It’s no exaggeration to say that women’s wealth gap is, even in the year 2021, more of a chasm. Importantly, this absolutely isn’t about their ability to attain wealth; quite the opposite in fact. Their educational attainment and ambition in the professional and entrepreneurial spheres mean that women are predicted to own 60% of the UK’s personal wealth by 2025. Rather, women’s wealth gap is about how poorly their ability to create wealth generally translates into financial security for them. Across a panoply of metrics, men just tend to end up better off.
Although the wealth management industry has been making concerted efforts to reach out to women in recent years, women are still about half as likely as men to have an investment portfolio. As your assets can often earn more than you do in the day job, particularly when the long-term compounding of gains is taken into account, this is a big part of the problem.
Where this hits women hardest is of course in their pension pots. The average woman’s retirement nest egg is valued at around half that of the average man and, shockingly, women are twice as likely to have no private pension savings at all. With the state pension age going up and up and average lifespans doing likewise, this raises some pretty scary possibilities for many a woman’s old age – especially since females tend to live longer than males on average.
Unpicking this issue is a real concern for the government and for the financial services industry. It is complex and loaded with socioeconomic nuance. While we may think of ourselves as an equality driven society, real life experience tells us it can be anything but. It is typically women who take time out of wealth creation for care-giving responsibilities, be that raising children or looking after aging relatives. There is still pay inequality at every level of seniority and women tend to find it harder to get funding to back their businesses, so it often “makes sense” for women to take a back seat slightly in favour of the higher earner. But for every year that they take out of the workplace, go part-time or can’t put their all into their business ventures costs them dearly long term. It is now well accepted that the pandemic has hugely exacerbated this issue, putting equality back decades by many estimations.
This issue isn’t just about women in traditional family set-ups, but looking at things through this lens does shine a spotlight on common women’s wealth issues. It is well known in the wealth management industry that females tend to let males take the lead on investments, even when the man cannot lay claim to any special expertise at all. Many come to regret this since, as we all know, sadly around half of marriages end in divorce.
I know of one very high-powered professional lady who allowed her similarly senior husband to take care of their investments simply because she just assumed he would be better at it. When they subsequently divorced, she discovered that he had in fact made an utter hash of it, to the very great detriment of both. She now knows investing isn’t anything to be intimidated by and very much wishes she’d leant in.
Numerous studies have shown that women tend to lack confidence in investing in a portfolio sense and very often prefer bricks and mortar and cash savings instead. Although property is of course a sound investment, it should always be borne in mind that house prices can indeed go down and that better diversification and superior returns are likely to come from a portfolio approach. Decades of desultory returns make being overweight cash highly questionable too.
The great irony is that time and again women research has shown that female investors tend to outperform males due to a longer-term, more balanced approach. Women can be seen to chop and change their portfolios less frequently, which limits the performance drag of the associated charges. The evidence also suggests they are even more interested in Environmental, Social and Governance factors, which as the past year has shown, tends to translate into better investment performance too.
Financial potential fulfilled
Women have very great potential as investors and wealth managers know they make great clients too, as they tend to be “stickier”. Any women of substantial means should find firms vying to do business with her and should harness that keenness to ensure she gets the very best option in investment performance and fees.
As I hope to have emphasised, achieving real financial security isn’t just about making as much money as you can. It’s about making your wealth work as hard as it can for you. It is never too late – nor indeed too early – to get proactive about managing your wealth to get the very most out of it. It’s high time for women to stop letting life get in their way and to prioritise their own financial wellbeing more. Let ARQ help you close that gap!