With a little knowledge and confidence, you too can be a great investor

Laura du Preez | 06 September 2023

Laura du Preez has been writing about personal finance topics for more than 20 years, including eight years as personal finance editor for two leading media houses.

Gender pay gaps aside, an increasing number of women are investing in and benefiting from financial markets.  

At a recent women’s day event hosted by Sterling Private Wealth and Allan Gray, Tamryn Lamb, head of retail at Allan Gray, said women-owned investments had grown from 29% of Allan Gray’s assets under management in 2003 to 44% this year.

Women still not investing typically do not feel confident enough to take their first step, Janet Hugo, an independent financial adviser and director of financial planning practice Sterling Private Wealth, said at the event.

But with a little knowledge, women often turn out to be better at sticking with their investments and ultimately earn better returns than men.

A study conducted by Fidelity Investments in 2016 on eight million account holders found women’s investments outperformed those of men by an average of 0.4 percent a year.

Lamb says Allan Gray’s data shows that when the local and global markets fell at the start of the Covid pandemic, women investors were more resilient and stayed invested.

Investors who remained in the local share market after it fell by 30% in March 2020 benefitted from the subsequent recovery. By July this year, the market was more than 31% above pre-Covid levels, according to Allan Gray.

Lamb says an investor who put R100 000 in the Allan Gray Balanced Fund at the beginning of 2020 and stayed invested until April this year would have had R140 000. The Balanced Fund is a unit trust that invests across asset classes and can have up to 75% in shares. Read more: Why are there different kinds of multi-asset funds?

But if the same investor was spooked by the market fall and switched into a money market fund (the cash asset class), they would by April this year have had a balance of only R106 000.

Lamb says this example illustrates how our own behaviour as investors makes a much bigger impact on our investments than the investments themselves.

She says investors should focus on what they can control, their own actions, and worry less about what they cannot control, like shorter-term market movements. The market’s longer-term trend is to move higher.

Advice helps

A little guidance from a financial adviser can go a long way to helping you stick to your investment plan. Lamb says research by global investment consulting and research firm Russell shows that when advisers guide investors on how to behave, it can enhance returns by as much as 2.5% a year.

Advisers can also help you identify if you are not taking enough investment risk to earn the returns you need, Lamb says. 

At an investment webinar held for women by Ninety One, sales manager Siobhan Simpson said women tend to be averse to taking investment risks.

International surveys show women tend to hold the bulk of their money in cash or similar assets, but inflation and tax can erode the interest and take you backwards over the long term, she says.


Save and invest

At the same event, Tsitsi Hatendi-Matika, client director at Ninety One, explained that while you need some cash savings in a bank or money market fund, you also need investments.

Five factors differentiate savings and investments, and your goals ultimately determine where you should save, Hatendi-Matika said. The five factors are:

  • Your financial goals – these determine how much you need from your savings. Read more: How do I set savings and investment goals?

  • Liquidity – this refers to how accessible you need your savings and investments to be and how quickly you need to convert them into cash.

  • Risk tolerance – this refers to your ability to stomach investment risk without being spooked and withdrawing from financial markets when there is a dip. Read more: What is my risk profile and why does it matter?

  • Time horizon – this is the period over which you can save or invest before you need the money for your goal.

  • Earnings expectations – this is what you expect your savings or investment to earn.

Hatendi-Matika says saving is for short-term goals like a holiday in six months' time or for your rainy-day fund. That’s the money you put in the bank or money market funds, she says.

As your time horizon increases, you can take more investment risk. If your term is up to five years, you can look at cash, bonds or a multi-asset income unit trust fund, Hatendi-Matika said.

If you are saving for a deposit on a house in two years’ time, you should save in something like a multi asset income fund, she says.

Your investment horizons, or terms, for different goals should go right up to the very long term where you are saving for your retirement. Money for this goal should not be in the bank, Hatendi-Matika says.

These longer-term savings should include growth assets – investments like shares and unit trusts exposed to equities, she says.

So if you're looking to save for university fees and your child is young, you should consider a balanced (multi-asset high equity) fund or going into equities to give you higher average returns over the long term, Hatendi-Matika says. Read more: What do I need to know about investment risk and time?

The biggest risk is not taking one because inflation, as former US president Ronald Reagan said, is “as violent as a mugger, as frightening as an armed robber and as deadly as a hitman”, she added. Read more: Why must my investment beat inflation?

Have a plan

If you want to know if you are taking enough risk and investing enough, have an investment plan, Hatendi-Matika says.

Hatendi-Matika says an important thing to do is to start saving early because time beats money. People think the more money you have, the better it is. But consider this example. If you invested R10 000 at the age of 20, and it grew at 5%, which is really conservative, you would have R70 000 by the time you're 50, Hatendi-Matika said.

But if you invested that same amount of money at the age of 20, you would only have about R43 000 by age 50.

And that same amount of money, would only be worth R26 000 if you only started saving it at age 40, she said.

The value of advice

Simpson and Hatendi-Matika also suggested using a good financial adviser.

Hatendi-Matika says research has shown that over the years, the value of good advice from a financial advisor can add 2.5 to 3% a year to your investment portfolio. This doesn't sound like a lot, but if you compound that over 10 years on R1 million investment, it could add about R300 000 to R350 000.

A good financial adviser can help you in multiple ways, with estate planning, intergenerational planning (transferring wealth within your family), tax optimisation and most importantly, to keep you invested when you get scared, she added. Read more: How can I find a good financial adviser?

Investment markets sound scary, but if they fall, they usually recover quite quickly. Investors who realise that this happens are less likely to sell out when markets are low and then buy back at the top, Simpson says.

Doing that can make you lose money permanently whereas the investor who stays invested and waits out a market fall will typically see their investment recover more than the initial loss.