You often hear the names of the most successful or infamous male investors bandied about. I am sure you have heard of the Wolf of Wallstreet but seldom do we hear about equally successful women investors. Anyone heard of the Witch of Wallstreet? Her nickname conjures up an evil, money grabbing hag, far removed from the cinematic names given to her male counterparts! And that is likely to be why you haven’t heard of her, as a skilled female investor she is seen to be an anomaly.
Finance and investing is a largely male dominated industry. So many people assume that men are better investors. Recent research refutes this. The findings indicate that although women still currently invest less than men in the stock market, when they do, their portfolio’s perform on average 0.4% better. Clearly women are at least equally as skilled as men when it comes to investing and there are certainly some key principles that the top women investors follow that we can implement in our investment approach.
Time in the market versus timing of entry
The best day to start investing was yesterday, the second best day is today. So says Sallie Krawcheck, the CEO and Co-Founder of Ellevest, a digital financial advisor for women. And research has proven this to be true. It is very difficult for seasoned traders to time the market, so if investing isn’t your day job you’re are unlikely to have more success at is. But does timing make that much of a difference? Peter Lynch considered one of the most successful fund managers of all time performed an analysis to assess whether entering the market at the best time, when the market was at a significant low, or entering it at a less advantageous time, such as when the market was at a high, made a difference to the investment returns over a 30 year period. He found the average compound annual return earned differed by only 1%. However, by not being in the market at all would have meant missing out on an average compound annual return of at least 10.6%.
Diversification, different stocks, different geographies and different asset classes
The concept of not putting all your eggs in one basket. The purpose is to ensure you get the highest return at a given risk. Basically by investing in different assets and areas that react differently to the same event or alternatively are not impacted by the same event, you can reduce the risk of your entire return dropping when that event happens.
The simplest and easiest way to do this is through an Index fund, a type of mutual fund or Electronically Traded Fund (ETF), with an underlying portfolio built to match or track a given financial market index, such as the FTSE 100 or the FSTE All Share Index. By investing in an Index tracker you are able to get exposure to a large number of different financial assets at a low cost.
Know your goal and your time horizon to your goal
Goals are one of the most important aspects of successful investing. Your goals drive your time horizon and the types of investments that are going to be most successful for getting you the outcome you want. For shorter time horizons, usually between 1 to 5 years, lower risk more liquid investments, such as higher interest savings accounts and certificates of deposit, are likely to be more suitable as they will not expose your investments to the volatility of the market and potentially result in the market being at a low point when you want to exit. Longer term horizons of greater than 5 years provide enough time for your investment to grow through compounding and ride out the up’s and downs in the market.
Know your risk tolerance and prepare for bear markets
Many studies have been performed to analyse whether women have a lower risk tolerance than men and an equal number of theories have been derived. My thinking is that this is irrelevant and based on a large number of generalisations. The only study that is important is the one you do of your own level of risk tolerance because this is the one that is going to count when the market does do its thing and gets volatile.
It is easy to assume a high risk tolerance when the markets are rosy, but humans are programmed to feel losses to a much larger extent than we celebrate gains. This means you would suffer a greater sense of loss at losing £100 than you would experience joy at winning £100. You want a sufficient level of comfort not to withdraw your money from the market in a panic at the wrong time, thereby crystallising what would have potentially been temporary paper losses.
Be very clear where you are on the risk scale and invest accordingly. In addition make sure you have your security safety blankets in place. Your emergency fund and any insurances , such as income protection or disability or dread disease cover, that you feel you would need to give you a sense of comfort before investing.
Understand what you are investing in
Deborah Farrington the founder and general partner of StarVest Partners, a New York City based venture capital firm, is all about understanding what you are investing in. This is the strength of women investors we may be hesitant to push the button on investing, but this is generally because we feel uncertain and don’t understand. We know we need to get financially educated and understand what we can do with our money, let’s take action and get that knowledge.
Understand what you are investing in, don’t be afraid to ask and don’t merely invest on the suggestions of friends and family. Always make sure it is the correct investment for you.
Believe in yourself
The Grande Dame of Dividends, Geraldine Weiss who is one of the most famous female investors in the world, was the first woman on Wall Street and considered the first to crack the glass ceiling. How did she do this? She believed in herself so much that she funded the publishing of her investing newsletter with her own money. In order to get taken seriously as an investment researcher in the male dominated investment world she penned her newsletter as the asexual G Weiss. Having begun in 1966, she only started making profits on her investment from 1969, showing that perseverance and a strong sense of belief in oneself truly pays off.
The quickest route to self-belief is action! Do you research, get the knowledge you need and get started investing.