Category: Investment

 

The world is changing. So is India.

 

We’re in an era of growth. And never before in the history of finance and economics have women been more instrumental. While women are increasingly taking charge of their finances, they are still far behind where they can be.

 

So, let’s see how our women can invest and grow their money better.

 

Myths around women and money

 

One of the common reasons why many women shy away from investing is the number of myths surrounding women and finance.

 

The biggest of them is that women do not understand finance or do not have the mathematical abilities needed to make the right decisions. Another myth is that women are not good at managing money and they are risk-averse.

 

On top of everything else, the belief that women love to splurge is one thing that makes many people believe that women do not make good investors.

 

What’s the truth

 

A lot of these myths, in reality, are simple gender biases. One doesn’t need a lot of background in Maths and Statistics to make wise financial decisions.

 

Although there is no research available in India, some reports from the developed economies suggest that women end up spending more on essential family needs like food, clothing, medical expenses etc. This leads to lower surplus investable income with them, hence the myth that they spend more.

 

And yet, despite the conservative household budgets, our women, through generations, have been managing to save money. All that needs to change for women to generate wealth is to put this money in suitable instruments.

 

Financial decisions are not rocket science. Common sense is as instrumental to finance as any other decision-making process, and women have it in plenty and then some. As far as the more technical aspects of investing are concerned, there’s always expert advice available, just like it is for men.

 

How is the scenario changing

 

For women to be in charge of their wealth, the game has to change on multiple levels. Change has already begun and is visible to an extent.

 

For instance, at the national level, India’s recent economic growth has been nothing short of a perfect winning-against-all-odds script. Organisations like the IMF and the World Bank are raving about India’s resilience even in the currently chaotic world.

This means more opportunities for women to invest.

 

 

On the other hand, the push behind women’s entrepreneurship, STEM education, diversity and inclusion at workplaces, and women’s safety, has enabled them to earn more.

 

 

The latest AMFI data indicates that the number of women between 18 and 24 who invest in mutual funds has grown more than four times (62 per cent annualised growth) from December 2019 to December 2022.

 

Similarly, the number of women investors in the 25-35 age bracket has doubled (grew at 33 per cent) over a similar period. In contrast, the older age groups have grown relatively slowly, at 11 per cent annualised growth.

 

 

How to start your investment journey

 

If you still haven’t started investing, our first advice is to begin. There is no better time to invest than now. So, just start.

 

Also, do not hesitate to seek expert advice or professional support when choosing the right investment instruments, specially in the early stages of your journey.

 

Remember, the basic principles of investing and the larger economic framework of the country remain the same for men and women. So, any piece of advice on investment remains as valid for your investment journey as it is for your male counterparts.

 

However, here are some simple steps summarised to start your journey.

 

• Start investing with discipline. You can start an SIP with as less as Rs 500, and do your KYC and payments online.

 

• Stay regular. Don’t lose tempo, get bored, or forget to keep investing.

 

• The next step in investment is to plan your goals. Your goals can be either short-term or long-term. For instance, retirement is a long-term goal, while buying a car can be a short-term goal. In a long-term horizon, you invest regularly for five years or more. A short-term investment horizon is one to three years.

 

• Choose the right fund. This critical step may look complicated, but this is no rocket science.

 

• A debt fund is a good choice if you’re investing for a short-term goal. For any long-term goal, an equity fund is the best option. It balances your risk and returns well.

 

• If you’re a first-time investor in an equity fund, you will initially benefit from an aggressive-hybrid fund. It reduces your risk and lets you witness the value of systematic investing over two to three years.

 

• Once you get a hang of the market, you can quickly move to pure equity funds, say a flexi-cap fund, for good returns.

 

• Increase your SIP gradually. If you’re a working woman, keep increasing your SIP as your earnings increase. If you’re a homemaker, you can still invest an extra amount whenever you get cash gifts, inheritance etc.

 

• Remember, your key to success is the consistency of investment so that you can create an emergency corpus or a nest egg for your old age.

 

The message is simple.

 

The fundamentals are not gendered. So, your journey doesn’t have to be stereotyped, either. Women can manage finances; they do manage finance. And successfully so.

 

The other key principle to note is that there’s saving, and there’s investment. And, if you want to grow your wealth, you must begin investing now.

 

India is on the cusp of something great. The next 25 years are expected to make the country reap the magical benefits of the last 75 years of effort. And there’s no reason why women should not benefit from this golden period!

 

Source- Valueresearchonline

 

Several decades back, a particular incident sparked Daniel Kahneman’s journey toward ground-breaking discoveries, ultimately leading to the birth of behavioural economics as a widely accepted field. Despite being a psychologist, Kahneman was honoured with a Nobel Prize in Economics for his pioneering contributions. However, for us investors, this story sheds light on how we can be misled into believing we are correct, even when we’re off the mark.

 

In the 1960s, Kahneman was a junior psychology professor at the Hebrew University of Jerusalem while having a part-time assignment of giving psychology lectures to the Israeli Air Force flight instructors. One of his recommendations was to advise instructors to praise trainee pilots for their achievements but to abstain from criticism when they erred. This approach was rooted in his psychological education and understanding.

 

However, the flight instructors argued that their real-life experiences taught a different lesson. They had seen that trainees often underperformed after receiving praise and improved after being reprimanded. Although Kahneman was confident in his ideas, he didn’t outright dismiss the instructors’ assertions, given their substantial real-world experience. He kept thinking it over. And then, he had the insight that set him on the path to behavioural economics.

 

Kahneman realised that good performance after a scolding was not a result of the scolding itself. Each pilot had a certain skill level, which gradually improved with training. Naturally, each trainee had some good days and some bad ones. These were distributed around an average that represented that trainee’s skill level. A good day in the aircraft had a higher likelihood of being followed by a bad day, and vice versa. However, because the instructors followed each day with either praise or criticism, it looked as if the feedback had a contrary impact. An almost random set of events created a powerful impression of cause and effect, which was utterly believable.

 

Isn’t it obvious how this has a great similarity to how we all make decisions about investments and how we come to conclusions about the impact of our decisions? The brain is an extremely powerful and persistent pattern-recognition system, to the extent that it will create believable patterns where none exist. After a few years of investing, whether in equities or equity mutual funds, all of our brains are likely to be as clouded with false conclusions and misleading rules of thumb as those flight instructors. The worst part is that, exactly like the flight instructors, we all have ‘evidence’ that our rules work. When we make bad investments, we explain them away by making more spurious connections that are, in effect, even more rules. Curiously, I find many more people who have made these little rules about timing the markets rather than identifying good investments. Everyone seems to have these signals they follow about when to buy stocks, when not to buy, and when and how to sell. Sometimes, purely due to chance, the rules appear to work, reinforcing our beliefs.

 

The way I have described this phenomenon, there is no solution. However, there is, and a very simple one. One word: automate. I don’t mean in the technology sense but in the sense of rule-based investing. A perfect example is investing through a SIP in an equity mutual fund.

 

That subjects you to an automated, rule-based system that is not amenable to the ad hoc timing you may be tempted by. For equity investing, do the equivalent. For stocks on your buy list, keep putting in a fixed amount of money at a regular period. That’s exactly the strategy we recommend in our Value Research Stock Advisor service.

 

Remember, the pattern recognition that serves you so well in many other aspects of life can be your biggest enemy as an investor.

 

Source- valueresearchonline

 

New couples have a choice to make. They can choose to open up about their finances or not. Those who are successful will watch their nest eggs grow and progress towards shared goals.

 

Success simply starts with an open dialogue. When it’s missing, arguments are inevitable.

 

“While fighting about money is not necessarily common, those arguments tend to be longer than other arguments, and more damaging to the relationship than other types of arguments,” explained Sarah Newcomb, when she was Morningstar’s Director of Behavioural Science. Hence, it is very important for couples to find ways to communicate in a healthy way about finances.

 

You will be surprised to know that money is the top reason for stress among adults. This is regardless of the economic climate.

 

If money is the number one reason for stress in people’s lives, we need to talk about it. Talking helps reduce stress. Unfortunately, not many do so.

 

People who feel that they are moving towards a committed relationship need to start a dialogue about finances. When you go out with the person, you get a sense of what their values are around money, family history and debt.

 

How do you start chatting about money?

 

The first conversation shouldn’t be about your credit scores or how much you earn or how much debt do you have. Neither should it be about how to merge your finances as a couple.

 

Newcomb suggests “get-to-know-you” questions that make the person open up. What was money like in your household growing up? What does the good life mean to you? Does money keep you up at night? Do you think of money as a necessary evil or as freedom and opportunity?”

 

Tell your partner that you are curious and want to learn more about him/her and their family. It is not about judgement, but about developing a deep understanding of who your partner is and what the stories are that are driving the financial decisions that you two will eventually make. Share your experiences too.

 

You need to talk even if you never combine bank accounts. Learning how to talk about difficult things together is the key to having a solid financial life together.

 

Debt.

 

What debt does your partner have? What is their attitude towards clearing it? If your partner has a huge credit card bill and is least concerned, it is a red flag.

 

Credit scores are important when you’re contemplating buying a home and taking a loan. So your potential spouse’s credit score may have a significant impact on your financial ability together.

 

Splitting expenses.

 

If both are earning, then the conversation must move to sharing expenses and splitting bills.

 

Splitting expenses comes down to asking each other “what feels fair”, says Newcomb. Let’s say one person makes three times what the other person does, then they might want to split the bill proportionally. That would mean one partner pays 25% and the other pays 75%. Others may just want to split it 50/50.

 

Be partners, not judges.

 

At some point, there needs to be an ‘I’ll show you mine and you show me yours’ numbers conversation where you will show one another your debt and your assets. So many of us will combine our lives, and never sit down and have that conversation where you just simply show one another your accounts.

 

Avoiding the subject is detrimental. The truth will come out and partners’ finances affect each other.

 

Financial intimacy is what a lot of couples don’t have. It’s a scary intimacy because it requires trust to show someone your situation. Often we are afraid of being judged and what our partner will think of us if they know our financial situation. Some people are afraid to be judged for having too much. Some people are afraid to be judged for having too little. People are afraid to be judged for being disorganized.

 

Be honest.

 

It’s important to tell the truth. As a basis for a committed relationship, being dishonest about how you manage money is a shaky foundation for your marriage.

 

Have the financial planning and financial future conversations before you get married. Talk about the way you will manage money. The goals you want to accomplish as a couple.

 

After the most difficult conversations take place, it will make what you have stronger. You’re setting yourself up for success because you did the scary, courageous thing.

 

Decide the path ahead.

 

Budgets are not sexy. Budgets are not romantic. But that’s the reality. Sit down at the end of each month and go over the expenses and savings.

 

It is just as important to keep the romance alive as it is to have financial discussions.

 

Source- Morningstar