UK: Specialist Investment For High Net Worth Women

Last Updated: 16 December 2011
Article by Zoe King

Most of us are on our own when it comes to saving for our own future and that of our families. Defined benefit pension schemes have been replaced by defined contribution schemes which, while helping us on our way, are unlikely to be sufficient for our future needs. The harsh reality is that, at today's yields, a capital sum of c.£1m is needed to generate a gross annual income, with scope to grow, of just c.£25,000 (based upon the average yield from a balanced portfolio comprised of 50% blue chip international equities, 50% index-linked gilts, and assuming no capital drawdown).

At the same time, the excessive levels of debt built up by both western governments and consumers have come to a head – an era of 'deleveraging' has begun in which nominal GDP growth going forward is likely to be a markedly lower that the level enjoyed over the past three decades. This, in turn, means that interest rates are likely to remain below the rate of inflation for some time and keeping substantial amounts of cash on deposit is not an attractive option if we want to preserve the 'real' value (i.e. adjusted for inflation) of our capital over the medium term.

Investments for the longer term can be built up within 'wrappers' such as ISAs (Individual Savings Accounts) and SIPPs (Self Invested Pension Plans), or simply held within a managed portfolio. The important thing is to start building up some assets for the future, while the investments within the wrapper are far more important than the wrapper itself.

Do successful women look for something particular for their investment managers?

It has been argued that women are more likely than men to want to outsource the management of their savings to a financial advisor (Stinerock et al 1991). At the same time, however, they want a financial education and someone they can trust, and a manager who shares the same tendency to follow 'safer' investment strategies designed to minimise losses in volatile times (Powell and Ansic 1997).

Why chose a female fund manager – less hubris, more analysis

It is generally accepted that women are inclined to take less risk when investing money. Behavioural economists have observed that women are less prone to some of the key behavioural traps such as overconfidence and overreaction, which means that they don't trade as frequently thereby reducing the cost to the client (Fellner and Maciejovsky 2007). It has also been argued that women prefer less volatile investments. They are inclined to weigh risk attributes such as the possibility of loss from an investment more heavily than men (Olsen and Cox 2001), and if one can limit the downside during turbulent times, the longer-term performance should take care of itself.

Investing in inflationary times

So in a world in which inflation remains positive and the 'real' return from cash (i.e. after inflation) is negative, how can we try to ensure that our capital maintains its purchasing power over time? The answer may be to adopt a moderate level of risk and appoint a discretionary investment manager who can construct a well-balanced portfolio invested across a broad spectrum of asset classes such as those outlined below.

Diversity is key

Index-linked national savings certificate – issued by National Savings and Investments, these are fixed term instruments (typically 3-5 years) which pay an annual coupon (recently 0.5%) in addition to which the redemption value of the certificate is raised in line with inflation as measured . All returns are tax-free but investment is currently restricted to £15,000 per person, per issue. There are currently no issues on offer, but investors should look out for new issues in due course.

Index-linked government bonds – even though real yields (i.e. the return to maturity after inflation) have fallen, there is scope for them to fall further. After all, in the 1950s to 1970s negative real interest rates were the norm. Mediumdated UK index-linked government bonds (index-linked gilts) are only factoring in around 1.5% retail price index annual accrual rates going forward, which may prove too low.

Equities – inflation could see equities benefit from both rising prices and unit growth, but we would concentrate upon well-capitalised, international companies with scope to increase their dividends over the coming years. Dividends are likely to become an increasingly important part of total return going forward.

Please remember that the value of investments can go down as well as up. Investors may not get back the amount invested. Past performance is not a guide to the future.

Risk warning

Investment does involve risk. The value of investments and the income from them can go down as well as up. The investor may not receive back in total the original amount invested.

Past performance is not a guide to future performance. Rates of tax are those prevailing at the time and are subject to change without notice. Clients should always seek appropriate advice from their financial adviser before committing funds for investment. When investments are made in overseas securities, movements in exchange rates may have an effect on the value of that investment. The effect may be favourable or unfavourable.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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