Women investors: gathering your confidence

It’s a conundrum: Several major studies suggest that women are interested in investing, make well-considered investment decisions and are largely responsible for managing their family’s finances and balancing household budgets. Yet more often than not, among couples, the man still handles the investments, and women still feel less confident than men about making investment decisions.

On its website (www.fiscalagents.com), Fiscal Agents Financial Services Group, an Oakville, Ontario-based full-service savings and investments centre, discusses a U.S. survey that shows 62 per cent of women balance the couple’s cheque book and 58 per cent pay the household bills — but just 15 per cent are solely responsible for making investment decisions.

This seems unfortunate when compared to the results of another study by researchers at the University of California. The study examined the investment records of 35,000 households with accounts at local brokerage houses throughout the 1990s. It found that men turned their portfolios over more frequently than women did — and tended to have lower returns at the end of the year than women.

According to Fiscal Agents, women want more detail than men about the investments their advisors propose. “A poll conducted in the U.S. in the late 1990s found that women spend 40 per cent more time researching a mutual fund before they invest. What’s more, they tend to be less impulsive and less inclined to act on a hot tip than men are.”

Yet — and here is the irony — the poll also found women to be less confident in their investing abilities than men. “Only 56 per cent of women feel confident about their investing abilities versus 64 per cent of men.”

Women need more savings
A second irony is that when you look at the numbers, women actually need to be more confident — and more skilled — than men when it comes to investing.

Generally, women still earn less than men for work of similar scope and value. They may also leave the workforce for a decade or longer while their children are young, or for several years later in life to care for aging parents. As a result, they may work less and have less disposable income to contribute to RRSP’s. They may also end up entitled to less income from the Canada or Quebec Pension Plan because they contribute less to it during the course of their working lives. Some women spend their lives raising families and don’t work at all.

Then, to top it all off, women are statistically likely to outlive men by several years, so they actually need their retirement savings to last longer than men’s.

Whether you’re married or single, divorced or widowed — starting your career or approaching retirement — the time to get more involved in your investments is now.
Here are some ways to become more knowledgeable:

  • Read books, websites and newspaper articles about investing.
  • Attend free seminars and presentations offered by banks and insurance companies.
  • Consider taking the Canadian Securities Course, offered by the Canadian Securities Institute (www.csi.ca).

And of course, talk to me about ways to become more informed and involved when it comes to your own investments.

Women investors: learning to take risks

When it comes to investing, there is a general rule of thumb: the greater the risk, the greater the potential returns. Since risk can sometimes produce deep valleys in between the peaks, the question is: How much volatility can you stomach while you’re waiting to capitalize on those returns?

Studies show that many women are more reluctant than men to take on the level of risk required to produce investment returns sufficient to meet their needs. According to a Toronto Stock Exchange study, just 39 per cent of women surveyed said they were willing to take “some risk” for a chance to realize greater returns. In comparison, 58 per cent of men would take some risk.

Playing it safe, however, is not necessarily the best way to go. According to Marc Lamontagne, a certified financial planner with Ryan Lamontagne Inc. in Ottawa, women need to guard against certain factors such as inflation, taxes and longer life spans grinding down their money’s purchasing power.

The average woman can expect to live to age 87 — six more years than the average male. That longer life span, says Lamontagne, means you need to include a growth component in your portfolio.

Aim higher
“While risk tolerance is a very individual thing, at the very least you should aim for an after-tax return that will outpace inflation,” he says.

Taking some risk with the growth portion of your portfolio will increase your long-term rate of return, even if that portion is just 25 per cent of the overall portfolio, says Lamontagne. “Remember though, there is no such thing as a free lunch. The larger the growth component of the portfolio, the greater the year to year volatility.”

To illustrate this point, compare the theoretical results investors can obtain by taking varying levels of risk. According to Lamontagne, if you had invested from 1985 to 2004, here is what would have happened:

Women & Investing

*Source: Morningstar Canada Average Mutual Fund Returns.

So what would have happened if you had invested $10,000 in 1985?

  • If you’d gone the all-GIC route, you would have accumulated $37,980.
  • Opting for just a little risk in a conservative portfolio, you would have gathered $47,480.
  • Taking a little more risk and choosing a balanced portfolio, your investments would have turned into $50,186.
  • Turning the risk dial up all the way and investing in an aggressive growth portfolio, your $10,000 would have grown to $59,211.

Of course, investing larger sums of cash more regularly — as most investors do over a 10-year time frame — would amplify these discrepancies considerably.

A little education can go a long way when it comes to investing, so read up: Armed with knowledge, you may find yourself becoming comfortable enough with risk to more than meet your goals. Talk to me about ways to learn more.

© Copyright of this article is held by The Manufacturers Life Insurance Company (Manulife Financial). You are free to make copies of this article and to distribute it, either in paper form or electronically, as long as you do not change or remove any part of this work. All other uses are prohibited.

Manulife Investments is the brand name identifying the personal wealth management lines of business offered by Manulife Financial and its subsidiaries in Canada. As one of Canada’s largest integrated financial services providers, Manulife Investments offers a variety of products and services including segregated funds, mutual funds, principal protected notes, annuities and guaranteed interest contracts.

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