Investing isn’t just for men-folk! Women should invest too! Ladies are losing out on good money just by failing to put money into stocks and shares ISAs each year.
The latest research shows that, on average, 21% of men have a stocks and shares ISA compared to only 13% of women. Perhaps more significant is the average amount in these accounts: men have £36,000 in their equities ISA – while women have £23,000. That means that even women who already invest in equities aren’t investing as much as their male counterparts – and could be losing on significant returns.
So, whether you’re male or female, now is the time to throw fear away and move from cash to shares for your ISA money. Here’s why and how.
Asset managers, Brewin Dolphin, say that investing your ISA in equities could make you a millionaire. They say they already have 15 ‘NISA millionaire’ clients, whose ISA pots have broken the £1 million mark already and a further 40 have assets in ISAs of well over £750,000.
Brewin Dolphin say these investors have two things in common: they invested directly in equities and they took some risks. However, they say that even people who invest conservatively in equity ISAs – if they put the full allowed amount in each year – could reach the million-pound mark in less than 30 years.
They say: “with conservative assumptions on growth and income (5% combined) and inflation (2.5%), 2042 would see a total fund of £1,030,953 representing a gain of £522,180 on a total investment of £508,773. The total tax saving over this period would be an impressive £292,215 and a £1 million tax free fund for life.”
There are some economic factors we can’t ignore in this discussion. The gender pay gap, for example, still exists in most sectors. This leaves women with less free capital to invest than men. It also means they end up, on average, with a retirement fund worth £100,000 less than men.
Women also make up over 90% of lone-parent families. As well as impacting on free capital, the lone parent attitude towards money is understandably risk-averse in order to protect the money they have saved.
However, being overly cautious with your savings can put you in a worse financial position than taking a little bit of risk. Savings accounts typically have low interest rates: stocks and shares are a little riskier but they offer potentially much higher returns.
Jasmine has never invested in a cash ISA because she feels it’s a waste of a tax savings vehicle (any money you put in a cash ISA you can’t put in a stocks and shares ISA). Here’s a video from a few years ago (when the ISA limit was lower) and she hasn’t changed her view since.
There is also a lot of fear around stocks and shares investing.
If we hear anything about the stock market it’s the fact that it has plunged wiping billions off the value of pensions etc. We don’t hear about it when it’s quietly climbing. All we know of the stock market is that it’s volatile, scary, and a sure way to lose money.
In the short-term, yes, all these things are true, if you don’t know what you’re doing (or sometimes even if you do). But in the long-term these stomach-churning ups and downs smooth out and, on the whole, the general trend is upwards.
So, if you’re putting money away for the long-term – and that’s the way you should view your ISA investments…as a long-term investment to form part of your retirement fund – then you need to put it into stocks and shares, not into savings accounts.
Savings accounts are for the short-term and they’re very useful for short-term saving and to be used as an essential buffer for day-to-day living.
However, they are USELESS for long-term investing because they don’t keep up with inflation – the returns, on average, are too low. For the long-term you need to invest in equities.
Stocks and shares ISAs beat cash ISAs if you want to build your long-term investments.
There are a few types of equity ISA you can choose from. Index-tracking funds are easy, cheap, and often come ‘ready-wrapped’ in a NISA, too.
A fund spreads your investment over a few companies. This helps to spread the risk, making it a lower-risk investment than investing in shares for a single company.
If you want more control over where your money is invested, you can choose an ISA that lets you invest in individual shares. It’s called a Self-Select ISA, which is a type of investing platform that lets you buy and sell shares in the ISA wrapper.
If you want to know more about how and why shares are the way forward for investments, check out our step-by-step guide here.
Use the Drip-Feed Technique for Easy Investing
If risk is the thing that worries you the most about investing in equities, try splitting your savings. Continue with your regular, easy-access cash savings – but drip-feed cash into a stocks and shares ISA with a regular payment each month.
This is also good practice for when you gain confidence and invest in other shares outside of your ISA, too.
But why is a small regular amount better than one lump sum?
It’s all about share price.
Let’s say you have £1000 to invest, and each share costs £1. You could buy 1000 shares in one go at the price of £1.
However, if you buy 500 shares the first month for £500, the share price might be lower the following month.
Let’s say in month two the price is £0.80 per share. For the next £500 you have to invest, you can then buy 625 shares.
For your initial £1000 investment, you’d have a total of 1,125 shares instead of the 1000 shares bought with a lump sum.
Of course, if the next month the share price goes up to £1.20, you’ll buy fewer shares with your next £500 investment. However, drip-feeding investments helps to negate some of these price fluctuations over a longer period.
set up a regular standing order
Try setting up a regular monthly payment into your stocks and shares ISA. Even £25 will be enough to make a difference over time! Drip-feeding your investments like this is a great way to start investing even when you’re risk-averse.
Remember, you can have a cash ISA as well as a stocks and shares ISA. Your tax allowance is shared between them.
This means you can balance your savings and investments between easy-access emergency cash funds and equities and still take advantage of the tax break on both options.
However, cash ISAs often don’t keep up with inflation. You’re more likely to benefit from a savings account (regular savings accounts offer 5% interest compared to a paltry 1% on many ISAs) and use your full tax-free ISA allowance for an equities ISA.
There is a £1000 limit on interest payments before you’re charged tax – but if it looks like you’ll pay tax on savings interest that’s a sign you definitely should try more equities investments! (This limit is reduced to £500 for higher-rate tax payers, and £0 for additional rate payers).
Want to know more about what I think about shares? Follow Jasmine on Twitter for all sorts of facts and opinions!
*This is not financial or investment advice. Remember to do your own research and speak to a professional advisor before parting with any money.