Fiscal View: Most investments could use a woman's touch



With the earthquake and tsunami in Japan, political turmoil in North Africa, rising oil prices and the threat of inflation throughout the world, financial markets have much to worry about and, as a consequence, financial analysts and journalists, like myself, have much to think about.

Rarely have we been given so much material to work with in such a brief space of time. These events are potentially devastating to the performance of financial markets and to the growth of an investment portfolio. But in this column, I will consider an even more potent force in the field of investment and financial planning - women.

Women are, indeed, a force to be reckoned with, but what do they have in common with these epoch-defining events? Some might say that, like earthquakes, women are unpredictable, having the power to destroy an investment portfolio at a stroke.

But I would argue otherwise.

In my experience, women are better at taking a long-term view about their lives and their investments. They have a more natural ability to look towards the future, while men have a tendency to over analyse and tinker with portfolios. Men like to fine tune their investments to take advantage of every little short-term market opportunity, whereas women have better things to do. It's not their fault: men are programmed by Mother Nature to be short-term operators.

As a financial planner, I have to say that the female approach is more likely to be successful buying into the long-term trend is a much safer strategy than trying to capitalise on short-term movements.

It is possible, of course, to make money on short-term movements. And many funds, especially hedge funds, operate in this way. In Man Investment's flagship hedge fund, AHL Diversified Futures, the average trade lasts for only 18 days.

But for the average investor, jumping in and out of markets is unlikely to be successful. So all you have to do is watch the women: choose an asset allocation that is appropriate to your risk profile, select investment assets accordingly and keep putting the money in, come rain or shine … and go and get your nails done.

If men spent more time getting their nails done and less time worrying about missed buying and selling opportunities in their portfolios, we would all be a lot better off. Perfectly manicured, happy investors. That's my goal.

When it comes to choosing an investment vehicle, all investors (women included) should choose the one that is likely to suit their lifestyle best and, in particular, to suit their future earnings and savings activity.

In general, it is cost-effective to commit monthly savings to a long-term savings plan (for example, Premier by Friends Provident, or Managed Savings Account by Royal Skandia, or Vision by Generali) because these will generally offer the cheapest cost structures. However, they will not be cheap if you fail to make all the payments.

The cost of most regular premium plans relates mainly to the contributions that are expected according to the policy contract. If you stop making the contributions, you will, in general, still incur the fees that were expected by the product provider, as defined by the contract. If clients are not confident of being able to pay all the payments throughout the term of the contract, then they should reduce the monthly premium, reduce the length of the plan or choose another, more flexible savings plan.

If you, as a woman, believe that your future earning capacity will take the odd knock, for example, due to bearing and raising children, then you should think twice before committing to a long-term, contractual savings plan. You would generally be better off using a non-contractual plan that allows you to stop and start contributions whenever you wish and without penalty.

Plans of this type, such as Managed Capital Account by Royal Skandia, are not as cheap as a fully funded contractual plan, but are much, much better if you miss premiums or surrender the policy a long time before the maturity date.

If a married couple starts a long-term savings plan, they should think carefully about who owns the plan and whose lives are assured.

Nearly all offshore saving plans are issued by offshore insurance companies and therefore have an insurance structure. The insurance component is minimal but means, if issued in the Isle of Man (as most of them are), that they receive the considerable protection benefits supported by the Isle of Man government.

If the policy is issued on joint lives, it is normally on a second-life basis. This means that if the main breadwinner dies, then the survivor is obliged to keep making the contributions. This would normally be the wife who, without her husband's income, might not be in a position to maintain contributions.

In these circumstances, it is more sensible to select the husband as the sole life assured so that the policy comes to an end if he dies with full benefits being paid out and no penalties for early surrender.

Bill Davey is a financial adviser at Mondial-Dubai. If you have any questions about this column or any other financial matter, e-mail him at pf@thenational.ae

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