The COVID-19 pandemic prompted many to think more seriously about their finances. More women than ever are investing, with millennial women leading that change.1 What’s more, when women do invest, they’re found to outperform men.1
We’re delighted to see evidence of this here at Moneybox too, since last year’s International Women’s Day there’s been a 9% increase in women opening a Moneybox Stocks & Shares ISA, GIA or Stocks & Shares LISA and a 5% increase in women opening a Moneybox Personal Pension.
However, there’s still more work we all need to do to eradicate financial gender inequalities. But a great place to start is to consider investing now. Here’s why…
Why is it especially important for women to start investing for their future now?
Women earn less and live longer
The reality is this: women generally outlive men by about 4 years and therefore need to make more money over the course of their lifetime – around 5-7% more.2 But, there are many factors preventing this from happening.
You may be familiar with the gender pay gap but how about the gender pension gap or gender investment gap? They’re both essentially a function of the gender pay gap, which is the average difference in earnings between men and women.
The gender pension gap initially emerges because women don’t earn as much as men and therefore don’t contribute as much to their pension. The gap widens when this loss in pension contributions compounds over the course of the next 20-40 years.
Similarly, the gender investment gap is closely linked to a difference in earnings between men and women. But there are other issues at play – women are less likely to invest than men, which The Investing and Savings Alliances (TISA) say is owing to a ‘gender confidence gap’.3
Women are more likely to take time off for caregiving duties
Research shows that women are three times more likely than men to take time off work to take on childcare responsibilities4 and 73% more likely than men to permanently leave a job to care for elderly family members.5 Many will consider the loss of earnings but forget how the loss of pension contributions will affect their financial future in the long term.
5 tips to start investing for your future
We want to help even more women start investing and turning their money into something greater. Here’s a few simple ways you can get started:
1. Set your goals 🎯
Before you start investing, it’s a good idea to think about what your financial goals are. This can help you keep on track.
It’s not too difficult to think about what kind of life you’d like in five or 10 years’ time, it’s less easy to imagine how you’d like to live in retirement. But, there are resources you can use to get a good idea.
Our Pension Calculator uses a few details including your age, salary and current savings to figure out how much you need to put away and how much money you could have for retirement.
The Pensions and Lifetime Savings Association also provides a guideline on what you might need to save depending on the standard of living you’d like at retirement.
2. Start now and invest whatever you can 💰
The most important thing to know about investing, whether it’s with an ISA or a personal pension, is that it’s all about the long game. The sooner you start, the longer your money will have to benefit from the magic of compounding, which is the gain you make on the returns from your original investments by reinvesting any money you earn back into your total investment pot. The longer your money is invested, the more it will grow. Let’s look at some examples…
Example 1: Investing with an ISA
Say you made £350 on your investments last year with an original investment of £5,000. That’s a return of 7%. Now your total pot is £5,350. If you leave that £350 in there, and you earn the same 7% return next year, you’ll have £5,725.
Do it again in year three at the same 7% return, and you’ll have £6,125 pounds. So that’s a total return over three years of £1,125.
And, that’s all without increasing your contributions. If you add more money to your investment pot year on year, and leave it in there for more time, compounding will be able to work its magic even more effectively. Though it’s important to remember that the value of your investments can go up and down and you may get back less than you invest.
Example 2: Contributing to a personal pension
Similarly, suppose you were to contribute £100 into a personal pension today and receive £25 tax relief, giving you a total investment of £125. By investing that money for 40 years (as you would do with your pension pot) that £125 could be worth £679 at retirement – more than 6x the original investment! This is based on the assumption that funds will grow at a rate of 5.0% per year, with annual inflation of 2.0% and total fees of 0.68% per year. This is not guaranteed and you may get less than what you invested.
Contributing to a personal pension is a great way to grow a healthy retirement pot, but remember that you can’t withdraw your money until age 55, or 57 from April 2028. So if you’re likely to need to withdraw before then, you might want to consider investing with an ISA instead.
3. Invest regularly to benefit from pound cost averaging 📈
Investing regularly can help you ride out the rough patches when the stock market takes a tumble, thanks to pound cost averaging.
Pound cost averaging is an investment strategy whereby you invest small amounts of money regularly. You’ll capture the average return of the market because you’ll be buying regularly – when prices are high, low and everything in between.
This means that over time, you could end up with a larger investment position than if you only bought into the market once or twice a year. That’s because when markets are low, your money will be able to buy more.
4. Study up 📚
We know that investing and pensions can seem daunting but there’s lots of useful blogs, videos and tools available to sink your teeth into.
- The Moneybox Investing Academy covers everything you need to know about investing, from how the stock market works up to how you can manage risk when investing.
- If you feel out of your depth when it comes to planning for retirement, our Pensions Academy can help make sense of it all, from what a pension even is to how much you should put save.
- Use our Inflation Time Machine to find out how your individual monthly finances could be affected by inflation.
5. Track your progress 📲
Research shows that by consciously setting goals and regularly monitoring your progress, you’re more likely to succeed in achieving them.6 ✨
Review your projected and target pots regularly in-app with the pension calculator and make any adjustments along the way to keep you on track for retirement.
1 Women and Investing Study, Fidelity, 2021
5 Women and Investing Study, Fidelity, 2021
6 Psychological Association 2016, Vol. 142, 198 –229
All investing should be long term (minimum five years) and historic performance isn’t a guarantee of future returns. The value of your investments and pension can go up and down, and you may get back less than you invest. We don’t provide investing advice, and investors should make their own investment decisions or contact an independent adviser.
Tax treatment on your pension contributions depends on individual circumstances and is subject to change. Payments you make into your pension won’t be accessible until the minimum pension age (currently 55, increasing to 57 in 2028). If you’re not sure whether the Moneybox Pension is right for you, a suitably qualified financial adviser can help you decide. Moneybox Personal Pension T&Cs Apply.