Working women these days are not only earning more, but also investing more.
Previous research has shown that women have very different personality traits from men. But what impact does this have on decision-making, and what factors should they consider before investing? Our finance guru gives his recommendations.
By Paul Ho
Globally, women have made great strides in closing the income gap with men, and now have more disposable income to invest in big-ticket items like property.
But despite the dramatic improvements in gender equality, men still have more incomegenerating assets, and over 70 percent of all companies are owned and helmed by men.
Personality dictates investment behaviour
According to research, men and women have different personality traits, and this tends to affect their investment decisions. Let’s take a look at the Myers-Briggs Type Indicator (MBTI), which was designed as a psychological profile to help people better understand their personality type.
The MBTI separates people into 16 types, based on:
– Extraversion (E) vs. Introversion (I)
– Sensing (S) vs. Intuition (E)
– Thinking (T) vs. Feeling (F)
– Judging (J) vs. Perceiving (P)
Feeling (F) and Judging (J) are two personality traits that many women have. Feeling tends to be emotional and social-based, while those with judging personalities are quick to develop an opinion based on immediate circumstances. For instance, they may think that investing is dangerous if they read news of a company going bankrupt, causing investors to lose their money.
On the other hand, most men fall into the habit of Thinking (T) and Perceiving (P). Thinking tends to be more logical, while those with the perceiving trait usually keep their minds open to new information and options.
Meanwhile, both men and women have the Sensing (S) trait, which is the need to see facts and figures, as well as have something that they can physically touch, versus Intuition (E) – the ability to interpret data and make sense of it.
Two traits to watch for
In this article, I will focus on two personality traits that women should be aware of.
If you have the feeling trait, you are more likely to be people-focused, and could be more emotional when it comes to other people or events. As such, you will need to control your emotions when it comes to investing, as you may develop an emotional attachment and refuse to cut your losses even when the signs tell you to do so.
Those with the judging trait tend to make judgements quickly and stick to them. You will need to keep an open mind as new information becomes available.
What is the best way to invest?
Risk-adjusted return approach
The best way to approach any investment is to measure the risk-adjusted return. What is the return on your investment for taking such a risk?
– If you can make 10 percent a year on your investment, but have a 30 percent chance of losing your capital, then this is a bad investment.
– If you can make 20 percent a year on your investment, but have a 10 percent chance of losing your capital, this may be a better investment.
Take a look at the historical returns versus the default risk before gauging your returns.
Fear of losing all your money
Choose an insurance-linked savings plan that guarantees returns. Insurance companies are highly scrutinised and well capitalised, and in many cases, are as safe as banks.
For the judging type
Look for a good financial advisor or family member who is financially savvy to discuss your investment strategy, so you can get another perspective.
For the feeling type
You need to identify what you should or should not do. Ask yourself whether you should invest in a tobacco company, or do you only want to invest in companies that support sustainability and the environment? After setting your baseline goals, you can start looking. Avoid buying shares or other exotic financial products as you may become greedy and buy at the peak, and then panic and sell at the bottom.
Six tips for women
Investing is often a logical, and sometimes perceptive and intuitive activity, but otherwise emotionless. You should be optimistic, but avoid being fearful or greedy. Follow these tips:
– Set aside funds for investing each month.
– Better understand your personality, which can affect your investment decisions.
– You should be logical and unemotional in your thinking. Cut out the emotions from your investment decisions.
– Adopt a risk-adjusted approach. Always ask these questions and you will be fine:
1) How much yield versus total return can I get?
2) What is the default probability of this investment?
3) What is the probability of capital gains / losses?
4) What is your investment timeline?
– Invest in businesses or assets that generate cash flow.
– Appoint a financial advisor or family member who is financially savvy to help you review your investment plan.
Paul Ho is the founder of www.iCompareLoan.com
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