The Big Short, The Wolf of Wall Street, Margin Call, Inside Job, and closer to home; The Big Bull. The first thought, that comes to mind when we read the names of all these movies is their connection to the stock markets and the host of emotions that we’ve all witnessed when we’ve watched them. From basic technicalities to gaining a deeper understanding, these movies characterize realism in a manner that we perceive them. But take a close look at what’s common across these movies – yes, they are all about money. But are also defined by the protagonist, in all the above cases, a man.
Picture this, a global Morningstar study from a few years ago found that the gender gap amongst portfolio managers is whooping 1:9. Which essentially meant that there was only 1 woman fund manager to 9 men in the industry. In India, the gap only seems to widen further, and this is reflected across the spectrum wherever there’s talk of money. We’ve all seen how our mothers and grandmothers managed the household within tight budget constraints. As a child many of us have probably even witnessed them saving up a portion from their budget allocations for a rainy day. But surprisingly, this methodological approach doesn’t extend beyond the boundaries of the household.
The concept of financial freedom is not new and is applicable to everyone. Be it in today’s world, where there has been a huge change in the work culture as more and more women share equal responsibilities in the corporate world or in a household where one of the partners shoulders the responsibility of earning for the family. Yet when women talk financial freedom, it often means earning, but leaving investment decisions to our fathers or husbands. The reasons for this range from a lack of understanding, a lack of confidence to the fear of making incorrect decisions. The world of investing; of bankers and money managers, is often perceived as being aggressive, transactional and having higher risk-taking capabilities – traits that we relate to the and characterize as masculine. But it’s time to change that narrative and understand that investing requires a lot of thought, patience, focus and the ability to exercise self-control. In Paul Samuelson’s words, “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”
We’re not going to talk about some of the inherent traits of women that could make them better investors, because the internet will give you everything that you need on that topic. The focus here is to encourage women to take that first step into investing and look at aspects that will help in their journey into gaining financial independence.
When should you start investing?
The short answer to that would be, 20 years ago. The second-best choice would be to invest ‘’now’’. Start when you can, because there’s never a perfect time to start. We often suggest that the earlier you start the better it is, because an early start helps you plan your finances better and align your investments to your goals. It also gives you to time to explore, experiment and correct your mistakes. But there’s an age-old adage which says, ‘better late than never’. Consider this, no one would know your goals better than you. So, having clarity of thought in terms of what you want to save for, is half the battle won.
How should you start?
The first step for any investor is to try and get a hang of the basics, so that you able to communicate effectively with your financial planner and ask them the right questions. With a lot of companies promoting investor education, and putting out content on digital platforms, this task has been considerably simplified. The information is easily accessible, but it does need your resolve and a small commitment towards managing your own finances.
Start by focusing on the low hanging fruit! Invest in asset classes that you find easier to understand and pick products that are easier to track and manage. Consider mutual funds within the large cap or hybrid category for instance as one of the first funds to invest in. Progress towards other fund categories and other asset classes as you gain confidence with investing.
Keep in mind your time commitments
This one is specifically relevant for women, who often juggle between work and family commitments. Take stock of how much time you will be able to spend in constructing and reviewing your investments. Although digitization has made most investment avenues accessible, it is important that you review your investments and look at rebalancing your portfolio efficiently. Hit the reverse gears on this one – start by thinking about the time commitment and tailor your investment in asset classes based on how much or how little time you can put in. Consider products like Exchange traded funds, Index funds, mutual funds etc. to start with.
Investing doesn’t have to be all done by yourself! It’s a great idea to work with a financial advisor. Like our vehicles need the expertise of a service center to get them serviced and repaired, financial advisors are subject matter experts who have the expertise when it comes to managing your money. Choose the right advisor, one who encourages discussions and will point you in the right direction, especially when your investments hit rough weather. This will allow you to make time and focus on your core expertise, in turn giving you the opportunity to realise your financial potential.
Keeping risk in mind
One of the traits that makes women good investors is their propensity to save for the long term and maintain a risk averse approach to investing. But it’s important for all of us to keep our risk appetite in check. Asset allocation is a key driver here, and it’s important that you mitigate high risk investments and cushion them by investing in assets that will yield a consistent and stable return over your investment horizon. On the flipside, we often tend to underestimate our risk appetite and adopt a conservative approach to investing, when we can take a tad higher risk.
Asset allocation alert!
Investing is often confused as being akin to investing in the equity markets. But it’s important to evaluate your risk levels and allocate assets across multiple categories. With the financial markets opening up, there is a huge availability of financial products that you can invest in. Be it mutual funds which allow you to invest small amounts of money or specialized portfolio management services, alternative investment funds, national pension scheme, post office deposits, precious metals and real estate to name a few.
For example, a young investor with a relatively higher risk appetite could tailor their portfolio with a 70% exposure toward equity, 20% towards debt and 10% towards gold. For a more conservative investor, the level of equity exposure should be reduced based on their risk-taking capability. Even while considering products like mutual funds, it’s important for investors to be conscious of the categories of funds that they are investing in and the investment styles that the manager plies.
It’s important for investors to remain cautious of underexposure or overexposure towards one asset class. For example, gold acts as a very good hedge especially in downmarkets and investing in Gold ETF’s makes it easier to track. However, your allocation towards precious metals should not be over 10-15% of your portfolio depending on your risk appetite.
Women have come a long way and have been earning accolades and recognitions in multiple roles across the board. Take for example women like Gita Gopinath, Hima Das, Mary Kom, Avani Chaturvedi, Indra Nooyi and Richa Khar – women who are celebrated for their achievements and are known for inspiring so many more to be like them. Respected and well deserved indeed, but why stereotype achievements based on the gender of a person? Women put their best foot forward to contribute towards the growth and development of the country just as much as anyone else. In the world of investing, this holds very true - money does not know gender, nor is it biased – why should we be?
