International Women’s Day: A guide on how women can allocate their money

Asset allocation is an art as much as science that requires you to understand how you want your money to create wealth for you.

Abeer Ray, MintGenie Team
Updated8 Mar 2022, 11:01 AM IST
Working women
Working women(Pixabay)

It may not be easy to invest money into various asset classes, especially, if you are doing it all by yourself. This explains why many women fail to identify the right asset allocation strategy. Diversifying assets after considering the risk-return factors involved, everyday expenses, savings, and investments may seem daunting to many women who depend on the men in their families.

However, the importance of asset allocation must not be negated while deciding on an investment plan. Allocating your earnings to assets that will not only earn returns but also have a long-term enhancing effect on your portfolio ensures the much-needed corpus that you can fall back upon when you are old. The road to financial freedom begins with the most underrated step, i.e., asset allocation.

Before deciding on the right asset allocation, it is best to take a long and extensive look at the asset classes available and then decide where you must invest your money depending on your imminent and long-term financial goals. Also, how much you can invest has a long bearing on the assets you choose to put your money in. 

One should make some smart investments to beat inflation, 

Women new to asset allocation strategies can consider taking the following necessary steps before embarking on their financial journey. These include:

  • Balance long and short-term goals: How long you wish to stay invested has a deciding effect on your asset allocation. Be aware of both your short-term and long-term money goals. Before making any investment, ask if it is worth the thought and if it would help you earn the returns you are looking for. While parking money in investments, check if you are planning for your retirement or for some specific requirement in near future. The success of your financial goals depends on your time scale, so you must keep a tab on the details of your time scale beforehand to attain success.
  • Choose the right asset classes: The right choice of assets can help you to grow your money at the right speed. You can choose from three asset classes, viz., equities, debt, and cash/cash equivalents. Alternatively, you may allocate a portion of your savings to gold and real estate. Each asset component is associated with a distinct risk level depending on which we can expect and earn returns for both immediate and long-term use. Also, investments in different assets help to attain different objectives, which is why diversification in investments is important.
  • Beat inflation: Do you know how the aftermath of inflation eats into your returns slowly. Irrespective of the kinds of investments that you may choose, check if the returns earned exceed the inflation rate. Your financial journey is incomplete without your understanding of the effect of inflation. Decisions regarding asset allocation are incomplete without considering inflation. Finding the right balance between time, returns, and risk mitigation involve an understanding of your risk aptitude.
  • Diversification: You do not want to take unwanted risks nor be at the mercy of low-income instruments that fail to earn high returns. With so much uncertainty regarding the performance of an investment and subsequently its returns, it helps to spread out your money in different asset classes. This would prevent over-concentration of the assets leading to increased risk.

If you are earning consistent returns from one asset or the other, it means that you have made the right choice of asset allocation. The hunt for the best returns has often led to many women looking to some unusually novel option like investments in mutual funds, art pieces, non-fungible tokens, cryptocurrencies, etc. The web has narrowed down the world of investments and ensured that every investment option can be classified depending on the risk to return ratio. Those unable to tolerate risks can easily opt for bonds and debt funds that continue to earn moderate returns even after the stock market crashes. Such investors can also diversify by parking their money in ultra-short-term mutual funds too. Paying for sovereign gold bonds is another option where you can stay invested for a minimum of five years and then redeem the returns back into your account. What’s more, the maturity amount is not taxable, which means that you have nothing to lose on the money that you had invested. Alternatively, one may choose to invest in gold mutual funds or gold exchange-traded funds for quick liquidity and high returns due to continued rising gold rates. 

While decisions regarding investments are necessary, never forget to have an emergency fund in place. The pandemic has highlighted the importance of keeping some money in hand too. If you are new in the world of investments and are unable to decide the right asset allocation strategy, it helps to seek professional advice for the same. Managing finances is equally important as earning and saving money for the future. However, the former requires deep learning and understanding of how finances work and how your money secured in various funds can help you secure your future. 

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First Published:8 Mar 2022, 11:01 AM IST
HomeMoneyPersonal FinanceInternational Women’s Day: A guide on how women can allocate their money

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