In conversation with Aparna, a portfolio manager from Mumbai whose clients include women from all age groups. We decided to gain insights from her in the relationship between women and investing. Excerpts from the interview:
What is Portfolio Management in layman’s terms?
Portfolio management refers to investing money in different places (stocks, fixed deposits, gold, etc.) The idea of portfolio management is to reduce risks and earn returns through diversification. A few places where you can invest money are shown below. To know about the other avenues of investment in detail stay tuned on our blog.
What is diversification and why do we need to diversify ?
Diversification means dividing your money among different options of investments to reduce risk, because if one option isn’t performing well then your other option will be doing fine. Basically don’t put all your eggs in one basket. For example, during demonetization the real estate industry suffered a huge setback. So if you only invested in real estate, your investment would be worth nothing.
What do portfolio managers consider before investing?
They consider client’s income, their financial goals (new house/education/marriage/retirement), whether they have any children or dependents, their lifestyle and spending habits, insurance, age, urgency of money etc. before investing.
Portfolios of various age groups depending on priorities:
In your 20’s: The best age to start investing. At this age you can afford taking risks. So you can invest in the stock markets i.e in equity (or in equity mutual funds, if you do not have knowledge and time to invest directly in stock markets).
In your 30’s: You would have a stable job with a stable salary and you will have to think about your children’s future. This is the right time to invest in a good insurance plan. And you should ideally put 75% of your investment money in equity and 25% in debt*. This is probably the right time to start planning for retirement and including a good pension plan and investing in ELSS.
In your 40’s: Maintain your equity-debt ratio at 75:25. For your child’s higher education,start putting money in PPF (Public Provident Fund) and equity fund. It would be great to also include five-year fixed deposits in your portfolio.
In your 50’s: Your risk taking capacity is less as compared to your 20’s. Think of it like your adrenaline rush at 20 and at 50. At 20 you’d be willing to jump of a cliff or a plane but at 50 I don’t think you’d get on any plane without a seat belt! So at this age your seat belt are your savings in NSC, and other safe debt instruments that provide fixed returns in the future.
What’s a good percentage of your monthly income to save?
There is no right percentage. It all depends on your age and disposable income that you can save. You should start in your 20’s because there’s not much pressure. You should consider investing as an expense, the way you would pay your phone bills.
How can housewives invest since they don’t earn?
Housewives are dependents. Instead of buying jewelry every year on Diwali, invest that money elsewhere. Invest it in a mutual fund. Just because you’re a housewife, you shouldn’t have that mentality that it’s not your job to create wealth. Even if you’re sitting at home, cut down on your expenses and invest it. Don’t just keep money lying at home. Your priority should be to invest money first and then spend.
What mistakes do women make when they start investing?
There’s not much awareness about investing and even if women do have some knowledge, they are scared to invest. They shouldn’t get intimidated by all the financial jargon.
How can widows or divorcees invest (if they don’t earn)?
When you receive your alimony or inheritance, you should invest part of it. Get a financial advisor right away. You need this money to keep up with inflation. Remember: 1 crore today is not the same as 1 crore 5 years later. And every woman should get medical insurance. You don’t want to get bombarded with medical bills in case something goes wrong. If you have dependents, only then take life insurance. There is no point in paying premiums for life insurance if you don’t have any beneficiaries
What should we invest in stocks/bonds/mutual funds/gold?
Mutual funds are your safest bet and they also provide good returns. Fixed Deposits give fixed returns but aren’t as good as stocks or mutual funds. Mutual fund returns beat inflation. This means that with time, your returns are at par or more than the inflation rate. And you always want to beat inflation.
Only invest in stocks if you can take risks and if you have the time or the resources to track them. If you lose your money in stocks, then the loss shouldn’t make a big dent in your lifestyle. Be very selective and keep track of what’s happening in the market and how it affects the company you’re investing in.
Any advice for someone just starting out?
Don’t have this mentality that you only need financial knowledge if you want to have a career in finance. Whether you’re a doctor or a teacher or a housewife or a yoga teacher, everyone needs to have basic financial knowledge. You need it for yourself. Also, don’t get discouraged if initially, your money doesn’t grow. Think long-term. Be patient. And always diversify but not too much. Because if you invest little-little in everything, then you won’t make sufficient returns.
*Investing in debt means investing in securities give fixed returns regularly such a bonds, debentures and investing in equity means investing in stocks that may or may not give profits but give you ownership benefits.