This article is from the Good Guide to Financial Wellbeing for Women, available to download for free here
Statistics and various studies show that women invest less money than men, but identifying the exact drivers behind this is complex. Statistics also show that women tend to be more cautious and take less investment risk than our male counterparts.
We feel that women shouldn’t miss out on the opportunities that investing offers and we should be empowering women to feel confident enough to start their investment journey.
So here are some tips for women thinking of starting to invest.
1. Know where you are starting from
To start and plan your investment journey, you need to know your baseline, so create a budget and take stock of all your inflows and outflows. When creating your budget, do not only take into account your monthly expenses but also ensure you include less regular expenditure such as annual insurance, holidays, birthdays, motor expenses, annual membership fees etc.
Without including these you will understate your expenses, which will make building a consistent financial plan difficult. This process takes time and effort initially, but you need to figure out how much money you have to invest and ensure that it is affordable for you not only now but also in the future.
2. Set up an emergency fund before making your first investment
This is a pot of money you set aside, that’s readily accessible, to help you out if you really need it. This is the foundation for any successful financial plan. As the name suggests, this pot is for emergencies – think ‘needs’ not ‘wants.’ It is an important form of self-insurance, allowing you to cope with unexpected financial shocks. For example, a bigger-than-expected tax bill, a broken boiler, an unexpected financial pressure that needs urgent attention, car problems, temporary unemployment etc.
We usually recommend that clients build up an emergency fund of six to 12 months’ expenditure and have this in readily available accounts.
3 Understand your willingness and ability to take risk
A common mistake when first investing is to find an investment that’s either really risky or really cautious. This might be based on a recommendation from a friend, something you read in an article, or positive or negative news stories. But this is often done without considering your own circumstances, and your own personal feelings about risk and your ability to take risk. Getting this wrong can make orbreak your first investment experience.
If you take too much risk and find the ups and downs too stressful, you may never want to invest again. Similarly if you invest in a very low risk investment with
little growth, you may feel investing is pointless. Before making any investments, determine how much risk you are willing to take and can afford to take – there are a few free online risk assessments available.
Or speak to a professional financial adviser who can assist with starting your investments in the appropriate risk profile and keeping them on track. Once you have ascertained your ability and appetite to take risk, find investments that compliment your risk preferences.
4 Invest where your heart is
More than ever, we are seeing investors who want to align their investments with their personal values. And the best part is that we now can invest in a way that reflects this. Sustainable, ethical and impact investing have all built credible track records and there is a lot of choice in this space.
Spend some time thinking about the type of investments you may wish to avoid, the impact you may wish to have, the type of companies you would like to support and find investments that align with this. Part of our job as financial planners is enabling clients to use their wealth to really make a difference, not just for themselves and their families, but also for people and the planet.
5. Stay invested
When markets are volatile, as they have been over the past 12 months and during Covid, people are often tempted to sell or stay on the side-lines. It’s human instinct that when things are not going according to plan, we want to make changes.
However, during periods of volatility, with investments, the best course
of action is often to stay the course and ride out the storm. Do not let the headlines push you into making irrational decisions and trying to time the market by selling and reinvesting. If you do this, there is a high risk of missing out on some of the best performing days, which can result in a significant difference in your long-term return.
Equally, if you’re investing for the long term, you shouldn’t worry about investing at high or low points in the market as over the long term, investments tend to trend upwards. If you prefer not to invest a large lump sum all at once, then you can consider spreading it out; this is a concept called “pound cost averaging.”
Pound cost averaging refers to investing small amounts of money regularly – this can help with a non-emotional approach to investing because you’ll be investing no matter what state the stock market is in.