Updated 03 December 2020
Recent findings suggest that women are still reluctant investors compared to men. Why is this, and what could be the long-term implications for women? Article by Anna Sofat, financial adviser at Addidi Wealth.
According to UK investment statistics, just 10 per cent of women have a stocks and shares ISA, compared to 17 per cent of men. Furthermore, in 2017 82 per cent of ISA accounts opened by women were cash accounts, compared to 75 per cent of those opened by men. Other statistics reveal that only 7 per cent of women hold other investments or unit trusts, compared with 14 per cent of men, while the ratio of male to female customers among the top 10 DIY investment platforms is reported to be 68 to 32.
My firm, Addidi, specialises in advising women on their finances, so I like to think I have something of an insight into this topic. I’m particularly interested in the factors that prevent women from investing, and in exploring ways that we can all think differently about our money.
I’m aware of the common perception that women are somehow more risk averse than men. Frankly this is a bit of a myth – it doesn’t necessarily come down to women wanting to take fewer risks. Rather, I think women have a tendency to compartmentalise the way they think about their money, in a way that men might not do so much. For example, women will often ‘ring-fence’ some areas of their money as untouchable – say, the fund they’re building up for their children's education – while some men (not all) may take a more relaxed approach.
Of course there’s no harm in compartmentalising different pots of money, and in many ways it’s a useful way to approach a portfolio. That said, when you’re investing money to obtain a return you will need it to carry an appropriate level of risk. And this risk level will come down to factors such as your age, your earning capacity, your ability to absorb a loss, as well as your desired investment growth.
One of the key differences I see between male and female investors is the end goal of investing – in short, what that money should be used to achieve. When we talk to clients about their goals, one of the questions I like to ask is: ‘What would you wish for if you had a magic wand?’ The responses from women tend to lean towards financial security and providing for their families. This seems to come from our instinctive desire to nurture those around us, which in turn may influence the level of risk we’re willing to take.
This instinct can be appeased if you make sure you have a suitable ‘emergency fund’ in place to act as the security you need, leaving other available funds to invest and deliver a return. For first-timers, investing can be a learning curve, but the crucial thing to understand is that there has to be a pay-off somewhere. The smaller the investment pot, the harder it has to work to deliver a return.
Perhaps one of the main barriers to women who want to take control of their financial affairs is the nature of the institutions themselves. It’s no secret that the financial industry tends to be male-orientated, often failing to recognise and cater to a female audience. Which is clearly short-sighted, given that (according to a report by Kantar) by 2020 over half of all investable assets will be held by women.
The field of financial advice is also heavily male-dominated, with disproportionately few female advisers. Furthermore, the ‘product led’, sales-orientated approach the industry has held for many years can act as a turn-off for women. The good news is that there are many advisers and financial planning practices that specially cater for female clients, with a particular focus on better two-way communication and the different priorities that women may have.
The great irony of all this is that women are every bit as capable of handling their family’s financial affairs, if not more so. Study after study has found that when it comes to managing investments, women actually outperform their male counterparts. Nevertheless, taking the leap of faith on the path of investing can be difficult for anyone who hasn’t done it before. But once my clients start to see the returns, they invariably end up wishing that they’d done it sooner.
But do women really need to invest more? The short answer is yes, we do. The gender pay gap has also led to a pensions gap, with the average woman’s pension pot likely to be 11 per cent smaller (by retirement age) than one held by a man. Yet it is women, with their greater life expectancies, who need to build in longer-term financial security into their planning, which will include pensions as well as other investments. If women really want to be able to achieve their retirement goals, investing isn’t just a lifestyle choice – it’s a necessity.
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