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Women's Weekly: A wife's worth - Views on News from Equitymaster
 
 
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  • Jul 1, 2009

    Women's Weekly: A wife's worth

    Early to bed, early to rise - makes you healthy, wealthy and monetarily wise!
    Michelle Obama, the US First Lady has taken on the mantle of style and elegance from the lady who brought panache into politics for women - Jackie Kennedy. A woman of substance, devoted to her children, carrying forth her duties for the most important man in American history at that time and being the perfect wife to a T, was no cakewalk as imagined, but Jackie Kennedy made it look immensely simple for all. After several years had passed after the tragic demise of JFK, Jackie moved onto to marry Aristotle Onassis, a Greek shipping magnate who famously remarked, "If women didn't exist, all the money in the world would have no meaning."

    Women readers - take our poll, the Money Mojo, to gauge your economic insight and share your experiences with us!

    Who moved the money, honey?
    Women are truly the backbone of each household and in a larger sense the economy worldwide. Men make the money, women spend the same! But jokes aside, the budget of each household is decided by the woman, and one of the key allocations of money is for her children's future. Once a child is born, the first call of duty for each woman remains her maternal instinct to provide generously for her offspring.

    However a simple savings account is not enough, especially keeping in mind the ever rising inflation. Suppose if you're planning to save for your child's marriage - keeping in mind today's cost, you decide to allocate X amount. However due to inflation, this amount will be insufficient after 20 years and you will require X+Y amount. Hence not only must you save, but you must correctly target the appropriate amount necessary for savings.

    Now you might think that making fixed investments like putting money into a PPF (public provident fund) account would do the job for you and help you increase your money. After all inflation is now close to zero and in that scenario a return of 8% per annum seems very attractive, right? But let that not fool you. The actual inflation that you should be worried about is the CPI (Consumer Price Index, which tracks the rise in price of things we consume, like food) and that has stubbornly stayed at around 10%, which means that an 8% return on PPF has no meaning.

    Equities in that sense are a better asset class to be in, since the returns generated over a 3 to 5 year period from good stocks are on an average 4-5% higher than what you earn on fixed investments. Okay, a margin of 4-5% at first may not sound very enticing but if you consider your investments over a 20-year horizon, then your money in equities will actually be more than two times the amount that you would have earned on your fixed investments.

    Ready, steady, GO!
    One must be prepared for all eventualities. Therefore the house you're planning to buy, or storing cash funds for your child's further education remains of great importance to you, you must ensure that not only do you save the desired amount of money, but you also profit upon that.

    As explained in our previous article, the amount of money you put away into a savings bank account will not yield you high returns, whereas investing into a few good companies by purchasing their stocks will yield you a more favourable income and provide you with a benefit to your savings plan! Now what do you think of that?

    However, why would you want to invest in stock markets as a savings option, you ask? When one prepares to invest in the stock markets most often he/she tends not to look at the time frame as a long term range which yields a higher return on average, and thinks that short term approaches will provide a higher success rate.

    Let me give you an example to help you understand the 'How' of investing in the stock market.

    Whilst preparing for your child's higher education, you browse through several courses, discuss with your child's teachers as to the area your child shows a greater interest, visit campuses and speak to the faculty there, and do several other similar exercises before settling for a course and college in the interest of your child.

    Similarly you must perform the same exercise before purchasing stocks of a particular company! You must discuss the strengths of the management; review its competitive force, its capability to counter market competition as well as the company's overall performance, and then buy for a long term investment! By making a sound and informed decision regarding your child's education, you hope that you are providing him/her with a stronger and better platform to learn, and secure their future through such means. Similarly by reviewing all the data and reports before you purchase stocks for a long term investment, you are ensuring a higher success and return on investment, which will provide you with higher savings, plus an added margin for profits, which would not have been noticeable, had you only invested the money into a savings account!

    Simple? Yes, but who has the time between running a house, looking after kids, etc., to review company reports before investing in stock options? Well, I assure you it can be as easy as teaching your kids ABC! And to help you understand more about the hits and misses of the financial world, we suggest you sign up for The 5 Minute WrapUp (a free resource), a daily series of short, simple and entertaining nuggets of wisdom, which comes straight from us for you!

    Over the next few months we plan to cover a range of issues that are important to women interested in investing, and offer solutions for the same. If there is anything in particular that you would like us to cover, write in to us!

     

     

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