How should women choose the right investments at different stages of life?
Although women have not yet broken the glass ceiling in many areas, they are closer to doing so than they ever have been. However, although more and more women are making their presence felt beyond domestic spheres and taking on new professional and personal challenges, money management continues to be a male-dominated terrain.
While change is underway with the younger cohort of women realizing the importance of knowing the principles of money management, there are many hurdles when it comes to being on par with men in this area. One aspect of this tiered problem is that women’s financial needs differ from those of men due to their longer average lifespan and their tendency to take career breaks to meet their caring responsibilities. However, the lack of financial products aimed at women, low financial and digital literacy compared to men contribute to a scenario in which choosing the right financial products is much more difficult than necessary.
An effective investment plan is not just about meeting your savings goals and investing in a multitude of assets. An often overlooked piece of the investment puzzle is to be aware that your financial and risk-taking capabilities as well as your goals and priorities will be an ever-changing landscape. Your investment decisions should be in sync with the stage of life you are currently in. For women, this act of maneuvering may seem tricky because they find themselves in a disadvantaged position relative to men in the financial management space.
Tanya Shekhar, a 32-year-old media professional, says the entrenched idea among Indian women of seeing “a man as a financial blueprint” deters many women from being proactive about managing their money. “I started saving and investing when I was 25. Like most young women, I didn’t know the basics of personal finance because neither my family thought I would need these skills nor the education system prepared us for them. A major problem I faced early in my investing journey was aligning my investing strategies with my changing life situations. At that time, I was under the illusion that once you invest your money, you don’t need to tinker with it for a few years or until you reach your goal. Learning that your portfolio needs to be adjusted with good regularity was a heartbreaking experience,” says Shekhar.
Shekhar recalls that at age 25, still relishing the taste of her newly acquired financial independence, she was glad she had invested in fixed deposits and a few random mutual funds. “It wasn’t until I took out a loan to buy a car at the age of 28 that I realized I needed to rethink my investing game. I realized I needed to separate my investments depending on my objectives and their respective deadlines and that confining myself to traditional investment instruments was not going to be enough if I had to achieve my other objectives while repaying my loan. years ago, my priorities had changed, as had my financial situation, as I was married and expecting a baby. I reshuffled my investment strategies keeping in mind that I might need to take a break career when the baby comes and my income is affected,” she explains.
Career breaks due to maternity or to care for family members are common among women. However, choosing the right investment products and finding the optimal balance between risk and return at different life stages can be a conundrum for many women. Moreover, since most women have to juggle household chores, work, childcare and even caring for the elderly in a relentless cycle on a daily basis, it is impossible for many female investors to find the time to think about their investments. As such, despite high levels of financial literacy, many women end up being sucked into the cycle of having to depend on male members for money management.
Preeti Zende of Apna Dhan Financial Services says, “Financial planning is an ongoing process. We need to make the necessary changes. For example, if you are a student earning income through stipends or part-time jobs or have created savings from your own pocket money, you can invest for your short-term goals. Although long-term goals may seem too distant or unclear, the biggest advantage at this age is that your risk-taking skills will be high and you can be an aggressive investor.
Investing according to the life stage you are in also involves a good degree of learning and unlearning, as the lack of knowledge about asset classes and different financial products can make switching too daunting. Urmila Singh of S9 Financial Planners says, “As a woman in the financial planning field, I’ve had the chance to interact with women from different age groups and some of the most common questions I have received were – how should I invest and in what? Are stocks risky for me? My answer would be that any financial product that you don’t understand will be risky to invest in anyway, but if you know the product and invest wisely, the chances of it being a bad move go down significantly.
Explaining the need to change investment strategies as you age, Zende says, “In your 30s, you may have additional responsibilities. For example, investing in your child’s education may be a major goal for you. A combination of equity mutual funds in the form of a large cap or an index fund as well as flexible capitalization and some exposure to mid cap funds as well as some investments in Fixed income instruments may be a wise move at this point.
Additionally, she advises that once you get closer to 40, you should religiously adhere to the principle of goal-based investing. “While following the goals-based investing strategy, focus on the asset allocation formula while building your portfolio. Once you’re comfortable with stocks, you can gradually increase your exposure, especially for long-term goals. Index funds, flexicaps, a small exposure to mid-caps and international funds can be a good combination,” she suggests.
Key points to remember
– It is best to seek professional advice if you feel too overwhelmed with the task of regularly reviewing and changing your investment mix.
-Insurance will always play an essential role in ensuring your well-being and that of your loved ones. Checking to see if you have adequate coverage from time to time is key to preparing for any emergency.
– Financial planning is an ongoing process. We need to make the necessary changes. For example, if you are a student earning income through stipends or part-time jobs or have created savings from your own pocket money, you can invest for your short-term goals.
– A combination of equity mutual funds in the form of a large cap or an index fund as well as a flexi cap and some exposure to mid cap funds as well as some investments in fixed income instruments can be a wise move in the 30s.
This article is part of the HT Friday Finance series published in association with Aditya Birla Sun Life Mutual Fund.