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Women and Money: A Long Distance Relationship

Financial Planning for Women

A large part of our belief system is based on how we are conditioned since childhood. I come from a time when most grand – mothers around me were quintessential homemakers. They were entrusted with the responsibility of taking care of the home, family and kids, while the men in the family were solely and fully responsible for making “money” decisions.

Our mothers (mostly) grew up and thereafter lived in an environment where “finances” continued to be a male dominated subject. The only money related involvement that most home maker mothers have had is with respect to the monthly petty cash they handle. While it seems like a rather tiny part of family finances, most mothers have again demonstrated a great amount of adeptness at that. If you have not given this a thought, it is time you go back and ask your mother how she planned her monthly “kharcha” and “bachat”. In most cases, she will also map out her savings to the various deployment needs that she had well planned for in advance.

Why then is “money” still a male dominated domain? I have been interacting with people, both men and women through various online platforms. The level of participation that I witness from the female community is shamefully low as far as India is concerned.

Do women refrain from taking an active role in personal finance? Or have they been unintentionally not involved enough by the male community? My view is, partly both.

This fact has remained this way for decades now. Yet the existence of this fact is far more dangerous now than ever before. A couple of situations that I iterate below are reasons why women need to prioritize their involvement in decisions around personal finance:

  1. The absolute number of women in the Indian workforce has been increasing. Handling the monthly petty cash is not the only money they need to manage.
  2. Working women tend to work for lesser number of years as compared to their male counterparts. This is on account of maternity and family priorities. This means that their quantum of savings could to be lower than their male counterparts. However, that does not reduce the money they will need to fund their own retirement.
  3. Women usually have a life expectancy greater than that of men. So they need to plan for longer number of retirement years.
  4. A lot more women are becoming socially independent. This results in a difference in priorities and preferences even between married couples. Financial planning of the family therefore needs the wife to be as involved as the husband.
  5. When young, we generally do not foresee unfortunate situations in life. A women who is suddenly divorced or widowed could end up in an extremely struggling situation, if she has no involvement in family finances

And these are just some of the many reasons. Times are indeed changing and we do have a few female clients who play a very active role in financial decision making (Read more here). However, they are still a very few. It is time that men and women assume equal responsibility to play a more inclusive role in defining the individual and collective goals, manage cash flows and draft out an implementable financial plan.

CAGR For Her is an initiative aimed at bringing more women into main stream decision making around personal finance. It is about mentoring, coaching and guiding women to play a more inclusive role in financial planning for the family. My aim is to simplify complexities and talk personal finance in a language that is relevant for today’s women.

In case you wish to have a chat, contact me on the below coordinates:
Email: shruti.agrawal@cagrfunds.com
Phone: +91 98670 954324

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Learning from Warren Buffet Series – Part 4

This time, I have combined the key takeaways from 3 letters. Because, while Warren Buffet writes these letters with a gap of one year, we are trying to bring up these articles every month. So we need to avoid being repetitive. But, most of the knowledge imparted by him is so timeless and relevant, that we are forced to write about them again and again.

Berkshire Hathway Shareholder letter – 1980-82

Key learning from the letters (in no particular order)

Learning 1

Buy right and sit tight – If your purchase price is sensible, some long-term market recognition of the accumulation of retained earnings almost certainly will occur. If you are confident about your investment, you need to wait patiently. Pascal’s observation seems apt: “It has struck me that all men’s misfortunes spring from the single cause that they are unable to stay quietly in one room.” If there is ever a chart which can speak, I believe the below chart of BSE Sensex would just say “shut up and remain invested”.

Sensex journey and growth

Learning 2

Forecasting folly – Forecasts are useless especially in stock markets. Investors need to avoid falling for forecasts at any costs.   “Forecasts”, said Sam Goldwyn, “are dangerous, particularly those about the future.” Read why here.

Learning 3

Invest when there is blood on street – Investors need to be patient and invest when there is fear in the market, because it is during these market corrections that you will get handsome opportunities.

Learning 4

Avoid business in industries producing un-differentiated products – Businesses in industries with both substantial over-capacity and a “commodity” product (undifferentiated in any customer-important way by factors such as performance, appearance, service support, etc.) are prime candidates for profit troubles. Investors need to be wary of businesses in industries where there is no difference in products like sugar, textile, paper etc.

PayPal founder, Peter Thiel in his ground breaking book “Zero to One” says “All failed companies are the same: they failed to escape competition.”, and it is very difficult to escape competition if the product you are producing is undifferentiated.

Learn more from Warren Buffet through previous parts of our series:

Part 1 | Part 2 | Part 3

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Aditi’s Money Story: I Was Always Conditioned To Save First

Aditi's money story

Aditi is one of my earliest female clients. And the reason I chose to write about her money story today, is because she inspires me.

A couple of months back, a common friend gave me her contact and we decided to meet at her place. She was newly married and I had almost barged into one of her lazy, cozy weekend. She greeted me well and waited till Karan, her husband, joined us. The agenda was to discuss their finances.

After having a brief discussion about their respective backgrounds, she quickly told me how she had been investing in equity mutual funds since she first started working. And how Karan had been risk averse, so to say. Now that they were married, she wanted to make sure that they have the right asset allocation and hence adequate equity exposure. She wanted an early financial independence for the couple. Meanwhile, I could sense Karan’s limited participation – may be because he was uneasy about equity, I thought.

A couple of weeks back, when I decided to venture into the domain of helping women understand and manage their own finances better, I reached out to Aditi to get her views on the subject. Remembering her as someone who took the lead in discussing family finances, she was one of the very few names that came to my mind.

A transcript of our recent conversation is given below:

Me: How do you feel about the fact that you take decisions around your finances / family finances?

Aditi: Ever since I was a child, my father used to encourage me and my sister to save whatever little earning we used to have. So we have always been conditioned to think of savings as an important aspect. The fact that I started investing since my first job has really helped me continue the practice. And today when I think about it, I realize it is a great feeling to be self – dependent. The ability to take care of my own needs gives me a lot of confidence.

Me: What made you go against the conventional practice of letting the man of the family decide?

Aditi: When we were young, a mass prevailing notion was that women are first the father’s responsibility and then the husband’s. I often questioned myself, why is that? In fact, when I was a kid, I heard someone asking my mom to have a third child, otherwise who would take care of them when they grow older (we are two sisters). It kind of impacted me deeply. I have always wanted my parents to think of me as an asset and not as a liability. I knew for sure that I wanted to change the norm that daughters cannot take care of them when they grow older.

Also, Karan and I both have our respective strengths. Knowing that managing finances is my strength, Karan has proactively taken a step back and is happy to let me handle the key financial decisions. So, for me it was not about going against the conventional practice.

Me: That is a very interesting thing to note Aditi. Because in a lot of families (including the ones where the wife is a home-maker), I notice that the men consider it to be their fundamental duty to take all financial decisions. If only, every couple could mutually agree on the mechanics that works best for them, the family finances could be managed jointly and more amicably.

Aditi: Absolutely. I think I have been lucky in this respect. But a lot of women are not.

Me: And now I understand why Karan wasn’t an active participant when we first met. So tell me, what comes to your mind when you think about “Financial Independence”?

Aditi: Financial Independence is extremely important to me. It is my confidence to live my life my way. I want to go to work because I love my job and not because I have to pay the bills. I want to stay married because I am in love and want to grow old with him and not because I have to as I cannot support myself financially. I want to achieve financial independence to have the freedom to do things I love to do, to live life the way I want to. And when I say “I”, I mean “us”.

Me: What has been your experience with me and CAGRfunds on a whole?

Aditi: I got to know about you and CAGRfunds through a common friend and I am always inspired by people who choose passion over 9-5 jobs. So when my friend told me that some of his friends had started this financial planning company, I was quite kicked about meeting you. Despite the fact that I had already met a few other investment firms before I met you.

The first meeting that we had at my place was something that made me very comfortable with you. It was casual yet relevant. There was a certain structure to the discussion we had, and logic to whatever you said. We resonated in lot of ways and it was that warmth to which I got sold which was missing in the other older firms.

What I like best about working with you is that you are extremely reachable. I know that I can talk to you if I want to. And more importantly, I trust you with the guidance that you give to me. Your intent when you talk to clients is not to sell. It is to educate them. You bring so much credibility on the table that the sale eventually just happens!

Me: Wow Aditi. Thanks for so many kind words. As you know, I am venturing into this domain where I want to help women step into main stream financial planning. What do you think about this initiative?

Aditi: I think it is a brilliant initiative. I don’t see a lot of women who are as lucky as I have been. And one of the major reason is that they are not comfortable about disclosing their level of unawareness. I mean, a lot of women would rather not speak than be judged as stupid for not knowing what equity means. So the good thing about this initiative is that as a woman, you will understand them better, not be judgmental, and help them see things from a different perspective.

Me: Thanks Aditi. That’s the intent. And I really hope that I am able to make a tangible difference to a lot of women.

Aditi: Of course you will. It has been great working with you so far and I am sure others will feel the same. All the best!

CAGR-For-Her: It is an initiative to help women to get better control over their finances. It is about making women aware of the importance of being fully involved in financial decision making. It is an attempt to drive one more woman towards her financial independence.

For embarking on your journey of financial independence, write to me directly on shruti.agrawal@cagrfunds.com

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LEARNING FROM WARREN BUFFET SERIES – PART 3

After a long cooling off period, here is our third part of the much liked series from Mr. Kshitiz Jain. This one should be read by everyone as the takeaways are extremely relevant for Indians.

Do participate in sharing the knowledge. Comment / Share / Like.

Berkshire Hathway Shareholder letter – 1979

Learning 1

Buffet explains that for investors to judge a good company the measure that should be focused on is Return on Capital Employed (ROCE). But, investors need to be careful of the factors like leverage, accounting measures etc. which can distort the ratios.

Learning 2

Buffet in his letter brings out two of the most important factors that impact the returns of individual investors i.e. Inflation and Taxation.

 “For the inflation rate, coupled with individual tax rates, will be the ultimate determinant as to whether our internal operating performance produces successful investment results – i.e., a reasonable gain in purchasing power from funds committed – for you as shareholders”

Learning 3

In my view, the below lines is what made Buffet so successful as an investor. It clearly brings out Buffet from the shadow of his teacher Benjamin Graham, who is widely known as the “father of value investing”. Quality of company should be the first criteria for an investor, only if this criterion is met, investor should look at prices.

“ Both our operating and investment experience cause us to conclude that “turnarounds” seldom turn, and that the same energies and talent are much better employed in a good business purchased at a fair price than in a poor business purchased at a bargain price.”

Learning 4

Buffet in this letter touches upon another common investment instrument i.e. Bonds. He suggests that investors should avoid investing in long tenor bonds, especially in an inflation-ridden world. According to him, fixed price contracts like bonds are nonexistent in virtually all other areas of commerce. Parties to long-term contracts now either index prices in some manner, or insist on the right to review the situation every year or so. Similarly, fixed rate bonds for long tenors, does not make sense as it is difficult to predict interest rate and inflation scenario for such a long term.

My two cents

Firstly, an important lesson which Buffet talks about is that investors should avoid instruments like fixed deposits (FD) which due to lower returns than inflation end up destroying the purchasing power of the investors. Investors should focus on the real return (Nominal return – inflation) generated by an instrument of company instead of the nominal return generated.

Secondly, taxation is another important factor that impacts an investor’s return. Inflation adjusted post tax return is actually what an investor will earn. For an investor’s money to grow, the post-tax return from an instrument should be more than inflation.

Equity is the only asset class which is known to give real returns over a long period of time. So for investors looking to create wealth over a long term, equity exposure is necessary.

Also read our LEARNING FROM WARREN BUFFET SERIES – PART 2 & PART 1