Stop tidying your wardrobe, and start tidying your finances

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BroadMinded Director George on why now is the perfect time to get your finances in order

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Disclaimer: the below is for your information only and is not formal financial advice; we can not accept any liability for any loss or damage incurred from you acting or not acting as a result of this information.

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Women need to invest more. We work hard, we negotiate our salaries, we save more than men… but if we don’t invest, the gender wealth gap just widens. The statistics are shocking - did you know that women have 35% less saved for retirement on average than men? And this is not just a conversation about money as such, but it’s about building for the life you want to have - a mortgage, holidays, child care costs, clothes, wine with friends.

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So why are women investing less than men?

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According to Fidelity’s Maike Currie, there’s a roll-on effect through women’s lives. There are obvious financial penalties women face that we’re all well aware of such as the gender pay gap and the motherhood penalty, which leave women with less disposable money with which to invest. But there are others too, such as the perception that managing finances and investing is a ‘man’s thing’, and the absence of these topics in mother/daughter or female friend conversations. While we organize and manage many important financial decisions such as weddings and childcare, we may sometimes forget to talk about money and how to invest.

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So let’s get it back into the conversation.

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The good news is that we actually save more of our salary than men, which means we have money to put to work. But we have a tendency to take a lot less risk with that money, meaning that for many women most of these savings are put into a cash ISA. Sound familiar?

 
The difference between putting money aside in cash (which women are excellent at), and investing your money (which we are less good at) is considerable. The more time passes the greater this difference becomes. Even at the time of writing, after the market’s recent crash, an investment in the global stock market [1] would have returned 86% over the last 10 years. Money left in a bank account would have returned much less. 

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Where to begin

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Before these kinds of investment decisions are made it’s advisable to really evaluate what your goals are. Are you investing to buy something (which means you need growth), are you investing in order to stop working (i.e. provide an income to replace a salary), or are you investing to not be a burden (as you get older capital preservation becomes a priority).
The next step is to acquaint yourself with the different investment options. You can invest in many different assets, but a very simplified way to think about your options is to separate the three main assets: 1) Cash – very low risk, but also very low returns, 2) Bonds – generally low risk and low returns, 3) Equity – high risk and high returns.

 

Next Steps

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Our advice is to seek out advice. We partnered with Fidelity soon after they published their report on ‘The financial power of women’ and they have advisors available to help you get started including a walk-in investment centre opposite Cannon Street Station. We have also worked with Vestpod, a fantastic company making finance relatable and easy to understand. We’ve held many events with the founder Emilie Bennet and she provides a lot of helpful tools on how to get started with case studies of women in many different situations and with various goals. We highly recommend their newsletter. And finally we highly value the advice of Claer Barratt, personal finance editor at the Financial Times and host of the brilliant FT Money Show podcast.

And our next piece of advice is to start now, even if it’s just a small sum you can put aside every month. Over time, thanks to the 8th wonder of the world, compounding interest, these small sums can make a big difference in the future.

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Investment tips from Fidelity

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• Pensions sound boring, but are so important. Often employers match your contributions, and it’s all tax free. Find out what your pension terms are, combine any old pensions together in one place, and see if you can increase your contributions. Your target should be to put away 13% of your salary
   

• Self-employed? Start a private pension – do not rely on the state pension (important tip – you can only claim a full state pension if you have contributed to national insurance payments for 35 years. If you are taking some time out to look after children and are entitled to child benefit, fill in the form online, even if you don’t need the claim, as this gives you NI credits towards the state pension.)
   

• Think about sustainable investment. There has been a rapid growth in the availability of these more ‘ethical’ investments, with many showing strong performance. It’s a great way to align your investments with your values.
   

• Watch out for fees, especially fund performance fees. They can eat into your returns

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Investment tips from Fidelity

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• Use your ISA allowances, it’s a tax-free way of saving.
   

• Pay off your credit card debt first if you have some, as it’ll be charging you high interest rates.
   

• Ensure you have short-term savings kept in cash or cash-like investments – an emergency fund of 3-6 months savings in case you need it.
   

• Diversify. Don’t put all your eggs in one basket
   

• Drown out the noise – markets will go up and down, but it’s the long-term that matters.

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[1] Using the ETF MSCI ACWI ETF and assuming reinvestment of all dividends and capital gains