When it comes to investing, what’s your risk tolerance? Do you like to stick to investments with lower risk — such as GICs? Or are you looking at more risk — stocks, fixed income, preferred shares? Or are you somewhere in the middle?
If you are like most women investors, you probably have a lower risk tolerance than men, but as you’ll see, it doesn’t have to be that way. Obviously the lower risk tolerance impacts the types of investments you choose, and over time this can greatly reduce the performance of your portfolio.
There are many reasons why women may have a lower risk tolerance, but my theory is based on the results of a survey done by Environics for TD Wealth Management. “Almost half of the women did not consider themselves knowledgeable investors” and “approximately 50 per cent of the women considered themselves to be low risk investors.” This correlation indicates to me that what women don’t understand scares them, and accordingly they opt out.
What are the five most common investment risks that are of most concern to women?
One — Market risk: A bear market may take good companies down with it.
Two — Credit or Business Risk: think Nortel.
Three — Interest rate risk: think of the rate on GICs these days.
Four — Inflation risk: the risk that the rate of return you’re achieving will be outpaced by inflation.
Five — Risk of outliving your savings: We know women are living longer, and this should be the biggest worry of all.
Risks One and Two are the ones that most of us are familiar with and they are what keep us in guaranteed type investments that will cement the future. The solution to cementing a “good” future is portfolio development. So how do we deal with market risk and credit risk in our portfolios, and overcome the fear? Simply, we must become educated about the investments that can comprise a portfolio, and how diversification can help manage all types of risk. It is that understanding, and working with a trusted advisor that gives women the confidence to put their money to work.
Want some ideas on becoming educated? There are some excellent books on the market. Attend seminars and workshops specifically targeted to women and their financial needs. Above all else, ask questions and make sure you understand the answers. Do not be afraid to ask for a second opinion — this is part of the learning process, and we advisors understand that it is part of our role.
Judy Poole is a financial advisor with Raymond James, and has spent the last 39 years involved in the financial industry. You can reach her at firstname.lastname@example.org. This article is provided as a general source of information and should not be considered personal investment advice. The views expressed are those of the author and not necessarily those of Raymond James Ltd. Securities offered through Raymond James Ltd., member – Canadian Investor Protection Fund. Financial planning and insurance offered through Raymond James Financial Planning Ltd., not a member – Canadian Investor Protection Fund.