WOMEN, WISDOM, WEALTH
Redefine your financial future
Words By Georgie Loxton, CFA, Wealth Advisor with International Financial Planning Ltd.
If we accept that women earn less than men, that they spend fewer years working and that they live longer (by around five years), why is that most women have not acted and focused on their long-term financial needs?
For women, the hurdles are higher
Saving for retirement is a hard and serious job for anyone, but for women the hurdles are even higher. The inherent difficulties (lower lifetime earnings and longer lives) are compounded by our (somewhat subconscious) behaviour. Women tend to view themselves as less financially literate than men – although in many studies we actually score around the same – and are less confident making financial decisions, particularly decisions that involve investing. On top of this, the financial industry loves to use jargon which can leave women feeling confused or misunderstood. Whilst men probably feel equally confused, they are more inclined to invest anyway. Women are prone to inertia. Inertia costs very dearly in the long run.
Your money must grow
In order to reach the next phase of life as planned, almost all of us need the money we save to grow. That is what investing is all about. When you invest your money over the long-term you benefit from something wonderful; the power of compounding. Unfortunately, women have been shown to lean towards lower risk investments. Lower risk means a lower return and hence less money at retirement. But we need more money, not less, to last us throughout our longer lives. Women need to understand that whilst there is intrinsic volatility in stock markets (yes, they go up and down), investing does not need to be scary.
The key is to remove emotion – emotion almost always leads people into markets near the top and ends with them selling somewhere near the bottom. Think about what happens when you invest systematically; that is you invest a little bit (in relation to you) every month for the rest of your working life. Suddenly you realise that you have a timeframe and it is time that enables you to benefit from the volatility. If you are continuously drip-feeding money into the market, then you buy through the highs and the lows. Buying at the bottom means buying shares at their cheapest (think about shares on sale!) and that is how you make the best returns. When emotion is removed from investing and discipline and structure are introduced, volatility becomes your friend. You are able to benefit from the falls without even having to think, or act.
Is there a magic number or a set percentage of salary that you need to save and invest? What you need depends upon your own dreams and aspirations. At the start, it comes down to what amount of money you can reasonably and comfortably part with each month. And as you move through life, it should increase. The danger is lifestyle creep; with every pay rise comes a nicer car, a fancier restaurant, a bigger house. When you face a financial decision ask yourself what is important to you now and how do you want to live your life in the future? Can you say no to something now, so that you can say yes to something later?
Advice is not just for the wealthy
If you are thinking that you don’t have any wealth to invest, then you are likely to be one of the people who would most benefit from a financial plan. Everyone should have confidence in their finances and their ability to transition to the next phase of their life. A chat with a Wealth Advisor is good place to start. Meet with an advisor as many times as you need. It is a long-term, mutual relationship and it should feel comfortable. Find an advisor that relates to you, who listens to you and answers your questions. For a woman, that person might just be a woman. But most important, make sure they are competent, because over the long-term returns really matter.
Don’t procrastinate, do something
We need to make a plan whilst acknowledging that we have to make guesses about the future. When things change, for better or worse, we revisit the plan and tweak it. Whilst acting today won’t necessarily make the road straight, it will make it much more likely that it takes you to your destination.
To learn more, contact: Georgie Loxton,
Founder of Women, Wisdom, Wealth at:
visit Facebook: Women,Wisdom,Wealth
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