Why a man is not a Financial Plan

Over the years, research has suggested that there is a large wealth gap between men and women as women tend to invest less than men and often start later in life, with single women having about one-third the wealth that single men do. In conjunction with this, a study conducted by Ellevest found that ‘of all the assets controlled by women, 71.5% is in cash and therefore not invested.’ However, a cultural shift is seeing more women invest in the stock market with some research finding women earning consistently higher returns than their male counterparts.

A study conducted by Forbes found that women spend longer researching the products or potential investment choices before actually investing their money. It also found that women were less likely to respond to short-term market volatility than men, which proved to be beneficial in holding their investments over a long-term horizon. Therefore, reinforcing that although women may invest less in comparison to men, they have the right perspective and approach to ensure their investments grow.

It was also suggested that although some women take on less risk, they are not necessarily risk-averse but prefer to take on an appropriate level of risk based on their circumstances and level of wealth. The same study also found that “men trade 45% more often than women do, and although men are more confident investors, they tend to be overconfident.” By trading more often instead of holding their investments over a long-term period, men subject themselves to lower returns as a result.

Below is a checklist that can prepare you before embarking on your investment journey.

Start a budget

You may think you know exactly what you are receiving and spending, however, it is likely that you may not have the most accurate perception of your spending habits. You can use how often you get paid as the timeframe for your budget i.e., on a weekly, fortnightly, or monthly basis. Below are some steps to get you started on your first budget:

Educate yourself

The first tip for any investor, especially for those new to the stock market is to conduct some research into the different asset classes and investment products available to you. CEO and founder of Canadian Passive Investing, Ava Benesocky, advises against investing in any product that you do not understand. It is important to ask questions and understand how the product or asset you plan to invest in grows your wealth. It is also vital that you are aware of the potential returns and/or losses of the suggested investment strategy as well as the suggested time horizon your money should be invested for. To read more about the different asset classes available, click here.

Understand your goals

It is also important to set clear financial goals which encompass both short-term and long-term objectives surrounding what you wish to achieve. Depending on what stage you are at in life, you may be looking to save for a house deposit or to set yourself up for retirement. Irrespective of your goals it is important to allocate timeframes to each of these objectives as well as a ball-park figure of the funds that may be required for each.

Be confident to ask questions or ask for help

Irrespective of how or what you are investing in, it is crucial that female investors are confident to ask questions about the strategy they are planning to take. If a financial adviser or professional is unable to competently answer your questions about their proposed strategy or financial advice, this is a good indicator that you may want to seek a second opinion. To read more about how to choose your financial adviser, click here.

Know the basics of investing

You do not have to be a finance expert to start investing, however, it does assist if you are aware of some of the fundamentals of investing in the stock market. This includes principles such as the long-term investment approach, time in the market, and dollar-cost averaging. It is also important to know the difference between defensive and aggressive investment strategies and the potential returns and losses associated with each approach.

Which route you choose to take will likely be contingent on your short and long-term goals. If you have a shorter-term goal such as saving for a car or wedding, you are more likely to invest in conservative assets. Whereas, if you are saving for retirement over a period of 20-30 years, you have time to increase your exposure to growth assets.

Check to see how your Super is invested – is this the right level of risk for you?

If you are young or just starting out investing, your super is like to be invested in the same way it was when you began working – whether that be the superfund your employer was with or the one your parents used. Irrespective of where you first had your super invested, it is a good idea to check if this is the right one for you. It has been statistically shown that on average women retire with 35% less super than men the same age, as they are more likely to take time out of the workforce to care for family and on average have a longer life expectancy than males.

Therefore, it is crucial that women start on the right foot in order to narrow this super gap. The first step for women is to know what super they have and consolidate it into one fund. You may have multiple super accounts as a result of casual work or multiple jobs and combining them into one fund can ensure that you are not being charged excessive fees which will hinder the ability of your super to grow.

Another strategy that is vital especially considering that women are more likely to have a lower super balance than men upon retirement is to contribute to your super where possible. This enables you to earn compound returns whilst providing you with a tax concession on the income you earn. If you would like to read more about what super contributions are available to you, click here.

If you are working part-time or casually you may be eligible for a super co-contribution from the Government. This is available for individuals with an annual income of less than $54,837 before tax. To read more about the eligibility criteria for this government scheme, click here.

Check your insurances – how much do you need and what types should you have for your current stage in life?

Another significant financial gap between men and women is the portion of women who do not hold personal insurances. A recent study found that only 56% of women have life insurance, in comparison to 55% of men. It was also suggested that for the women who do hold a policy, their level of cover is significantly lower. It is just as important for women to protect their income as data has shown that although the majority of women may earn less than their male counterparts, 28% of women are the primary income earner of their household.

Taking out an insurance policy when you are younger and beginning your career has many benefits. This includes that the premiums are usually cheap and relatively easy to obtain as you are young and healthy. It also means that once the policy is in place, your insurer is likely to continue to provide the same level of cover irrespective of future changes to your health or circumstances.

Estate planning

Having a basic estate plan is not a consideration reserved for older or retired women and in reality, it is something that women should be aware of at any age. Your estate plan outline how your assets will be distributed once you are no longer around. This usually includes a will as well as a Power of Attorney and Enduring Power of Attorney. To understand the difference between these two powers, click here. According to the ABS, women live on average 4.2 years longer than men which means that women are much more likely to outlive their spouses. Therefore, putting an estate plan in early provides women with the best chance of protecting their assets whilst ensuring they receive the wealth they are entitled to.

As a will does not include your super, the first step of this process would be to decide how your super will be distributed. This can include binding or non-binding nominations. The next step is to decide how you would like your assets distributed which should be outlined in a will. To ensure that all your wishes are followed, appointing an Enduring Power of Attorney in the event you lose mental capacity is a good idea to give you peace of mind. As these are legal documents that must be drafted according to particular requirements, seeking legal counsel is advised to help you begin and complete this process.

Check back in with your goals and objectives

Once you have checked off the important steps above to start your finance journey and protect your assets, it is important to get some perspective. This involves gaining further clarity around your goals and objectives, such as whether they are still relevant, how you are tracking towards completing them and whether any have been accomplished so far. If this is the case, it is time you reward your hard work.

Reward yourself

Although it is important to ensure your money is working hard and generating returns, it is also important you reward yourself. This is where having a goal to put $10,000 aside for travel or luxury expenses can come in handy. If you feel you are tracking well with your budgeting and have completed some of your short to medium-term goals, it is time to use some of your saved up money and spend it however you like.

Stay on track and don’t lose sight of the end goal

The final takeaway is that your investment and financial journey is a marathon and not a sprint, and therefore it is important to keep a long term perspective and not to lose sight of the end goal; financial freedom.

If you have already begun your investment journey or are looking to begin it and would like some financial guidance on where to start, click here to organise a 20-minute complimentary meeting with an EPG Wealth adviser.

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