Investing can be an effective way for everyone to build a nest egg and turn their long-term goals into reality.
Despite this, there’s a prevalent gender investing gap. Female Invest reports that only 48% of women are investing in the stock market, compared to 66% of men.
Though women are becoming more financially independent, the world of investing still remains male-centric.
Indeed, research from Aviva has shown that men are almost twice as likely to invest in Stocks and Shares ISAs than women.
Yet interestingly, women’s investments tend to outperform their male counterparts. As coverage from Unbiased shows, women generate an average of 0.4% more on their investments than men each year. So, what’s stopping women from investing more readily?
There are several factors that may explain why the gender investing gap exists, including:
- The general disparity in pay between men and women
- A lack of knowledge and confidence
- A reluctance to invest due to risk concerns.
Anyone can invest if they have the right tools and resources at their disposal. While women are currently less likely to invest, here’s why they should (and how a financial planner can help).
A lack of available funds and confidence can lead women to avoid investing
Women are increasingly taking control of their finances, with IFA Magazine stating that 53% of women feel financially independent. Even so, a significant gender investing gap persists. Several factors can contribute to this disparity, from a lack of confidence to societal expectations, and even risk aversion.
Research from the University of Bath states that women are generally less willing to take risks than men, with 53% of the gap due to higher levels of loss aversion in women.
Similarly, an Aviva study of more than 2,000 people found that 45% of women felt they didn’t have any surplus money to invest. Further to this, female respondents brought up a range of other concerns, with:
- 18% believing the risk is too high
- 10% finding investing too complicated
- 6% not knowing where to start.
All the factors listed above highlight not only the challenges that women face when investing, but also the need for unique financial education and tailored advice from a financial planner.
5 practical ways your female clients could close the gender investing gap
Investing could be a route to financial independence for many women, and the figures they first start to invest with don’t need to be substantial. Even investing small amounts now could gear them up for financial independence later.
Here are five effective strategies for helping women to get started with investing, and how a financial planner could help them capitalise on that momentum and continue building wealth for the long term.
1. Start investing earlier
The substantial benefit to investing early is compound returns – essentially, growth on growth. With more time comes more interest and returns, generating more growth on those returns, and so on.
Interestingly, this strategy is actually already more common for women, with Female Invest noting that women typically begin investing at 32 – three years earlier than men.
The other advantage of early investment is the potential it has to combat the effects of inflation, which can reduce the spending power of wealth in the long term.
As MoneyHelper highlights, if you put £100 into an account that pays 1% interest, you’d have £101 in a year. If inflation increases by 5%, an item you could have bought for £100 would now cost £105, meaning that the £101 would no longer be enough to cover the expense.
The earlier someone starts to invest, the more time they give their investments to potentially combat inflation, as long as their investments generate returns in excess of the rising cost of living.
This further highlights the need for advice, as a financial planner would account for inflation when building an investment portfolio with a client.
2. Prioritise long-term wealth over short-term gains
As you may have read in our previous article, patience is a virtue when it comes to investing. Although evidence from Unbiased shows that women tend to trade less frequently than men, this could be one of the reasons why they see better investment outcomes – namely, that staying calm and remaining invested can often lead to greater success.
By holding fast during market dips, despite the stress that can come from this, investors across the board will likely see more long-term gains.
An illustration from Barclays supports this. Comparing a £10,000 investment held in a savings account versus the FTSE All-Share over five years, the data shows how, while investments rise and fall in value more often, returns in the long term are greater.
Indeed, the wealth held in cash grew to be worth £10,151, while the invested funds rose to £13,489.
This means focusing on the “big picture,” and asking where the long-term, sustainable rewards are. In other words, are the actions your clients taking now serving their future goals?
This is where the value of financial advice truly comes into play, as a planner will factor in clients’ long-term targets when designing a portfolio.
3. Invest little but often
A powerful way to build wealth over the long term is to invest little, but often. Doing so helps build the pot over time, and allows women to invest from their income rather than putting an initial lump sum into the market, which they may not have available.
Additionally, by consistently investing small amounts, your clients could take advantage of pound cost averaging. This strategy involves investing a fixed amount at regular intervals, regardless of market conditions.
When the market is low, their investments will buy more shares. Conversely, when the market is high, they’ll buy fewer shares. Over time, this averaging effect could help smooth out market volatility and reduce the impact of timing the market, which is a skill that requires knowledge and confidence, something that female investors struggle with.
The key to investing little but often is building a habit of saving. Where habits may be challenging to form, automating regular investments through banking apps or dedicated investment platforms can be helpful.
4. Diversify to balance risk
Diversification is a common investing strategy, and involves spreading wealth across different types of investments to help minimise the risk of an entire portfolio dipping in one go. This could be particularly helpful for women who don’t feel confident with investing or tend to err on the side of caution.
Diversification provides peace of mind that, should one asset drop in value, these “losses” could be offset by gains made elsewhere.
Even seasoned investors can lose their nerve in volatile markets. There will be natural highs and lows in portfolios, but it can certainly feel like a shock to the system if one’s only investment begins to dive. That’s why diversifying a portfolio to balance risk, and that sense of loss, may be particularly helpful for women.
5. Get expert advice
Perhaps most important of all is taking professional advice.
According to Royal London, 34% of customers have said that receiving professional financial advice made them feel more in control of their finances.
So, with Female Invest reporting that only 28% of women feel confident about investing their money, expert advice could be powerful.
Ultimately, investing for women is about finding strategies that play to their strengths, managing expectations and building confidence through a financial adviser’s knowledge and expertise.
This is something Sovereign can help with.
Get in touch
If you have any questions about how we could work with your clients, or if you have business-owning clients who need help with growing their financial confidence and independence, please get in touch.
Email hello@sovereign-ifa.co.uk or call 01454 416653.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
