Updated: 12 August 2020
Jasmine Birtles is a TV and newspaper journalist and personal finance expert. In her new column she’ll be helping you get the most from your investment and reach your personal goals.
More women than ever are earning their own money and managing it for themselves. However, far fewer women than men actually invest it for their futures.
This is more of a problem than it seems on the surface. Arguably women need more money than men in their golden years because women live longer and generally earn less while they are working.
A report by Fidelity last year showed that women could close the pension gender gap if they just invested an extra £35 a month (about 1 per cent of their average salary) and invested it in proper long-term investments.
But frustratingly, women favour what they see as the ‘safe’ option of cash investments (i.e. savings) for their investments. More than two thirds of women who took part in the Fidelity study admitted that they put their savings in a cash ISA rather than an equities one.
Long-term, cash investments (bank and building society accounts) don’t keep up with inflation. So this so-called ‘safe’ option actually loses you money in real terms!
So what should women really do with the money they want to invest?
Women need to reverse the trend of investing in cash for the long-term and put money into what seem to be riskier investment products. Over the long-term, stocks and shares (equities) products do much better than savings accounts. For example, according to the Prudential, the average annual return on UK investments between 1989 and 2014, adjusted for inflation, is 5.2% for equities, 4.6% for bonds and -0.8% for cash. If you keep your money in a decent stock market product, like an index-tracking fund for example, for at least five years, the ups and downs of the stock market get smoothed out and the average return is positive.
Alternatively, you can put your money in a Funding Circle ISA, offering projected tax-free returns of 5.5 – 6.5% per year*. The Funding Circle ISA is simple to set up and typically offers more stability than playing the stock market.
Over and again studies show that, when women and men have equal knowledge of investing, women tend to do better because they trade less and take more of a long-term view. For example, analysis of 2,800 Barclays Smart Investor customers by Warwick University last year found that not only did the female investors outperform the FTSE 100 over a three year period but they also outshone their male counterparts.
There is still a lingering belief, even among young women, that a nice man will come along and sort out their financial issues. In fact it’s more likely that said man will be looking to the woman to sort out his financial issues!
Spouses need to be more open with each other about their financial situations. For a start, they need to know that their partner has ticked the box on their pension form that enables them to benefit from their pension if the partner dies first. Many older women have been left in poverty when their husband died, effectively taking their pension with them.
Yes, I said it – women need to be more selfish. Or rather, they need to consider their independence more, particularly if they have children. On the whole, and quite rightly, mothers tend to spend their money on the family as they are growing up (and even once they have grown up). This makes perfect sense, except that if they don’t put money away for themselves it’s likely that they will be a financial burden on those children when they come to retire. Taking their own financial future seriously will avoid poverty for them and problems for their children.
Many young women are doing this already, but men are still making the most of new banking technology more than women. New banking apps like Monzo, Starling and Revolut enable you to round-up spending and put small amounts into a virtual ‘coin jar’ to create savings for yourself. So if you buy a coffee for £2.50 they will add an extra 50p to your savings pot (or ‘Goals’ as it is called in the Starling app). The Moneybox app does this too but puts the extra cash into long-term investments, mainly index-tracking funds, so that your money grows properly and will help you have a richer retirement.
To make your money work harder, you can earn a projected 5.5-6.5% per year* tax-free with the Funding Circle ISA.
By lending to businesses your capital is at risk and your return may be higher or lower. The tax-free entitlement of an ISA depends on your individual circumstances and may change. Not covered by the Financial Services Compensation Scheme.
The views expressed here belong to the author and do not represent those of Funding Circle. Funding Circle is not authorised to, and does not, provide investment, tax, legal or regulatory advice.
The information and views contained here are provided solely for informational purposes and should not be construed as legal, tax, regulatory, accounting or investment advice, or as a recommendation or an offer or invitation by Funding Circle.
To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, such information contained here.
If you have any questions, please speak to your professional adviser or seek independent specialist advice.
*The projected return is an estimate of the annual return, after fees and bad debts, that a diversified investor could earn by lending through the Balanced lending option as of 31 Jan 2019. You can see how the return is calculated here. Your actual return may be higher or lower and your capital is at risk.