A man is not an investment plan

Every woman should be comfortable with investing and planning for their future. Women today are increasingly finding themselves in roles where they must be responsible for their long term needs and security. Being prepared to adjust to the challenges that major life transitions present is critical, writes Coreen van der Merwe, Managing Director of Sovereign Trust (SA) Limited.

Certainly women are more independent and financially savvy than 20 years ago, with millennial women especially being more confident in their understanding of, and participation in, finance. However we are still seeing far too many women who either don’t manage their wealth or delegate the task to someone else, be it a spouse or financial advisor.

The bottom line is that the more involved women are in their own financial well-being, the greater their ability to not only become financially independent, but also to recognise good opportunities. One of the biggest misconceptions when it comes to the world of finance is that it’s “a man’s game”. While women investors may be in the minority, the numbers show that, in general, they actually make better investors than men.

A recent study of the trading behaviour of 2,800 investors over a 36-month period by Warwick Business School found that not only did the female investors outperform the FTSE 100 over the last three years but they also outshone their male counterparts.

While annual returns on investments for men were on average a marginal 0.14% above the performance of the FTSE 100, annual returns on the investment portfolios held by women were 1.94% above it. This means returns for women investing outperformed men by 1.8%.

While there were significant differences between the genders – women, for example, only traded nine times a year on average, compared to 13 times for men – the biggest difference, and the one that impacted their returns, came in their appetite for the type of stocks they invested in.

Female investors were less likely to indulge in the ‘lottery style’ of investment that appealed to men – focusing on more speculative, lower priced shares that might increase in value substantially, while also tending to keep to shares that show a loss while selling off their winners. In other words, women take a more long-term perspective and are investing more to support their financial goals, whereas men are attracted to what they see as the thrill of investing and trying to beat the market over shorter periods of time.

Don’t know where to start? Your first step should be to contribute to a South African retirement annuity, pension or provident fund. Up to 27.5% or a maximum of ZAR350,000 of your annual salary will be allowed as a tax deduction when made to any of these three retirement products.

Next, you could look at contributing to a tax-free investment account. You can contribute ZAR33,000 annually to this type of account without triggering any tax in respect of income, dividends, interest or capital gains.

After that, you could look at diversifying your assets by contributing to an offshore investment. This can either be in your name, or through an offshore trust or an offshore retirement plan in a tax-friendly jurisdiction like Guernsey, for example. After all, South Africa only represents 1% of the world market and the Rand is a volatile currency. This makes diversification the sensible and imperative choice. Financial advisors generally recommend that 30 to 40% of a balanced portfolio should be exposed to international equities or be invested offshore.

The Sovereign Group offers various offshore investment vehicles in jurisdictions like Malta, Gibraltar, Isle of Man, Guernsey and Hong Kong. The broad principles for investing are the same for everyone – men and women alike:

  • The earlier you start to save, the better – the effect of compound interest is astonishing!
  • Take a long-term approach. Your goal should be to beat inflation, which is probably one of our biggest threats in South Africa.
  • Make informed decisions before you invest. You must understand the risks involved in every option and also the various levels of fees. If this means that you are going to take a bit longer to decide how you invest, that is your prerogative.
  • Try not to touch the funds that you are saving and investing in your retirement plans unless it is absolutely necessary.

So, go ahead. Take the first steps to secure your financial independence today. It will not only give you higher returns but the financial resources to deal with the unexpected.

For further information on international pension products or to set up an appointment, please contact Coreen van der Merwe by phone on +27 21 418 2170 or by email cvandermerwe@SovereignGroup.com.

Contact Coreen van der Merwe
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