Maike on money

Minding those gaps: why women need to invest

Maike is a mum and believes one of the most important things she can teach her daughter is financial independence. In her Maike on Money Blog she captures the personal challenges and choices women face in meeting their long-term financial goals.

Maike Currie is an investment director at Fidelity Personal Investing, the division of Fidelity International serving self-directed investors. She is responsible for representing the business as a spokesperson and broadcaster on investment and personal finance matters.

Prior to joining Fidelity, Maike was a financial journalist, working across a number of titles in the Financial Times Group. She continues to write a column for the FT and regularly appears on Sky News and the BBC. 

The ISA gender divide

By Maike Currie, Fidelity Personal Investing, 11 May 2017

Are men and women from different planets when it comes to investing? If you read some of the research out there, you’d be forgiven for thinking so.  Women are more risk averse when it comes to investing. Men are more confident. Men trade more often, while women tend to prefer a ‘buy and hold’ approach with their savings. The comparisons go on and on…

Sweeping generalisations are always dangerous, so how about some hard data to back up these statements? Well, some very interesting facts about how men and women perceive investment can be found in the latest ISA investment statistics from HMRC .

Most concerning is the fact that cash ISAs still remain the most popular choice across age groups and genders, accounting for just under 80% of all ISA accounts opened. Also notable is the glaring gender divide when it comes to investing, with men far more willing to move up the risk spectrum and invest in a stocks and shares ISA compared with women, who instead prefer to leave their hard-earned savings languishing in cash.

Looking at HMRC’s ISA subscription figures by gender it is clear that women are diligent savers given that their take up of ISAs, which overall outpaces that of men. Drill deeper into the figures, however, and you’ll see that women hold far more in cash ISAs compared to men, who are more inclined than their female counterparts to hold a stocks and shares ISA.

Have a look at these charts from HMRC to see the difference between the uptake of cash ISAs and stocks and shares ISAs (S&S) between the two genders:

Individuals subscribing to Cash ISAs in 2014/15 (thousands)

Individuals subscribing to S&S ISAs in 2014/15 (thousands)

Source: HMRC, April 2017

Perhaps the tendency of women to prefer cash over stocks and shares, is reflective of the findings of Terrance Odean , a professor at Berkeley’s Haas School of Business, known for his work on behavioural finance. Back in the 1990s, he found that men traded 45% more than women, blaming this on male overconfidence.

Women, in contrast, 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. This makes good sense, after all 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.
 
But ladies, here’s where we mess up: while we tend to be diligent and committed savers, we often steer clear of the stock market altogether.

Fidelity conducted some research into this and found the biggest barrier between women and an investment in the stock market was not feeling confident about this type of investing (34%) and believing we did not have enough knowledge to invest their money (31%). 

Those who have cash savings or cash ISAs but didn’t have stocks and shares ISA were asked for their top five reasons they don’t invest in the stock market:

Five year performance

 

Total (UK adults)

Male

Female

  I don’t feel confident about investing in the stock market

31%

26%

34%

  I don’t have enough knowledge to invest my money

27% 

21% 

31%

  I am worried about risk

26% 

22% 

30%

  I don’t understand the stock market 

 26%

21% 

29%

  I don’t want to lose any of my initial capital

26% 

 26%

 25%

Source: Fidelity International 

It could be a lack of confidence or it could be the fact that because women still earn less than men, making us more hesitant of taking greater risk with our hard-earned savings. 

Either way, by leaving our money in cash, we’re losing out over the long term. With interest rates at record lows for almost a decade now and inflation rapidly rising, anyone holding an investment in cash will struggle to achieve a decent real return -that’s a return that keeps abreast of rising prices.
 
Granted, the stock market is a more risky option than cash, but it is a well-established fact that over the long term equities tend to outperform shares. Arguably, the best proof of this is the Barclays Equity Gilt Study, which contains data on UK equity, bond and cash returns since 1900 and shows that the stock market has outperformed cash in 75% of all the five-year periods since 1900, rising to 91% of the 10-year periods.

As women we risk falling into a glaring ‘investment gap’ by leaving our money in cash and steering clear of the stock market.

Finally, if it’s true that women are fundamentally different creatures than men when it comes to investing, then our wiring should bode well for an investment in the stock market. That’s because a buy and hold strategy favours the stock market as those who remain invested typically benefit from the long-term uptrend in stock markets. Those who try to time the market and stop-and-start their investments, run the very real risk of denting future returns by missing the best recovery days in the market and the most attractive buying opportunities that often become available during periods of pessimism.

Important information

The value of investments and the income from them can go down as well as up, so you may not get back what you invest. Eligibility to invest into an ISA and the value of tax savings depends on personal circumstances and all tax rules may change. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment. Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity. Fidelity Personal Investing does not give personal recommendations. If you are unsure about the suitability of an investment, you should speak to an authorised financial adviser.

Money matters for women

Maike CurrieBy Maike Currie, Fidelity Personal Investing, 27 April 2017

Birth, childhood, coming of age, finding a partner, marriage, divorce, retirement, old age, death and everything in between. Life, it happens. And these so-called ‘life events’ happen to both men and women. But often it’s women who carry the long-term cost.

You take a break to look after the children. You care for a sick or elderly relative. Your parents get ill. You have a child earlier in life and your career stumbles before it has a proper chance to start. You have children later in life and face financial consequences you never even thought of.

Inevitably, women pay a higher parenthood penalty Opens in new browser window image. You take a career break. You go part-time. You take a pay cut. You miss the chance on a promotion. You earn less. You save less. You end up with a smaller savings pot. You take less risk with that pot because you can’t afford to lose it. But you are the one who’s going to live longer.

If you think this is just a mindless rant from an angry woman, I’ll back up with some hard data.

  • Women get paid less. Proof? It’s called the gender pay gap Opens in new browser window image, and it’s been around for so long that there’s data going back 20 years showing the glaring gap. 
  • Women are promoted less than their male colleagues. Evidence? Only 7 CEOs out of the 100 Opens in new browser window image that make up the FTSE 100 are women, with even less in the FTSE 250. Middle-aged men in suits still undeniably run the show.
  • Women have smaller pension pots: The Office for National Statistics’ (ONS) Wealth and Assets survey Opens in new browser window image shows that more than a third (37%) of women - aged 55 to 64 -have no private pension wealth at all, compared to 19% of men in the same predicament.
    Women in this age group that do have retirement savings have an average pension wealth of only £99,100, compared with £173,100 for men. And for those already drawing their pensions, women have pots half the size of men - £61,200 compared to £127,900.
  • Women live longer than men: ONS stats again, but here you go Opens in new browser window image.

Here’s the rub, ladies: If we’re going to live for longer than our male counterparts, logic dictates that we should have more retirement savings because we will need an income for longer.

(If you’re a man, you may have lost interest by now. But consider the outlook for your daughter(s) - you can do your bit to close those glaring gaps, which some claim start as early as childhood, with boys receiving more pocket money than girls. Opens in new browser window image)

Back to those life events. If you’re a woman and you do regularly contribute to a pension, or put some savings away, chances are that at some stage in your life you may take a career break to start a family. And, even if children aren’t for you, you might take a break to care for a sick or elderly relative. It’s a well-established fact that women are still the primary caregivers. This will inevitably impact your long-term savings and investments.

So what can you do? Well, you can’t change biology. And while you can try to change the way the world works, arguably an easier, more pragmatic option is changing your own wiring. First we need to tackle that female tendency of putting everyone’s needs ahead of ourselves and give our financial future more than just a passing thought. My colleague, Emma-Lou Montgomery sums up the five home truths every woman must face up to here

Once you’ve given yourself a good pep talk, you can start to ensure some financial independence by setting up a pension.  Remember that even if you are not working, you can contribute £2,880 a year into a pension and receive a £720 tax relief top-up from the government. Also make sure you save into an ISA.

As women, we need to invest and have financial plans in our own right. If you are raising children and managing the family home it is unlikely your existing pension benefits will be vast and, given the issue of rising life expectancy, it is even more crucial to make sure you save enough towards your retirement.  Hopefully our new Women & Money section can provide the support, inspiration and ideas you need.

Important information

The value of investments and the income from them can go down as well as up, so you may not get back what you invest. Eligibility to invest into an ISA or pension and the value of tax savings depends on personal circumstances and all tax rules may change. With pension products you will not be able to withdraw money until you reach age 55. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment. Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity. Fidelity Personal Investing does not give personal recommendations. If you are unsure about the suitability of an investment, you should speak to an authorised financial adviser.

Property or portfolio?

What would you do with £250,000 - Invest in property or the stock market?

  • Fidelity’s Women and Money series reveals women are almost seven times more likely to invest in a property than an investment portfolio
  • Stock market up 19.7% last year vs average UK house price rise of 3.5%
””