The last year has clearly been a challenging time for many women, as concerns around financial stability have been brought into sharp focus. However, according to new consumer research from Nutmeg, one positive legacy of the pandemic is the significant shift in the attitudes and behaviours of women towards their money, and, more importantly, their investments.
When it comes to investing, it is well-reported that women make up a much smaller proportion of the investor base. But with historically low interest rates offering cash savers very little in the way of interest and a growing focus emerging around creating financial buffers for unexpected events – are things changing? We recently polled 2,000 adults in the UK to better understand how they are feeling about their finances, wealth and investments now compared to before the pandemic.
Doing your homework
The most common barriers to investing – a perception of not having enough money, not knowing where to start, and a lack of trust in the industry – are broadly aligned across the genders. However, in light of the pandemic, 43% of women have said creating a rainy-day fund is a key priority, while nearly one in five say they feel more confident dealing with money matters now. In addition, women are more likely to research the ways in which they can maximise their returns and more likely to research their different investment options.
Going it alone
When it comes to stock-picking, men are twice as likely as women to want to pick and manage their own investments (33% compared to 16%), and nearly three times more likely to take a risk on a speculative, lottery-style stock pick and invest in a particular company they have heard or read about.
More broadly, some commentators have put the general rise in stock picking down to boredom amid lockdowns, and there have even been studies into the correlation between the pause in live sports in 2020 and therefore sports betting, and a rise in retail day-trading. It is also a trend we have seen play out in recent weeks with the meme stocks rally, which has seen retail investors experience varying degrees of positive returns.
What does it mean for the ETF industry?
The consumer research is supported by our own customer data at Nutmeg, which shows an acceleration in new female investors since the pandemic – women accounted for 40% of new investors in 2020 compared to just 27% in 2016. So, while I would not definitively conclude that women are adopting ETFs at a faster rate based on a case study of one investment provider with over 100,000 investors, there are some interesting observations.
ETFs have a lot to offer female investors looking to build their rainy-day funds. They are low cost, transparent and offer flexibility and choice. An ETF tracking a developed equity market such as the FTSE 100 can cost as little as 0.07% versus 0.86% for active funds, based on the asset weighted average for active funds within the IA UK All Companies sector as at December 2019. Unlike a unit trust, which trades at one set price point during the day, ETFs can be traded whenever the stock exchange is open. This makes them a flexible way of investing.
Investing in ETFs also makes it easier to diversify your portfolio. For example, buying an ETF that tracks the S&P 500 is comparable to buying a small part, in the appropriate proportion, of each of the index’s 500 companies – all at a much lower cost than would be feasible for an individual given the commissions charged for each trade.
Similarly, a typical corporate bond ETF would contain more than 200 individual bonds, so the default risk is highly diversified.
While this growing investment appetite from women is positive, we are not at the end of the road yet. With these shifts in attitudes towards finances set to stay for the long term, the industry needs to act now to better address issues that are hindering further investment, such as confidence in money management and trust in the investment sector.
Kat Mann is a savings and investment specialist at Nutmeg