Compared to men, women are more patient, they stick to a financial plan, they trade less and they are goal-oriented. In spite of this, investing still remains the domain of men. There is an increasing number of women today who work and are financially independent but real financial independence is when they can confidently decide on their spending and investments too. Here are some important financial tips for women:
1. Know the difference between saving and investing
Saving is keeping aside your investible surplus in a bank account or as cash at home. Investing means making that money work and earn you something meaningful. Your investments should always be in products that can beat inflation.
2. Treat your investment as an EMI
The best way to plan your investments is to treat them like an EMI. Thus, first you invest every month and then spend from what is leftover.
3. Asset allocation is crucial
The biggest secret to be a successful investor is to spread your investments across different asset classes to help protect your portfolio from downturns in any one asset. You should have a mix of equity, debt, gold, real estate, international equity, etc. This allocation should also be reviewed on a timely basis.
The current scenario is a good time to rebalance and work on your asset allocations. If you are underinvested in equity but have long-term goals, then you should invest now as equity is cheap in terms of valuations. I would recommend buying stocks only for those investors who are extremely market-savvy. Else, stick to diversified mutual funds. For someone who is a little conservative, asset allocation funds could be a good option.
Gold as an investment can be added if you are underinvested. As a thumb rule, you can have 7-10% allocation to gold, and sovereign gold bonds is a great product for the same.
So basically where one should invest will differ from person to person depending on the existing asset mix, risk appetite and financial goals.
4. Goal planning
Investing without goal planning is like shooting in the dark. You need to know that what is the target to strike and thus the plan can be made to suit that target. Some goals are common to all like contingency planning, retirement planning, and wealth creation. Some goals make be unique to you like children’s education, paying off a loan, holiday planning, etc. Give a lot of thought to your goals and plan your investment for each goal-keeping in mind the priority and the time horizon of the goal. As a thumb rule, if you have long-term goals, then invest in equity for those goals and for your short term goals, invest in debt.
5. Contingency planning
This is one goal which, if not planned, could disturb all your other goals. In the current situation, the importance of such a goal is well understood. Companies are laying off staff, giving pay cuts and a few businesses have shut down. This contingency fund can be a saviour in such a situation. One should keep around 6-12 months of income in products that are liquid and not impacted by any changes in market values. Fixed deposits in banks, debt mutual funds and liquid mutual funds are the best avenues for this plan. Here, do not focus on returns but on safety and availability of capital. Again, you may not be able to build this corpus immediately but could gradually build over the same.
6. Insurance planning
The first step towards prudent financial planning is to protect your assets. An income-generating individual is the biggest asset and thus that income needs to be protected in case of unfortunate demise or hospitalisation. This can be done by having an adequate term life insurance cover and health insurance cover.
7. Take professional help
Many a times it’s difficult to know what is the ideal asset allocation, should you invest today or wait, when should you sell and how to incorporate all the other things mentioned above. For this, you need a financial planner. There is nothing more important here than hiring a good financial planner. The best of fund managers also have a financial planner as the investment blueprint is more crucial in determining your overall portfolio returns than the selection of funds or stocks. For married women, this exercise should be done with their spouses as there will be many common goals which both work together on.
Binoli Dodhiwala is the Co-founder & CEO of The Money Managers