This post is sponsored by AJ Bell
Women are less likely to invest than men. That’s a fact. Women will stick to cash, rather than choosing to invest, but they also put away less money each month, for a variety of reasons. On top of that, women save less in their pensions. All of this means that women have less wealth than men.
At we did the sums and across the UK the gender investment gap is £1.65 trillion. We looked at the amount of money men and women have in their savings, pensions, investments and any other assets (but not their main house) and on average men have £65,000 more stashed away. Once you extrapolate that across the population it means the gender investment gap is £1.65 trillion.
There are many factors for this: women earn less on average and so have lower disposable income; women take career breaks, which eats into their pension contributions; women are less likely to save money, instead prioritising other spending needs; and women keep more money in cash rather than investing it.
It’s the final point that is of particular interest. If we look at Government figures women are just as likely to have an ISA as men – in fact 52% of ISA holders are women vs 48% being men. But if we look at the split between cash ISAs and stocks and shares ISAs, women are sticking to cash where men are more likely to invest it.
While staying with cash might seem like an easy plan in the short-term, it’s costing women a lot of money over the long term. Let’s say Sarah and Dave both save the same £50 a month, and they do that very diligently over 30 years. But Sarah sticks it in a cash account earning 2% interest a year and Dave decides to invest it, getting a return of 5% a year. After that 30-year period, with the same amount invested, Dave has more than £16,000 more than Sarah, just by virtue of investing it. She has around £24,500 in her account while he has almost £41,000.
Now, clearly that’s just one example, but it does highlight how women are making their future selves poorer by choosing not to invest. But getting started with investing can be a daunting prospect: there’s lots of confusing words, there are many acronyms that most people don’t understand, and you’re scared by the prospect of losing everything. So here are six steps to getting started investing and knowing whether it’s the right route for you.
Don’t think about investing before you’ve got your finances ship-shape. So, you need to pay off any expensive debt, like credit cards, overdrafts, personal loans etc (you can ignore mortgages and student loans for these calculations). The next step is to build up a cash emergency fund. This is the money you can dip into should you need to get your hands on money quickly, so your boiler breaks, car needs a pricey MOT or (in the worst case) you lose your job. Usually, we say this pot should be around three to six months of expenses (just the essentials), but how much exactly depends on your own comfort level.
You need to think about why you are saving, so you can know whether investing is right for you or whether you’re better off sticking to cash. The Five-Year Rule is essential – anything you plan to spend in the next five years should usually be in cash, but for any longer-term goals you could invest. So, if you plan to buy a house in three years, it’s probably best to stick to cash, but if you think it will be five or 10 years until you get on the ladder, think about investing.
Once you’ve got your goal set it will help you to pick your account. An ISA is your best bet for any generic investing, it’s got some great tax perks that mean you won’t have to pay tax on your gains or any money you take out (which also saves you doing a tax return – hurrah!). You can save up to £20,000 each tax year and you can access the money whenever you want. A pension or self-invested personal pension is another option, it has the same great tax perks, but the money is locked up until you reach retirement age – so this is a long-term option if you want to save for your retirement.
A great option for anyone who hasn’t bought their first home yet is the Lifetime ISA. The Government will give you up to £1,000 of free money each tax year towards your savings, if you deposit up to £4,000 a year. The snag is that the money should be used to buy your first home, worth up to £450,000, or it can be saved for retirement. But if you want to take money out for any other reason you’ll pay a penalty, which means you’ll usually get back less than you invested. So read those tricky T&C’s before you sign up to make sure it works for you.
Once you know which account type you want, you can pick a platform that offers that. ‘Platform’ is an industry word but is a bit like picking a bank that offers you an account. You pick a platform and that’s the provider you’ll use to open the account type above and start investing. There are lots of different types of platforms, some will hold your hand and guide you through the whole process, but charge you more for doing so (they are called robo advisers); or you can pick an app-only one that offers a slimmed down investment option, such as Dodl by AJ Bell; or a full service offering that gives you every investment option under the sun (almost), such as AJ Bell. There’s no right option, just work out what you want and then find a low-cost offering – because every £1 you pay in charges is a pound taken out of your investments.
This is the biggie. It’s what scares many people off from investing, because there is so much choice and how do you know where to start? One option is to pick a so-called ‘all-in-one’ fund, which spreads your money across lots of individual companies but also bonds and cash, which tend to be lower risk. You can pick the level of stock investments depending on your risk level. Lots of companies offer these, from Vanguard’s LifeStrategy range to AJ Bell’s own options.
Another option is to buy a low-cost fund that’s run by computers and automatically tracks the performance of thousands of companies around the world. This means that your money is spread across a huge range of companies, from different sectors and countries. And it can be a good base to start your investment portfolio, where you can add other funds on top later on.
Alternatively, pick an area that you want to invest in and let Dodl offer up a fund in that area. Want to invest in the best UK companies? Dodl has an option for you. Or prefer to invest in the big tech stocks? There’s a pick for that too.
The best way to take the hassle out of investing is to automate the whole process So, you can set up regular payments each month from your bank into your investment account and then automatically invest it. You can start from as little as £25 a month and build up from there – you don’t need to have a huge lump sum to start investing. By regularly investing it means you’ll never forget to put money in each month so you can be hands off, but it also means you can start little and work up from there as you build your confidence.
Investing carries risk. Tax rules apply and may change in future. Dodl doesn’t offer any advice so if you’re not sure about the risks involved with investing, you should speak to a financial adviser about this.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.