What is the gender investing gap?
According to the latest figures from HM Revenue & Customs, women are investing less than their male peers and the gap is getting wider year by year for high earners.
The 2015-16 annual Survey of Personal Incomes – the most recent figures available – showed British men were earning over £24bn more income than women on their investments. High-earning men also received £6.6bn in income from their pensions, compared to the £1.3bn received by high-earning women.
Across the world, women don’t invest as much or as early as men do, typically parking more money in cash – which is subject to inflation. Add that to the gender pay gap, the gender debt gap (in many cases, women carry more debt than men for the exact same things), the fact that women’s salaries begin to decline earlier than men’s, and the fact they live longer than men, and it makes sense that many women are losing out big time when it comes to the amount of money they have in later life.
How all of this will affect younger generations of women is perhaps the most concerning aspect – rising house prices and dwindling government pension provisions mean both sexes need to be smart about their money as early as possible, finding financial security in other ways. If young women don’t invest now, they could face serious problems in the future.
Why aren’t more women investing?
As Georgie Killik, Head of Innovation at investment house, Killik & Co , explains: “Stereotypically, men would be the breadwinners of the family, and that, more often than not, meant handling the household finances and safeguarding the financial future of the family. Consequently, the finance industry spoke directly to men, and women took a back seat. But this domestic set-up is no longer the norm, and women are now playing catch up when it comes to planning, saving and investing money.”
It’s also often theorised that women aren’t as willing as men to take high risks to get good returns on their investments. But female-focused investing platform Ellevest has found that women aren’t so much risk-averse, but risk-aware – meaning they want to thoroughly understand a risk before they take it on. “I hear from a number of women that they don’t invest because they are nervous about the stock market and potentially ‘losing everything’,” Ellevest Founder Sallie Krawcheck explains.
And once they do? A study from the University of California at Berkeley described women as ‘rational’ investors, meaning that they take on smarter risks, and the women in the study out-performed the men, whose overtrading due to overconfidence was a less successful move in the long run.
As Maike Currie, Investment Director at Fidelity, explains, women tend to be ‘buy and hold’ investors. "We have long-term goals and are happy to stick to these whether we’re saving for our child’s education or putting something away for a comfortable retirement," she says. "This is a good thing, because stopping and starting investments not only ratchets up costs it also undermines the power of compounding – that snowball effect of earning returns on already existing returns."
Is there an easy way to start investing?
Before investing for the first time, Killik advises women to clear any credit card debt and save a certain amount of cash into a current account that can be used to cover emergency costs, such as a boiler breaking. She then advises opening a stocks and shares ISA that allows investors to contribute as much as they can afford every month. “This will mean you aren’t under any financial strain and you can grow your lifetime savings without noticing,” she says. “Speak to an investment adviser for complete peace of mind, and for an approach that’s entirely tailored to you, your circumstances and your ultimate goals.”
Krawcheck stresses the importance of a goal-orientated approach to investing, too. Rather than asking you to state the level of risk you want to take, her robo-advisor service Ellevest looks at your profile, goals and timeline, then recommends customised goal-specific portfolios to invest in.
She recommends making investing a habit, putting away a bit of your paycheque each month. “This is smart and may be a means of further reducing risk,” she says. “That’s because sometimes you may be ‘buying high’, and sometimes you may be ‘buying low’. But over time, these may even out.” She advises having a diversified, low-cost investment portfolio, so you’re not just investing in the stock market.
If you’re struggling to make a choice when picking investments to go into your ISA, Currie advises looking at ‘ready-made’, low maintenance solutions such as multi-asset funds which do the job of choosing the right mix of investments for you. She also stresses that pensions shouldn’t be overlooked, as they’re the most tax-efficient and msot employers will offer to match your contributions up to a certain limit.
Where can I find more information?
If you want to better understand investment, there are some brilliant platforms designed to be jargon-free without being patronising – and as Killik says, “With clarity comes the confidence to get started”.
Vestpod publishes regular newsletters on female-focused financial topics, as well as holding regular workshops and forums for women to come along and learn more, while Savvy Woman – the UK’s leading money website for women – provides tonnes of advice on all things money. Killik & Co also have an in-house Head of Education, who helps people get more financially-savvy through videos and articles they can watch and read in their own time.
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