In conversation with Aparna, a portfolio manager in Mumbai whose clients include women from all age groups.
We decided to gain insights 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 avenues (stocks, fixed deposits, gold, etc.) The idea of portfolio management is to reduce risks and earn returns at the same time, through diversification.
These are a few avenues of investments
To know about the other avenues of investment in detail stay tuned on our blog.
What exactly is diversification and why do we need to diversify our money?
Diversification is basically dividing your money in: real estate, bonds, equity market, fixed deposit, etc. You have to spread your money out because if one thing is not doing good, say equity, then maybe your debt or gold investment will be doing fine. Basically don’t put all your eggs in one basket. You never know when something will change. You can’t put all your money in one asset. For example, when demonetization was implemented, the real estate industry suffered a huge setback. So if you only invested in real estate, your investment would be worth nothing. That’s why put your eggs in different baskets, never in one.
What all factors need to be taken into consideration when you’re going to invest?
i) What is your monthly income?
ii) Do you have any children or dependents?
iii) What are your financial goals? (New house/education/marriage/retirement)
iv) When are these big expenses coming up?
v) How will you survive if your business fails or if you lose your job?
vi) Are you insured if you die?
vii) Do you have medical insurance and house insurance?
viii) What sort of a lifestyle do you have? How much money do you need per month?
ix) Where do you want to travel?
There are more factors that vary depending on the individual.
Portfolios of various age groups depending on priorities:
This is in regards to U.S investors but the idea is that the older you get your investments in stocks reduce because they are risky and not stable sources of income.
The best age to start investing is in your mid 20’s (even better if you start earlier).
At such an age group you can afford to take 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). So women in their 20’s keep aside a portion of your salary and invest it instead so that a few years down the line your money will increase and you can buy that bag or car you’ve been eyeing.
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. The sooner you start, the better. 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 dependants. Instead of buying jewellery every year on Diwali, invest that money. 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 the remaining towards your bags, designer clothes and shoes.
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.
What can women in their 20s do?
Start investing with your first salary pay check. Invest a percentage of it like you would pay your phone bill. But you have to start from Day 1. 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.
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.
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 fixed income bearing securities such a bonds, debentures and investing in equity means investing in stocks that may or may not yield returns but give you ownership benefits. When people give debt instruments they are basically giving a sort of loan so you get interest on that regularly, and when people give equity they are giving you part ownership and so they aren’t entitled to giving you regular interest or returns. To make money you can sell the equity instrument in the stock market or some equity instruments give dividend too.