WHAT WOMEN NEED TO KNOW ABOUT INVESTING
WHAT WOMEN NEED TO KNOW ABOUT INVESTING
Every woman that starts investing means we’re one step closer to closing the financial gender gaps.
And that’s just one part of it. We want women to live in a society where we’re able to live the life we want, have the power to prioritise what matters and the freedom of financial independence.
Investing can help us achieve this.
Make your dreams a reality and find out a few key things every woman should know about investing.
Sophie Lund-yates
Lead Equity Analyst
IMPORTANT INFORMATION Investments can go down as well as up in value, so you could get back less than you put in. This guide isn’t personal advice, but you can ask us for advice if you’re not sure which investments are right for you. Tax rules can change and their benefits depend on your circumstances. Past performance isn’t a guide to the returns you’ll receive in future. All information is correct as of 17 January 2024, unless otherwise stated.’ You’re responsible for making your own investment decisions, and for ensuring you are, and continue to be, eligible to hold your chosen investments. You should make yourself aware of any restrictions on holding or trading your chosen investments, whether those restrictions are imposed by law, the issuer or provider of an investment, or otherwise. Issued by Hargreaves Lansdown Asset Management. Authorised and regulated by the Financial Conduct Authority.
Women are great savers, but it’s time to invest
Women are great savers.
And that’s not just us saying so, HMRC data backs it up – 33% more women pay into cash ISAs than men. While saving is important and we should all have a rainy-day fund in cash that we can access easily, our other money could be working harder. That’s where investing comes in. Though the truth is not enough of us do it. In a recent survey of 2,000 Brits with at least £5,000 in savings and no investing experience, over 70% of women said they were nervous about investing. This is compared to 58% of men.
But here’s the thing. At the time of writing if you had £10,000 in a branch-based easy access savings account, your returns would still be far lower than the rate of inflation, which currently sits at 4%. Fixed-term savings accounts may pay a slightly higher rate but tie up your money or limit your withdrawals. That means slowly but surely, the value of your savings will be chipped away by price rises in real terms.
Investing your money has the potential to turbo-charge your wealth, boost your financial resilience and help your goals. Data also shows that over the long-term the stock market beats cash in most instances. Just remember that investing does come with more risk.
Plus, women are brilliant at it. And typically outperform men when it comes to stock market returns. So, what are you waiting for?
Unlike cash, all investments can fall as well as rise in value, so you could get back less than you invest.
It’s all about the stocks
Here’s how the different types of assets have performed over time. So if you had invested in the global stock market in August 1993 your returns 30 years later would have been +950% compared to +37% in your average instant access cash account. And you can see how cash has been unable to keep up with inflation in the same timeframe.
Please note, past performance is not a guide to future performance. Source: Lipper IM 31 August 2023
Do you already have a pension with your employer?
Then you’re probably already an investor. Almost all pensions are invested in the stock market unless you’ve specifically requested otherwise. So, although many people might not consider themselves to be investors, they are. Which is one reason why you should pay your pension some attention. Another reason is the gender pension gap. Yes, this has been closing slowly over recent years – it shrunk by nearly 10% from 2006 to 2020 – but there’s more we can all do to bridge the gap.
Three ways you can build up a pension for retirement
1. Check for state pension gaps The amount of state pension you’ll receive depends on how many years of National Insurance you’ve paid. Women tend to fall behind in retirement planning compared to men if they take career breaks. If you do have gaps, it’s worth checking to see if you had qualified for any benefits during those periods. This means you could be owed National Insurance credits. Examples include Child Benefit and Universal Credit for which you may be able to backdate a claim.
Alternatively, you can buy voluntary National Insurance credits which will make up the difference. You can check your NI record online, using HMRC’s Personal Tax Account facility (www.gov.uk/personal-tax-account). You’ll be able to see how many qualifying years you’ve already accrued and your future potential to make up any gaps. This will help you decide whether it’s necessary to make voluntary contributions.
2. Maximise your workplace pension When you pay into a workplace pension, your employer will often match or beat how much you put in. If you can, make the most out of your employee benefits by contributing the maximum amount into your pension scheme, that your employer will match. Meanwhile, women on maternity leave should consider continuing paying into their workplace pension. While you’re on paid maternity leave, you’ll continue to build up your pension based on your salary before you went on leave, including any pay increases during maternity leave. 3. Retire on your own terms with a Self-invested personal pension (SIPP) If you take a career break, you can still pay into a private pension. Those with no earned income can save up to £3,600 per tax year, but this will only cost £2,880 because tax relief at the basic rate is automatically added to pension savings. So, if you’re not working, your partner can contribute on your behalf. Keeping your pension savings going, even at a modest level, can make a significant difference to eventual retirement income. And thanks to the tax relief it makes sense to do so. Pension and tax rules can change and any benefits will depend on your circumstances. You’ll usually need to be at least 55 (rising to 57 from 2028) before you can access the money in your pension.
Using time to your advantage
Time, patience and consistency are your friends when investing. You don’t need to know the best time to invest – truth is nobody can tell you when that will be. But if you have a long enough time horizon, it’s always the right time to invest. And investing is much more accessible and affordable than you might think. It’s not just for millionaires or city folk. You can set up a monthly direct debit and invest from £25 per month with Hargreaves Lansdown.It becomes a good habit, that puts your future first. And from little molehills, mountains quickly grow. The next big tip is to leave your money to grow. Patience is key. You might be tempted to take any profits or income and put it in your bank or spend it. But keeping that invested and leaving it alone is one of the most powerful ways to turbo charge your money. Picture a snowball. It doesn’t seem related to the stock market, right? However, when you roll that snowball down a snowy hill, it gets bigger. The longer you leave it, the bigger it gets and the faster it grows. In investing, this same idea is known as compounding. Here’s an example: Let’s say you invested £100 each month into an ISA for 5 years and got 5% income each year. At the end of those 5 years, you’d have put in £6,000 and gained £737.50 of income, not bad. Now what happens if you let that 5% each year keep growing? You’d have £6,800 versus £6,737.50. So what, right? The amazing thing about compounding is that the longer you let it happen, the more powerful it becomes. And, other than having patience, there’s nothing you need to do. See what we mean in the table below.
Example:
There are lots of assumptions here, mainly that you’re reinvesting for free and that you’ll still get a 5% return on the money you reinvest. That’s not always possible, and returns aren’t guaranteed, but you get what we’re trying to say. The calculation above is only an example and ignores charges or inflation. Actual returns will vary depending on the investments you choose. Unlike the security offered by cash, the value of investments can go down as well as up in value, so you could get back less than invested.
ISA ISA baby
The decision to invest has real long-term benefits for women. If you already have 3-6 months’ worth of essential expenses saved up in cash, then an ISA could be a great option for available extra money. An ISA allows you to shelter your money from tax, while helping you achieve your goals. Tax rules for ISAs can change and their benefits depend on your circumstances. Here are a few different types of ISAs: Cash ISA
If you’ll need to spend your money in the next 5 years then this ISA allows you to save, and not pay income tax on the interest you earn, up to £20,000. It’s a secure way to save since your money won’t be invested in the stock market. But it’s worth noting that inflation could reduce your savings’ worth over time.
Lifetime ISA A Lifetime ISA can be used to buy a first property up to £450,000 or to help fund retirement from the age of 60. You can open one if you’re between 18 and 39 years old. You can choose to save up to £4,000 in cash or invest in the stock market and the government will add an extra 25%, up to £1,000 a year into your Lifetime ISA. One thing to note with a Lifetime ISA is that if you chose to withdraw money for anything else other than a first home or later life it will usually mean a 25% government charge, so you could get back less than you put in.
Stocks and Shares ISA With a Stocks and Shares ISA you can put money into an ISA and use it to buy shares, funds and other types of investments. By investing you can potentially grow your money more than just saving in a Cash ISA. With this account you’re best investing for at least five years. That’s because the longer you invest, the greater the chance that your money will outperform cash. There is risk with investing though, because investments can go down in value as well as up, meaning you could lose money.
We’re here if you need us
Life throws us a curveball or two and often we need expert help to navigate them. Divorce, death, inheritance – these are just some of the things that can prompt us to seek some one-on-one help from a professional. If and when a situation arises that makes things complicated, an expert can come up with a smart financial plan to help you navigate such challenges. Our investment and financial planning services can help. Choose from one-off advice or yearly reviews to provide you with ongoing support. And if you need help deciding, our advisory helpdesk is here to answer all your questions. They’ll double check you’ll see the value from taking financial advice and explain the difference in charges. Why not book a call back today?
You don’t need to be the next Warren Buffett
You don’t need to be clued up on every detail to start investing. Lack of confidence, perceived knowledge, and time – are just a few reasons that can put anyone off investing. But investing doesn’t need to be a challenge. Like anything, getting started can be the hardest part. Once you’re set up with an investment account, there’s oodles of research and guidance available – whether you’re a first timer or not. So don’t let the notion of complexity worry you. While there is an element of risk when investing, there are ways to manage that risk. Opting for a fund which invests in a wide spread of companies is less risky than putting your money into just a handful of shares. When you invest in a fund, your and other investors’ money is pooled together. A fund manager then manages the investments on your behalf. All you need to do is make sure that the fund or funds you choose continue to meet your needs and the risks you’re willing to take by regularly checking in on them. Funds can invest in various types of investments such as shares, bonds or property, depending on its goal. Therefore, offering more diversification. Diversification is a way to reduce risk in your investments. When you spread your money across different types of investments, it helps make your portfolio less vulnerable to market ups and downs.
Why we need more women in investing
Fund management is an industry that is sadly far from equal. Until recently, Morningstar’s annual gender split report revealed that there were more men called Dave running money in the UK than women. Why does it matter? Well, different types of investors – a mix of people making investment decisions, with different views, challenges and thought processes – are more likely to produce more resilient investment ideas.
Meet some Fearless investors
When you Google ‘famous investors’ what comes up is what you might expect. Powerful men in suits. But what’s missing is all the powerful and fearless women that don’t fit this mould. That’s why we want to shine a light on some of the trailblazing women in investing.These women are not only great investors, but our independent research picks them out amongst thousands of others in the fund management industry. See the female fund managers that are smashing the financial game and inspiring the next generation. Funds can fall as well as rise in value and you could get back less than you invest.
Up your financial game with daily doses of inspiration over at @FinanciallyFearless_HL
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