Women in their early thirties teeter at the threshold of great changes – children, new houses, surging careers, more children and big dreams of the future.  How can their finances keep up?
By Kenice Tay.
Women in their early thirties who have just started a family tend to have two main financial objectives: plan for their children’s education and for retirement. As such, women should select investments that achieve good returns for at least a 15-year horizon.
Jacqueline Tan, associate director of Invesco Asset Management, says: “Go for growth-oriented kinds of investments. Equities over a longer term will give me better returns than holding cash or bonds,” Tan observes. To increase the potential returns – which also heightens the risk – a thirty-something woman’s portfolio can have a mix of global equities or stocks from hot sectors like technology, telecommunications and emerging markets, she suggests.
Tan also urges women to review their portfolio of stocks and unit trusts every year. “In her forties, her risk appetite may change. Her portfolio can be shifted to include more bonds than sectoral stocks, as bonds can act as a buffer to volatility in the stock markets,” she explains.
For investors who are just starting out, she figures that a unit trust is a good place to begin. But a note of caution: “However, you need to be focused and clear about your investment objectives.”
Profile of A Working Mother
To illustrate how a plan is tailored to a working woman’s future expectations, we profile a 35-year-old mother of a boy aged two. She has an annual income of $72,000 and a CPF balance of $60,000. She and her husband bought a terraced house for $850,000 and the property is now worth about $1.1m. She has also just purchased a $98,000 car. She has saved about $20,000 in fixed deposits and has about $20,000 invested in unit trusts and $5,000 in equities.
However, she has a mountain of debt: an outstanding mortgage of $450,000, for which she is paying $2,000 in interest and principal every month. In addition, she is grappling with an outstanding $70,000 car loan and a monthly credit-card debt of about $1,000. Her monthly expenses are about $2,000 to $3,000.
She plans to have her second child in one to two years’ time. She also wants to quit her job and work part-time after the second kid arrives. She also hopes to save for her children’s tertiary education in 20 years’ time. If there are sufficient funds, she hopes to send her children to U.S. or U.K. universities.
She assumes that she will need about $4,000 (in today’s dollars) every month to sustain her lifestyle after retirement. She also hopes to run her own business 15 years from now. To do this, she figures she will need to raise $500,000.
The Plan
Looking at the profile, Gwendoline Ling, a financial consultant at IPP Advisors, makes the following observations and recommendations:
  • Her current net assets, which include her property, car, savings, investments and CPF, are about $853,000. Her loans and liabilities add up to $71,000. Hence, her current net worth is $782,000. Her current investments, excluding her house, are worth about $105,000.
  • Her annual gross income is about $80,640, when her employer’s CPF contributions are included. Her annual expenditure, including living and housing expenses and income tax, is about $57,000. Therefore, her annual savings available for investment is $23,640.
  • Her current asset allocation is mostly in her property (76%) and her asset allocation plan belongs to the moderate risk category. Her total loan is about 40% of her current gross assets, or about 3.7 times of her annual income and it is manageable.
  • She should maintain a cash reserve equaling three to six months of her income – from $20,000 to $40,000.
  • To match her moderate risk profile and time horizon of her financial goals, she should accumulate and allocate about 50% of her assets (excluding the house) in unit trusts of moderate risk, 10% in higher-yield unit trusts and 10% in equities. She should maintain about 30% of her assets in cash and cash equivalents.
  • A breakdown of her current annual savings of $23,640 shows that $15,000 is channeled into bank savings and the rest, into her CPF account. We recommend that she allocates 60% of the savings into professionally managed funds and insurance products.
  • Her goal of accumulating $500,000 in 15 years’ time is achievable if she continues to be disciplined in her savings and investments. Assuming that her current investment fund of $105,000 and annual savings of $23,640 earn an average Return On Investments (ROI) of 5%, she would have a capital fund of $754,000. However, if she decides to work part-time and if we assume that her savings decrease by 50%, that will leave her with a shortfall of $14,000.
  • She wants to retire at age 60 with an annual income of $48,000. Assuming an inflation rate of 2%, her projected annual income is $79,000. If at the time of her retirement the ROI averages 6%, she will need to have $1.33m to generate an annual income of $79,000.
  • If her current investment capital of $105,000 and savings of $23,640 earn an average ROI of 5%, she would accumulate $1.5m by the time she retires.
    However, if she decides to work part-time and assuming that her savings rate is halved, she will have a shortfall of $385,000.
  • The projected cost of tertiary education for her son in 20 years’ time ranges from $142,000 in Singapore to $587,000 in the U.S.
To meet the cost of a local university education, which is $142,001, she may consider two options:
1) Putting regular savings into professionally managed funds and endowment products or
2) A plan comprising a lump-sum capital investment and regular savings.
In option 1, if her regular savings have an ROI of 5%, she will need to invest $4,100 annually. However, if she can achieve an ROI of 8%, she only needs to invest $2,900 annually.
In option 2, at an ROI of 5%, she can set aside a capital fund of $20,000 and annual savings of $2,600. However, if she can achieve an ROI of 8%, she will only need to save $985 annually in addition to her capital allocation of $20,000. 
  • For the expected second child, a similar or greater amount of education funds will be required to be set aside. This can be achieved by following the preceding steps.
  • She has a current life-insurance policy of $100,000. We recommend a minimum insurance coverage of about $400,000, which is about five times her annual salary. If the ROI is 5%, the annual income provided for her beneficiaries is only $20,000 from her current insurance plan. This represents only 30% of her current income. She may want to consider building up an insurance portfolio of term, investment-linked and traditional life-insurance products. About 10-15% of her income should be spent on these instruments to insure a minimum income level for her family in case tragedy befalls her.

Recommended asset allocation for a 35-year old working mother:
To match her moderate risk profile and time horizon of her financial goals, she should accumulate and allocate about 50% of her assets (excluding the house) in unit trusts of moderate risk, 10% in higher-yield unit trusts and 10% in equities.