Paul's Insights: Women invest to close the gender gap
I was delighted to see a Roy Morgan report showing that the difference in overall wealth between men and women is not as wide as I thought. Australian women currently have net wealth (personal assets minus debt) averaging $400,000 – equal to 89% of the male average of $449,000. The gap could narrow further as women embrace sharemarket investing.
Research by the Australian Securities Exchange (ASX) found that over the past year, 45% of the nation’s first-time sharemarket investors were women, up from 31% in 2015. It’s a trend that looks set to continue, with women accounting for one in two people planning to invest in the near future.
The ASX survey shows women typically take a smart approach to investing. They research widely, and are more inclined to set an investment strategy and stick to it, than men. Women also make fewer changes to their portfolio in response to market movements, which may help female investors avoid losses in times of crisis.
However, women can also be held back by concerns about losing money. One-third of females fear investment underperformance compared to 27% of men.
A degree of risk goes hand-in-hand with all investments, but some simple steps can help new investors manage the likelihood of poor returns.
1. Invest in something you understand
It’s a lot easier to avoid losing money when you understand how an investment works. Conversely, getting your fingers burnt can be more likely if you don’t understand the business behind a listed company, and what could go wrong. A handy rule of thumb is, if you don’t understand it, don’t buy it.
Risk can also be reduced by investing a little across a variety of shares rather than tipping a lot into just one or two companies. Exchange traded funds (ETFs) make diversifying especially easy. They provide instant exposure to a wide basket of underlying assets, with the added plus of extremely low fees.
The ASX survey found only 34% of female investors are aware of ETFs versus 55% of men. But they are definitely worth a look for low-cost diversification.
3. Start small
Starting out by investing small sums means you’re not risking too much in one hit, and as you become more familiar with markets and how they work, you can begin to ramp things up.
Of course, there are times when the entire market experiences a downswing. When that happens the best course of action is often to sit tight. Quality shares have a habit of going on to recover their value, and time in the market can be a powerful ally when it comes to avoiding losses.
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Paul Clitheroe is Chairman of InvestSMART, Chair of the Ecstra Foundation and chief commentator for Money Magazine.