Women put safety first
Published in the Sunday Mail, April 2015 by Karina Barrymore
Women are safer than men when it comes to investing, experts say, because they are less willing to take risks and more likely to cut their losses and move on.
However, risk comes in many forms – not just volatile financial markets.
There is also risk in having too few investments or having all your eggs in one basket.
Risk also means different things to different people.
Research company FinaMetrica warns investors to be wary of financial advisers who offer blanket investment recommendations to couples, because in most cases, each person in the couple will have a different risk tolerance.
“Women are generally less tolerant of risk then men,” FinaMetrica co-founder Paul Resnik says.
“Our data shows that with five out of six couples, men tend to favour riskier investments, while women typically have more conservative tastes.
“Advisers must consider the risk tolerance of each person in a couple in giving investment advice and shouldn’t ignore the needs of the less risk-tolerant partner – who is usually the woman.
“Financial advisers often skip the process of separately assessing a couple’s risk. This is a dangerous practice. Not only is it risky legally for an adviser to ignore the needs and preferences of one or both partners but it is ethically wrong.
“Each partner is an individual and likely to have different financial goals and needs."
AMP Capital investment strategist and chief economist Shane Oliver says “risk” is often hard to define. “It’s quite a complex concept,” Dr Oliver says.
“Risk is often portrayed as just market volatility (prices going up and down) when in reality it’s a whole lot more, notably, the risk of capital loss, the risk of not having enough investment income, the risk of not having enough to last through retirement.”
Risk is also “perverse”, he says, with risk of capital losses often greatest at times when most people think risk is low – and vice versa.
For example, the peak of a share price rally might seem at the time like an exciting and positive moment to make investments but it can also be the point of maximum risk that those investments will lose value. By the same token, the trough of a share market slump might appear to be a risky period and a good time to sell but it is often a better time to buy, Dr Oliver says.
Janine Cox, an analyst at fund manager Wealth Within, says many investors assume there is only one way to manage risk: to ride out the ups and downs over the long term – time and diversification.
“This is fine when the market is going up but it doesn’t give investors the confidence that they need when their investments are falling,’’ Ms Cox says.
However, there is a simple way to invest with less risk by removing the problem of having to ride out or worry about the big losses, she says.
Investors should consider stop-loss thresholds, where they sell their shares if the price drops to certain trigger points, Ms Cox says.
“If all you did was invest directly in the top 10 shares, over the medium to long term you’re likely to get a reasonable return,” she says.
“However, if you had the same top 10 shares but set a stop-loss on each share, of no more than 15 per cent below their purchase price, then if the market turns down, you know your maximum loss. This allows you to sleep better at night.”
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