpose for which an investment is being done. As every investment is done with a goal in mind, be it retirement, child’s marriage or education, buying a house, a vacation or medical emergencies. Hence an investment should be done in a manner so that the funds are available at the time when it is required.
Do not get allured: It is advisable to every investor that one should not get allured to any hot tip. There is nothing as a hot tip. Keeping yourself insulated from such baseless advice is the most important thing. Instead of getting attracted towards quick and easy returns it is always advisable to go for professional help. Investments mean sacrificing current consumption for future requirements, hence it is all the more safe to take professional advice.
Understand asset classes: There are various asset classes and you should learn the risk and return potential of each class. Savings account, Term deposits, Money markets, Stocks, Bullion, Currencies, Real estates, Commodities etc. each of these classes give good returns depending upon the quantum of investment you make in each class and for the time you keep your investments locked in. In long term most of the investments give considerable return but stocks have often outperformed each class.
Mutual funds are a good option: Nowadays we can invest in mutual funds through Systematic Investment Plan (SIP). Be it equity, gold, bonds or tax saving schemes mutual funds helps in investing in these options through a monthly option for as low as Rs. 500 a month. It helps women to transfer the burden of investment planning on professional shoulders in a systematic and a planned manner at a lower cost.
Discuss finance: Discussing finance with someone close helps in taking decision easily. At times we ignore certain facts and run after our hunch. But if it is discussed with spouse, parents or a close connection it makes our lives easier. After all it’s all about your hard earned money. A critic may turn out to be a devil’s advocate and save you from taking a wrong decision.
Do not churn too often: Churning portfolio entails transaction costs. Moving funds from one place to another place calls for costs. And reduces the potential to perform. Allow it to grow instead of getting panicky and shifting it too often.
Taxes are a cost: We often tend to forget or ignore taxes that our returns attract. It is often deducted at source. Taxes form a big portion of our investment costs, hence should be calculated before calculating returns. Learn about taxes and their implications on investments.
It is advisable for all women to understand and act upon keeping in mind the above mentioned points; these are certainly going to help them manage their finances well. Not taking risk is a big risk by itself. Hence be reasonable and rational while taking investment decisions. Equity investments directly or through the mutual fund way would help you generate great returns for your portfolio. Have a long term view as far as your investments are concerned and ensure you do not check your portfolio daily it would only depress or confuse you. It might even take your conviction off. Portfolio is like any of us; it takes time and years to grow the way we take time to become adults from infants. Individuals have different profit objectives, investment choices are a trade-off between risk and return. Do not become a sheep and get trapped in the so called “crowd behaviour”. You are women and women were designed to do great things. Prove this when it comes even to money matters! Handle it like a Queen just like you have been handling everything else till date!