Five things investors need to know
4. WOMEN SHOULD PLAY TO THEIR STRENGTHS
LOUISE COOPER is a financial journalist. She has been a BBC radio presenter and writes for several national newspapers. In this series, she discusses five important things investors need to know. This time she explains why women in particular have their work cut out when it comes to funding their retirement, but are generally better at investing than men are.
Louise, why is it especially important for women to ensure that they’re financially prepared for life beyond work?
Somewhere between one in two and one in three marriages end in divorce, so I would suggest, to most women, to be financially independent is really quite important. Also, women’s world of work is very susceptible to ups and downs, to being freelance, to flexible working. If you look at the coronavirus crisis, it’s women that have borne the brunt of job losses. So, for women to have their own financial security for the future is incredibly important and it’s something, as a woman and a working mother myself, that I feel quite passionate about. I’ve always looked after my own money, I’ve always made sure I have my own money. I manage the money for the family as well, including my husband’s money. Isn’t he lucky having a financial expert as a wife? I tell him so regularly.
Surveys show that women are less confident and less hands-on than men when it comes to investing. Why do you think that is?
I want to turn that question round because being less confident and less hands-on is a good thing when it comes to long-term investing. Overconfidence and being over-hands-on generally lead to worse retirement outcomes. Why do I say that? More confident: “Oh, I can pick the next greatest fund manager!” No you can’t. More hands-on: “Oh, I’m going to swap my funds each year.” No, you shouldn’t. It’s expensive to do so.
Less confident, less hands-on. Buy and hold. Passive and low-cost! That is the secret to success! Women have a natural advantage over men. We are less confident, we are less hands-on. This is a good thing because it will mean your long-term retirement outcome will be better. We have advantages by not being arrogant and not believing we know it all. This is a good thing. Low-cost, passive, long-term, buy and hold — these are the secrets to long-term investing success.
One of the interesting aspects of the current fashion for online trading is that most of the people doing it are men. You clearly aren’t a fan of it.
All these trading accounts you see advertised on football shirts or whatever the sport is are just betting. There’s a rule with these trading accounts: the 90-90-90 rule. It’s probably not quite accurate but it gives you a sense of what happens. 90& of these traders lose 90% of their money within 90 days. That’s the rule, and who are these traders who think they can outsmart markets? Well, they’re generally men. It is not a good thing to think that you can outsmart a market because you can’t. One of the things that people who think they can outsmart the market discover really quite quickly is, if you think you can, you can lose money very, very quickly.
So actually, not being arrogant, not believing you are God’s gift to investing, being sensible and long-term, and following the academic research will mean that, long-term, you’ll do fantastically. So being less confident, not trying to pick the next greatest stock, not trying to pick the next greatest fund manager, not following the herd, but following the academic research, rather than the latest tip sheet or the latest newspaper column, will actually get you in a far better place. So don’t worry about it, women! Do your own thing, play to your strengths. You will win in the long-term.
What can women do to educate themselves about investing?
Don’t read most of the research that fund management firms produce, because it’s not research, it’s marketing. They’re trying to sell you something that might not be for your own benefit. It probably isn’t. Look at independent-type analysis. I bang on about Jack Bogle, the guy that invented passive funds and the guy that has done the most around the world to drive down fees for investing. But he has written a number of books. At the very least go and buy one of the most basic books from Jack Bogle and he will give you the how-to understand investing. It’s really very simple. Massively diversify. I think my funds own thousands and thousands of different shares and bonds around the world. You want to own different asset classes: stocks and bonds at the very least. You want to be low-cost and, for most people, you probably want to be passive, and you want to buy and hold and you don’t want to try and time a market. Hardly anyone can say when a market looks cheap or a market looks expensive. It’s really difficult to do. Don’t bother doing it. There are some very basic, basic rules. Follow them. Do it for the long term and you will be fine. But if you want to read something, apart from Jack Bogle, the academic research will tell you what you need to know. It’s all there. It’s not complicated, it’s just hidden by the active fund management industry.
How important do you think it is that women use a financial adviser? And how should they go about finding one?
Once you understand how to invest, the amount of time you spend on adjusting and checking your investments year-to-year is remarkably small. I have all my own family investments in low-cost, passive funds — and 80% in equities because I understand risk and I invest for decades and I’m happy to take risk. It doesn’t bother me at all. So in terms of my adjustments year-to-year, it’s about looking at how the funds are doing and how much money I need for retirement? Do I need to put a bit more, or a bit less, away? It’s more of a sort of financial planning role. I don’t adjust my funds, and I don’t buy and sell depending on how the markets have done because I know that’s pointless. That doesn’t take me long because I understand how to invest. So for most people, once they’ve got over that big hurdle — understanding how to invest — it doesn’t take a lot to do it year-to-year.
Whether you need an independent financial adviser depends on you. Do you have the time to understand the basics of investing? Do you have the understanding to work out how much you need to put away each year? It really depends on your commitment to understand it, your ability intellectually to understand it, and the time you’re willing to give to it. If you can’t be bothered to do any of these, then a financial adviser makes a lot of sense. If you’ve not got the time, or you’re not not interested, hand it over and outsource it to someone who does understand. It’s more of a personal choice than a financial choice.
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