In March we celebrated International Women’s Day to promote female success. It is also an opportunity to shed light on areas of society where gender inequality and gender bias still exist. By bringing such areas to the public’s attention we can all hope that changes will occur, and that true gender equality goes from being a prospect to a reality.
One such area that women are still inferior to their male counterparts is in terms of wealth. Investing is a way that women can improve their financial status, yet far fewer women make investments in comparison to men. But why is that? And should it be the case?
In our discussion on women and investing, we identify why women are less likely to invest in the first place, when really they should be investing more. We highlight why they make very capable investors and why more women should be making use of such an ability.
Why are women less likely to invest?
There are many different spheres in which women are still trying to close the gap and become equal with men. But why does such a gap exist in the world of investing? And, as a result, why are women less likely to invest? The answer, it would appear, is down to a variety of societal and systemic factors that influence a woman’s ability to invest in the first place.
It is perhaps now a well-known fact that women earn less than men. Such a disparity, despite its more recent acknowledgement, has occurred for a few reasons. The most obvious is that there is still an unconscious bias as to what women should earn in comparison to men. The result is that women are often paid around 85% of what men are, even if they are in the same role.
However, the gender pay gap goes deeper than that. Women are also more likely to work in industries where the pay scale is narrower. So, even if a woman does reach the top of her career ladder, the likelihood is that the top rung does not pay as well as even some middle management jobs in other industries.
What helps, unfortunately, to feed into this patriarchal attitude to women in the workplace is a natural and beautiful thing: having children. Vast numbers of women take breaks in their career to start a family. Even with the introduction of shared parental leave, a woman is still much more likely to go on maternity leave for a sustained period of time. The impact of that is it keeps a woman on the same earnings potential level for a number of years. A man, in comparison, will rarely have a break from his career and will therefore have the chance to go for promotions or pay rises.
As such there is the inevitable effect of having a lower salary. Almost across the board the fact remains that women have less spare cash to invest. After day-to-day expenses, their remaining funds are sparser, meaning they rarely start an investment portfolio. However, the impact of this has a compounding effect. For, if women do not invest what they do have, they will never have more wealth in the future either. The gender wealth gap, as well as a gender investment gap, begins to grow. Therefore, as is often the case, men will have much more wealth than women because their money has managed to grow through investments over a number of years.
Women therefore face numerous tribulations that their male co-workers never experience and there is one more that is crucial to mention. While hiring and firing should be, legally, done free of gender bias, the investment industry is still heavily male-dominated. The people who work in investments tend to be men, which means the subsequent investments tend to be aimed at men too. Rhetoric surrounding investments can often be of a tone that appeals to the male psyche. It makes either working in the world of investments or simply making investments that little bit more off-putting for women.
Why women should invest more
All the above factors seem misplaced when a great deal of research has found that women are often shown to be more successful investors than their male counterparts. A recent study by Hargreaves Lansdown showed that women actually outperform men by almost 1% on average. Cumulatively speaking, if that outperformance were to be maintained for 30 years, it would amount to female-held portfolios being 25% larger than male-held portfolios. Thus substantially working towards closing that wealth gap.
This makes for interesting reading and so we need to analyse why it is that women are capable in producing these returns. For a start, women have been shown to be more risk-averse than men. An example of this would be how women seem to prefer opening Cash ISAs in comparison to Stocks and Shares ISAs. But how can that result in the better returns women experience? Primarily it is because women will happily not invest in an asset if they have identified a risk too great through their due diligence. In comparison, men, even if they identify the same risk, are still willing to add an asset to their portfolio for a chance of the upside.
In addition to being more risk aware and more risk averse, women are also not as affected by their own performance figures as men are. Men, it can be seen, will hunt down an outperformance to such a degree that it clouds their judgement at times. It means that they will make quicker investment decisions based on the promise of potential high growth. In reality, it can mean that decisions are not as well thought out or considered with the downside in mind. A woman’s more risk averse brain will find the potential for loss a much more influential factor than the potential upside. The result is that they do not trade as much in the quest for outperformance. Not only can that result in a theoretically better investment strategy, it also can result in some practical benefits too. By trading less, women have lower portfolio management costs.
The result of this cautious approach to performance is that women, consequently, invest with a longer-term strategy in mind. That does not necessarily mean they take the long view and automatically employ a buy and hold strategy. Instead, it means that they are willing to experience a few humps and bumps in the road, as they believe that road will ultimately end up in better returns. Again, this results in less transactions as women do not make rash decisions that occur due to market fluctuations.
Such evidence clearly demonstrates then that women are in a prime position to invest more and see beneficial returns. However, as well as breaking down the barriers of the patriarchy, there are practical reasons as to why women should invest more. The fact remains that they need to invest more. The aforementioned wealth gap only broadens the older people get, which is an issue that investing early on in careers can help address. But there are other reasons too. The impact of having a lower salary for the majority of women is that they put less away into their pension – an area where both men and women need to invest more. Women, on average will find that they have £7,000 less each year when it comes to retirement when compared to men. Investing is a way to minimise that difference. Pension pots are a tax-efficient way of investing. Making use of those tax efficiencies and investing more can mean that women ultimately have a better quality of life when it comes to retirement day – which arguably could come earlier too with the right investment decisions.
The wealth gap is a pertinent fact to address, but it is crucial to remember that it is not just about having the ability to buy material goods. Closing the gap, or eradicating it completely, is also about women having financial control of their lives. Without a doubt, having a healthy amount of funds saved in a bank account and other assets can mean that a person – male or female – has more options available to them in any situation. Those options provide authority and stability in a person’s life.
The gender wealth gap is an important idea to resolve as it needs closing as quickly as possible. In a day and age where women are fighting for equality in all aspects of their lives, their financial health is one of the key areas that they can address. So often money equals power, and by having more of it, women will give themselves more control of both themselves and the society within which they live. Making investments is one of the vital ways women can grow their money giving them more financial stability in the future as well as wealth. Given how studies show they are often more capable than men at making returns, by not partaking in the investment world, women are missing out on a golden opportunity.