Women’s Month: Risk is an essential ingredient for long-term investment returns
31 Aug, 2023

Nomi Bodlani, head of Direct Clients at Allan Gray


When it comes to investing, no one wants to lose money. But, according to an international study, women have a natural inclination to take on less risk when compared to men, which translates to being more risk averse in investing as well. While we still know little of the exact reasons why differences in risk-taking behaviour exist, the research indicates that women tend to experience money losses more intensely than men, possibly explaining why women are less likely to invest in equities.


On the other hand, Allan Gray’s analysis of its client behaviour indicates that women are resilient investors, who are less likely to disinvest or stop investing during times of uncertainty than their male counterparts, which was apparent in their actions during the COVID-19 crisis period. This resilience strongly suggests women have the commitment required for equity investing.


“Unfortunately, by overly focusing on avoiding short-term losses, many investors jeopardise their ability to achieve real returns over long periods of time,” says Nomi Bodlani, head of Direct Clients at Allan Gray, adding that equities have been essential to providing investors with real returns since 1900.


Her comments are particularly relevant considering the focus on Women’s Month, observed annually in August, as well as the fact that the world has been grappling with the fallout of inflation; a phenomenon that many long-term investors overlook when investing.


“When it comes to long-term wealth creation and preservation, the very least you should be asking your money to do is to grow by inflation – ideally meaningfully more. So-called ‘real returns’ are critical to achieving your long-term investment objectives, like saving sufficiently for retirement,” says Bodlani.


She encourages investors who are investing for real returns but have shied away from equities due to their volatile nature, to reconsider the important role they play in a portfolio.


“If you compare the performance of various asset classes over different time periods, equities have significantly outperformed inflation, and more consistently so than bonds and cash,” says Bodlani.


She adds that globally, equities have generated a real return of 5.1% per year since 1900 and 6.6% over the last decade. Locally, equities have fared even better, generating real returns of 9.1% per year since 1900 and 5% over the last 10 calendar years.


“For optimal long-term outcomes, investors should make sure they take on enough risk. This means women should avoid shying away from equity exposure, as exposure to equities improves investors’ chances of earning real returns and achieving their investment objectives.


“If you are fearful that taking on higher equity exposure increases the riskiness of your portfolio, then consider a well-diversified multi-asset unit trust, like a Balanced Fund, which can provide meaningful levels of equity exposure while reducing volatility by investing in other asset classes,” she says.


Bodlani’s shares her top principles for optimal outcomes when it comes to equity exposure:


  • Ensure sufficient exposure to carefully selected equities over the long term. To determine the most appropriate level of equity exposure for your portfolio, you should consider your investment objective, your return expectations, your investment horizon and the level of risk you are willing to take on.


  • Even if you maximised equity exposure, no amount of equities is going to make up for not starting early enough or investing sufficiently for your investment objective or drawing down too fast.


  • Pay attention to the level at which you contribute and draw down: If you retire at age 65, you should plan for your income to last you 30 years. During that time, you want to draw an income at a rate that still allows you to increase your income by inflation each year, maintaining its purchasing power. Our research shows that at 60% equity exposure and an income drawdown of 4%, you can have a 90% chance of achieving your objective. If you increase your drawdown to 7%, at the same equity exposure of 60%, it drastically reduces the chances of maintaining your income’s purchasing power to less than 30%.


  • Stay invested, even through the difficult periods, to avoid missing out on periods when markets recover.


  • Become comfortable with volatility, despite yourself, because as a long-term investor, it is an evitable part of the journey.


“A good, independent financial adviser (IFA) can assist you in putting a plan together based on your long-term goals and constructing a portfolio in line with your risk appetite,” she concludes.






@Nomi Bodlani
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