Why it is important for women to build a financial legacy

Taking care of one’s family and heirs often includes a desire to ensure a more comfortable future for loved ones , supporting them in pursuing their passions and dreams. Women tend to value wealth as a source of security, being able to afford a certain lifestyle for themselves and their loved ones. For women, legacy goals often mean more than passing on wealth to the next generation ; it also means being able to shape the world around them for a better future. Having a personalised wealth plan is crucial to achieve such goals. About 56 per cent of women (compared with 47 per cent of men) do not know how much wealth they can pass on to the next generation , according to data from the 2022 UBS Investor Watch. This further highlights the importance of planning. Preserving or better growing money through investing is necessary to avoid wealth erosion through inflation, taxation and consumption over the generations. Over the years and across generations, that spending power can diminish dramatically. Therefore, there is a need to invest in assets that generate positive and growing returns. Post pandemic, we see an increase in the number of women who are interested in investing. However, we still see a gap between intention and action. Women are often more reluctant to take financial risks. This is not because women are per se risk-averse, but rather calculated risk-takers. Men tend to be more exposed to conversations about investing, even from a young age. Knowledge and experience help to increase risk-tolerance as it affects the perception of risk. This suggests that if women do not gain investing experience, they will continue to view investing as riskier or more daunting. We see that younger women are more financially literate, which makes them more financially confident. Once women invest, they tend to do better than men. A study from Warwick Business School concluded that women outperform men by 1.8 per cent per annum. This is mainly because they trade less often, are more disciplined and less likely to sell during market lows. To identify the appropriate size and investment approach for the legacy goals, it is important to look at the entire wealth plan and how assets can be allocated to meet one’s needs. Once women investors have defined and funded their strategies for short-term and medium-term cash-flow needs and lifetime goals, they can invest the remaining wealth in their financial legacy strategy. Without the need to sustain withdrawals, such a strategy dedicated for legacy goals has an inherently higher capacity for risk. Specifically, a multigenerational time horizon allows more flexibility in using illiquidity as a source of potential returns. Examples of illiquid assets that should be considered in a legacy portfolio include real estate, hedge funds, private markets and infrastructure. These offer the potential for higher risk-adjusted returns, but come with the need to lock up capital for longer. Data suggests that women are comfortable using illiquidity in favour of investment returns. More women (61 per cent) than men (50 per cent) were keen to receive advice about investing in illiquid assets, according to the UBS Investor Watch survey. In addition, research suggests that women’s favourite asset class is real estate, while men’s is equities. Women investors may also want to incorporate long-term thematic investment funds to benefit from structural trends. Through long-term themes, women investors are also able to align their investments to their values and beliefs, which provides them with a sense of purpose through their investments. Research has shown that women tend to have greater confidence in investing their money when their values are aligned with their investments and when they see a social impact. The UBS survey highlights that 71 per cent of women take sustainable considerations into account when investing compared with 58 per cent of men. Beyond investing to preserve and grow wealth, it is also important to have succession plans in place to ensure a smooth transfer of assets. However, we also see a gender gap in planning, with 55 per cent of women who intend to leave an inheritance not having any plans in place compared with 41 per cent of men. Furthermore, according to a study by Limra, only 47 per cent of women have life insurance, compared with 58 per cent of men. At a minimum, women should have in place a will, together with an assigned person to execute it. In addition, depending on the specific needs, trust and life insurance solutions may be components of a successful transfer of wealth. Women value expert advice more highly than men, not only in terms of investment advice, but also in terms of facilitating succession discussions and executing succession plans. To meet their objectives, women need to plan, invest smartly and orchestrate the transfer of their wealth. A study by BNY Mellon calculated that if women invested at the same rate as men, there could be more than $3.22 trillion of additional capital to invest globally, with about $1.87 trillion flowing into more sustainable and impactful investing. Through their investments, charitable donations and financially educating their heirs, women have the potential to make a significant impact on both society and future generations. Marianna Mamou is head of advice beyond investing at UBS CIO Global Wealth Management