This very special guest blog comes from financial expert Poppy Fox. Poppy is an Investment Director at wealth management firm Quilter Cheviot, and as well as being an authority in all things wealth, is an all-round fabulous woman. In this blog, she shares the many reasons women can be disadvantaged when it comes to wealth, and lets us know how to turn that around.
Traditionally, women have left many of the major financial decisions to the men in our lives. This can land us in trouble, especially when it comes to divorce. However, we really need to sit up and take note when it comes to our finances and investing. Research from The WealthiHer Network Report 2019 predicts that by 2025 over 60% of UK wealth will be in the hands of women, yet it also shows that 70% of women are not engaging with finance.
The world is changing with more and more money coming into the hands of women, which is a welcome move. Yet many women lack the financial education to understand and manage their wealth. I work on the basis that knowledge is power so as an investment professional passionate about helping women I want to get the word out there.
What barriers do women face when it comes to wealth?
Women face structural hurdles when it comes to finances and we ignore these at our peril. We might not be able to change things overnight, but if we are aware then we can mitigate some of the negatives.
The gender pay gap is well publicised: according to the UK government’s 2022 figures on average women are paid 90p for every £1 earned by men. But there are also other areas to consider. The ‘Motherhood Penalty’ means that working mothers earn 20% less than fathers ten years after the birth of their first child (Social Market Foundation Research) and very few new parents opt to take shared parental leave.
This leads onto the ‘Childcare Penalty’ with the ONS showing that in couples, 65% of mothers are in work compared with 93% of fathers. It is little wonder that many parents don’t choose to work with the absorbent cost of childcare, but it is disappointing that it is the women rather than men who consistently put their career second.
And, if that wasn’t enough, there is also the ‘Good Daughter’ penalty with many of the informal caring roles taken on in families being done by women – work that usually goes unpaid and unrecognised.
Do women take fewer risks?
Women also tend to be more cautious when it comes to investing. They are often less willing to take risks with their finances. This coupled with women often earning a lower salary means we end up with less in the pot! If we then sit on this pot and keep it in cash, it isn’t working as hard as it should be or needs to be. Given that women overall tend to live longer, it’s particularly important to grow our assets when it comes to pensions. The state pension is just £185.15 per week. That certainly won’t keep you in Jimmy Choo’s, or any other luxury!
There’s a lot of chatter about women being more risk averse when it comes to their finances. From my experience, though, we are more risk aware and just want a better understanding of what we are doing when it comes to our money – which is no bad thing in itself. I’m generalising, but men are often more ‘gung ho’ and happy to take the plunge with investments.
While it is sensible to be cautious, it often means women default to cash, which can be to our detriment. This is also a good time to point out that not all risk is bad, and there is actually no such thing as a risk-free investment. Cash may be described as low risk, but it isn’t no risk when you take inflation into account.
For example, if you have £100 and leave it in a low interest bank account for ten years, the rate of inflation will likely outpace that of your account’s interest, resulting in you not being able to buy as much in ten years’ time with that money as you could have done today.
What investment is right for you?
So it’s worth women dipping their toes into investment. However, you need a plan and an understanding of the risk you are taking. It is useful to start with an idea as to what the investment is for. Is it a pension, school/university fees, planning, a second home or perhaps a rainy-day fund? This will help you assess your time horizon. The time horizon will inform how much risk you would like to take.
For example, a 25-year-old investing into a pension has a higher capacity to take risk than a 65-year-old who is about to retire. Your objective will also help you decide whether you are going to be taking an income now or in the future. This will have an impact on the style of investments that you choose.
You might think investment is only for people with millions at their disposal. This is a dangerous myth, locking women out of wealth. It simply isn’t true that you need to be super wealthy to make an investment. In the technological world that we live in there are certainly options to invest small sums or small regular income payments. I am always preaching about the benefits of starting to invest as soon as you can due to the benefits of compound interest. For example, if you invest £100 and receive a 5% in year one you will have £105 at the end of the year so your starting investment in year two is higher. If you do this over several years, the incremental benefits should add up to significant gains over the years. It is no surprise that Einstein described compound interest as the 8th wonder of the world.
Don’t be scared by the stock market
Stock markets can be volatile but this isn’t something that should put you off. At Quilter Cheviot we often talk about ‘time in the market’ rather than ‘timing the market’. When looking to invest you should be thinking to have your funds invested for at least 3 years, but ideally more, and to sit tight and not panic if we see a market downturn.
One way we can look to reduce volatility in a portfolio is via diversification, otherwise known as ‘not putting all your eggs in one basket’. Instead of buying one fund or index, you could look to create a balanced portfolio with exposure to various asset classes and geographies again in order to spread the risk and hopefully maximise returns. Often people think of equities when they think about investing (i.e. stocks and shares) but it is also a good idea to have alternative investments such as property, infrastructure and absolute return funds.
Knowledge is power
I am aware that so far this blog has sounded a little negative about women and wealth. But there is a way out of this, which is to start taking control of your finances. You can either do this by beginning your own research, or work with a financial adviser and/or investment manager.
A financial adviser can help you put strategies in place and come up with a financial plan to help you make the most of the assets you have into the long term. This is particularly important at times such as divorce when you have to rethink where you are and what you have financially. An adviser will also work with you on an ongoing basis because, as we know, life doesn’t stand still and we need to be flexible in responding to unexpected events. The recent pandemic has certainly highlighted this.
Putting a plan in place
Once you have a plan in place, we can then think about investing and how this might help you. If you do receive a lump sum, it is very important to consider what to do with this, particularly in terms of what it is needed for and the timeframes involved. An investment manager can help you work out how best to approach investing your money and together we can come up with a mandate that suits your circumstances, time frame and potential income needs.
We need to make sure that our money works smarter and harder, especially when it comes to divorce finances. As an investment professional working with women, I am also passionate about helping my clients so that they don’t have to worry about their finances and can get on and enjoy the next stage of their lives.
Huge thanks to Poppy for such an informative, powerful blog. Let’s take control of our wealth, ladies! If you would like to work with Poppy (and I wholeheartedly recommend her), you can find out more about her work here.
Emma Heptonstall, the Divorce Alchemist is the author of the Amazon best-selling book How to be a Lady Who Leaves, the Ultimate Guide to Getting Divorce Ready. A former lawyer, Emma is a family mediator and founder of Get Divorce Ready the online self-study and group programmes. Emma has been featured on BBC Radio, The Telegraph, the iPaper and in Marie Claire Magazine. Emma is also the host of The Six Minute Divorce Podcast. To find out more visit www.emmaheptonstall.com