Three Ways to Invest Differently from Men

Women need to build greater flexibility into their investments from the start of their careers

It’s International Woman’s Day and if you’re a woman, you’re probably suffering from an overdose of pink-tinted ads, announcing offers on solitaires, lingerie, cosmetics and other sundry stuff that every retailer thinks women love to buy.

But why not use this day to sort out your personal finances instead?

Studies by financial firms, especially in India, show that most women hesitate to take their own investment decisions and leave them to the men in their lives.

The problem with doing this is that, with your finances as with your life, your goals are likely to be very different from those of your partner, father or brother.

So here are four factors that women need to pay special attention to, while making their investment decisions.

Flexibility is the key

Locking into an illiquid investment is a bad idea for anybody. But women need to build greater flexibility into their investment plans than men, from the very beginning of their careers.

This is because, while most women make an early start to their career, they are also prone to taking mid-career breaks.

Some women may choose to put a promising career on hold to start a family. Others may take a sabbatical to pursue higher studies or to travel.

Now, such a break within the first five-10 years of your working life can be very unsettling. Managing such blips in your cash flows will require you to have flexible finances, which you can achieve in two key ways.

One, don't take on long-term loans with hefty EMIs in the first few years of your career.

Buying a home on loan as soon as you start on your first job is a bad move as it can prevent you from experimenting with job switches (if you don’t like your current one), relocating to another city to be with your partner or even taking a break from work, if you so wish it after a few years.

Two, avoid investment products that require you to commit to fixed payments for several years and disallow early exits. Many of us have been coaxed to sign up for a traditional insurance plan or Unit Linked Insurance Plan (ULIP).

Not only do such products carry a minimum five-year lock-in period, they impose stiff penalties for skipping premiums too.

Opt for financial products that give you leeway to vary your investment and don’t restrict early withdrawals. Systematic investment plans in mutual funds can be reset every six months and meet both the flexibility and liquidity criteria.

For the debt side of your portfolio, liquid funds and short-term debt funds may be a more flexible option than post office schemes.

Plan for longevity

Insurance companies will tell you that women, on average, live longer than men. Yet, formal surveys by financial firms show that the majority of urban Indian women don't accord high priority to retirement. Longevity means three things for your investment plans. While taking a term insurance policy, choose one with the longest possible term to ensure your dependents are protected. Buying a term plan early can mean big savings on premium.

While investing in a pension plan, you will also need to target a higher sum than your partner.

This would either require you to start early or take on higher risks. This means scouting for investments with higher equity allocations such as the New Pension Scheme.

If you are a homemaker, draw up a plan that can help you meet your living expenses, medical bills and lifestyle needs if you outlive your partner.

Put it on autopilot

Many smart women don’t manage their own finances and delegate it to others because they believe they simply don’t have the spare time to do it.

Daily Sensex moves often psych you into thinking that your investment portfolio, especially if it has market-linked instruments, needs constant watching.

But that’s a complete myth. Today, there are scores of digital banking and technology aids that can help you put your investments on auto-pilot.

One, you can opt for sweep accounts with your bank, so that the excess balance in your savings account is automatically converted into a fixed deposit based on preset limits.

Two, you can leave standing instructions with your bank, or sign up for SIPs with online portals to ensure automatic debits from your salary account for mutual fund investments.

Three, while investing in deposits, stocks or mutual funds, you can opt for cumulative or ‘growth' plans, which save you the trouble of tracking dividends and reinvesting them.

Then, there are the many online portfolio management tools and an entire new breed of robo-advisory services that not only help you set up your financial goals and create a financial plan, but also help you track your portfolio on a real-time basis.

So go on and leave your portfolio to the care of online tools, and reserve the hands-on care for yourself or your family!