“Women are falling behind their male peers in terms of wealth accumulation due to the high prevalence of negative-yielding or very low-yielding bonds”, says the Credit Suisse (CS) Woman to Woman Report 2023. Thus, women typically hold around 30% of assets, although they make up about 40% of all private client relations at a bank.
Investing within a Lifecycle
To start investing, women sometimes lack a framework. Lifecycle investing can provide a useful starting point. At the age of 20–30, young women should take good care of their finances in order to enjoy the benefits of life. Even though they often have the impression that they need a lot of money to start investing, this is not the case. Stock prices range from very low (less than CHF 10) to high unit prices (above CHF 2,000). By 30-45 years of age, women can still accept a high level of risk (i.e., exposure to equities) during this phase, especially if they stay on the full-time employment track. Women who decide to take care of children or other dependents may need to reduce their earnings and pension contributions.
The age for shifting priorities is between 45 and 60 years of age. As their careers advance and/or women return to work as their children grow up, they look towards a phase in which they can generate higher income and therefore savings. Women at this stage tend to be more sophisticated investors, a reflection of their experience accumulated over two decades of investing combined with new financial obligations. At the age of 60 or older, women’s risk tolerance declines as they rely more directly on capital income and predictable cash streams. Hence, the focus now shifts to low-risk investments.
The Role of Cash
According to the CS report, for many women, cash represents a sense of added safety and financial independence. Cash holdings should be commensurate with lifestyles and take account of immediate liabilities. In countries where, in normal times, the average period of unemployment is around six months and there is a reasonably good social security system, a useful rule of thumb is for women aged under 45 to hold the equivalent of around 3–6 months of living costs as cash reserves.
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The comeback of inflation (inflation rate of 5% globally) makes cash attractive again. “Still, while cash rates may be attractive in 2023, we could see a decline in cash rates again in 2024”, notes the report. This means women should certainly look to profit from better savings remuneration in 2023, but they should already prepare their investment decisions for the future and seize investment opportunities as they present themselves.
“Cash should really play two roles in individuals’ holdings: first, to provide for emergency needs or for special expenses further down the line, and second, to provide the necessary liquidity in the management of portfolios”, concludes the CS Woman to Woman 2023 Report.
