Why women don’t invest - and why they should
Written by Lynda Calver on October 12, 2017.
Next year it will have been 100 years since women in the UK got the right to vote. While there has undoubtedly been huge progress in the area of women’s rights since then, there is still a depressing chasm between women and men in many areas of life. This is particularly noticeable in my own field of expertise - finance.
Many 21st century women are financially independent with decent salaries, and they certainly save – 51% of women have savings accounts, compared to 50% of men, with the figures for ISAs 40% and 41%. Yet, female engagement in the stock market is far below that of men: a mere 10% of women have a stocks and shares ISA (the figure for men is 17%) and only half as many women as men have other investments or unit trusts (7 and 14% respectively). Why is this?
Thinktank ‘Britainthinks’ recently conducted an in-depth focus group with 12 successful women to try and get to the bottom of why women don’t invest. It makes interesting reading. These were confident and successful women more than used to managing finances: four ran their own businesses, four were single parents and four were the main breadwinners in their family. And while all of them were saving, none had personally invested in stocks, shares or funds.
Several clear reasons emerge from the report, backed up by other information I have read online, as to why women steer clear of investing despite the fact that they have proved themselves more than capable of excelling at financial management.
1. Lack of knowledge
Faced with overwhelming choice, women often don’t know where to start when investing. While they are adept at making sure the bills are paid on time, budgeting household finances and shopping around for the best deals, they are put off investing by their confusion and the jargon used. Conversely, although men are no better at financial management than women, in fact, some studies suggest that women who do invest are more successful at it than men, they are more confident about investing in stocks. Women have a tendency to want to know everything and avoid anything which leaves question marks in their minds.
The solution to this of course is for women to educate themselves about different ways of investing, and there is a wealth of information online. Many people imagine that the stock market is just for the Gordon Gecko’s amongst us, wheeler dealing their way to a fast buck, but in reality, the majority of investors are average Joes trying to invest wisely to fulfil their financial goals, most often a secure retirement. Usually the best way to achieve this is by saving regularly into a well-balanced portfolio over the long term. For starters, have a look at this article which explains the principle of dollar cost averaging, a good place to start your research perhaps. And why not seek the advice of a professional financial adviser who can answer any questions you have. We don’t bite, honestly!
2. Fear of risk
Risk is another big barrier for women to investing in stocks. Women tend to favour certainty of outcome over potential for profit which is why they keep their cash in savings accounts where the interest they earn is negligible right now. The thinking behind this is that at least they can be certain they aren’t making a loss. There is still risk though – the value of the money is quietly eroded by inflation if interest rates are below inflation rates. But money invested can do so much better than that if you look at the long term.
Interestingly, amongst the focus group women, property was also seen as a safe haven for savings with some having invested in buy-to-lets and others interested in following that path. Of course, property can be a great investment but it is not risk-free.
The stock market is no different – risk is ever present but there are some easy ways of mitigating it. Any financial adviser worth their salt should take the time to understand your tolerance to risk and suggest an investment strategy that is apposite. There are off-the-shelf investment products suitable for everyone, even the most nervous of investors.
3. Products they can’t relate to
Women are turned off by the marketing of investment products which they don’t relate to, often feeling that they are not wealthy enough to invest. Let me categorically state that you don’t have to be phenomenally wealthy to invest, or to have a financial adviser. My clients, many of them women, come from all walks of life and have vastly differing income levels but they all have a desire to take control of their financial futures and make wise investment decisions which mean their money is working as hard as it can for them. Surely that’s something you’d like too? If so, ignore the marketing chatter and look more closely at what investing could mean for you.
In a similar vein, women feel that getting the right financial advice will be too expensive. They perceive that a professional financial adviser will cost them dearly - but that doesn’t have to be the case. Many advisers offer a free initial consultation and many take their fees from the product providers – they should be absolutely open with you about how they are remunerated, so don’t be afraid to ask. It makes absolute sense to ask all the pertinent questions about the services provided and how they are charged and even if you do have to pay for advice, you may find it less expensive than you think and well worth the money if it means you have a clear financial plan which is helping to build your wealth.
5. Lack of trust
"Untrustworthy" was the overwhelming reaction of the focus group to the financial services industry. It is true that the reputation of the industry has been blighted by scandals and shady operators, but it has cleaned up its act in recent years with increased regulation and a far more transparent approach. It is important to use advisors and investment managers with squeaky clean reputations and these should be easy enough to find. You need to feel comfortable with the person who you are confiding very personal information to so if you don’t, move on and find someone else.
If you’ve been put off investing for whatever reason, perhaps it is time for a rethink? If you would like to explore how you can balance smart investing with managing risk I would love to talk through the options with you and answer any questions that are bothering you.