You’re finally settled in Paris and got a handle on your new environment. Now, you’re wondering if you’re ready for any financial risks with your savings. The first thing a financial advisor will usually do when you go to see them is try to figure out your risk profile. Then they can say, “OK I have an investor in category X here, which means I’ll recommend investment strategy Y”. The problem with this approach is that your risk level (annoyingly) tends to change.
Women, in particular, are more comfortable with risk at certain stages of their lives and when they’re physically feeling good. A friend has just invited you to try bungee jumping? You’re more likely to be keen if you’re feeling fit and healthy, not when you’re recovering from a severe bout of the flu.
Women’s appetite for risk changes
Having a family also makes a big difference. When you’re young and single, that trip to Marrakesh sounds awesome, as do more aggressive mutual funds. Once kids come along, however, you’ll suddenly start to notice how in Morocco everyone is smoking in the airport — yes, inside the airport!! And getting hold of clean, safe baby food, much less breast-feeding in public, is a little more complicated. Similarly …
… STUDIES HAVE SHOWN THAT WOMEN TAKE LESS RISK once they have a family or even when they feel their decision will have a big impact on someone else, such as their team at work.
This is a good thing. After all, nature made us to be more risk averse when kids were around so that we wouldn’t get the delicate little things killed. But this could impact how well you invest on your children’s behalf. Are you going to choose a fund with strong returns over the long term like a stock market fund for your Assurance Vie? Or are you going to chicken out and put it all in a cash-based Livret A account?
Here is a list of things that may make you feel more or less comfortable with investment and other types of risks.
What makes you take risk?
- Feeling confident (e.g., you’ve just had a promotion at work or some other event that has put you in a strong emotional state).
- Feeling physically strong and healthy
- Being young and stupid (ok, adventurous then)
- Knowing your stuff, having done your research
- Understanding the topic well
- Having past successes in that area
- Having a supportive partner or team behind you.
- “Feeling” wealthy and prosperous
What makes you more likely to shy away from risk?
- Being pregnant or recently having had a child
- Feel physically ill or weak (out of shape physically)
- Having suffered an investment loss in the past
- Having lost a job recently or feeling your job/business is in jeopardy
- “Feeling” poor, for whatever reason
- Having gotten divorced recently
- If you’ve just lost a loved one
This last one is important. When you are in a strong, stable relationship it gives you strength to try new things and take on more risk than you might not normally be comfortable with. This is why some women hold off buying property until they’re married (some men too, frankly).
Some women shy away from investment once they’re divorced, but this could actually be the moment when you most need to learn about investing.
If you also have a good coach or a team behind you like a mastermind group or investment club, this can also give you more courage, particularly if the other members of your team have experience in that area and can educate you on the topic.
Educating yourself is key
If you find yourself hesitating over an investment decision, one of the best things you can do is get educated on the topic. The more you understand that specific area, the better you’ll feel and you can more accurately assess the risks.
A very experienced investor I know said another good trick is to ‘”quantify your risk”
Write down all the things that could go wrong, and then work out the likelihood of them actually happening. Sometimes just doing a pros and cons list can help, but make sure you don’t get stuck in ‘analysis paralysis’.
Don’t rush to invest
Finally, if you’ve just inherited money from a close relative, don’t feel like you have to rush to invest it. This is a time when you are likely to be feeling weak and vulnerable. Leave the money in cash until you are feeling stronger and better able to deal with it. If it’s a significant amount, make sure you get advice from a number of professionals. I know too many cases of women who blew an entire inheritance out of feelings of guilt and despair only to severely regret it later. Leave the money in the bank, but make sure you do take some action towards finding a solution. You don’t want to leave it in cash forever.