Men and women often take different approaches to financial issues, including investing. The market volatility experienced during the last few months as a result of the Covid-19 pandemic has highlighted some of these differences. But is one way ‘right’?
As governments around the world took action to stem the spread of coronavirus, stock markets reacted with increased volatility. Lockdowns and social distancing meant many businesses were forced to adjust how they operate and in some cases close altogether. As the virus was named a global pandemic, uncertainty for businesses and economies continued. As a result, it’s not surprising that stock markets experienced sharp falls.
Whilst some gains have since been made on stock markets, uncertainty and volatility continue to be a feature of investing.
The recent fluctuations have highlighted how men and women view investing and the risk it entails different. Research from Aegon has tracked how some investors have responded, with the three key areas demonstrating different approaches to investing.
1. Keeping an eye on stock market movements
The stock markets have been making attention-grabbing headlines in recent months. However, the survey suggests that men are far more likely to closely follow the movements. Seven in ten men kept track of what was happening in the stock markets, compared to half of women.
Whilst it’s important to understand the wider economic and business picture when investing, stock market movements can be unpredictable. Short-term volatility can also cloud the bigger picture. When investing, you should have a long-term goal in mind. It can be difficult to ignore short-term movements and focus on a goal that’s years away. Historically, peaks and troughs in stock market performance smooth out when you look at the long term and this is what you should focus on.
When looking at your portfolio as a whole, it’s unlikely stock market movements give a full picture of performance either. As well as stocks and shares, you may also be invested in bonds and property, as well as holding cash. As a result, whilst the stock markets may have fallen sharply in recent months, the impact on your portfolio may not be as severe.
2. Tracking investment performance
It’s important to keep track of how investments are performing, after all, how else will you know if you’re on track to meet goals?
However, there is such a thing as checking too often. It can be tempting, especially during times of market volatility, to check your investments frequently. Linking to the above point, this can lead to you focusing on short-term movements rather than a long-term goal.
The research suggested men are more likely to check how their investments have performed. More than half of men (55%) said they had done so compared to only 33% of women.
Reviewing your investments is clearly important, there may be times due to your circumstances or wider economic situation when adjustments are necessary. However, these changes should consider your goals above short-term shocks. If you’ve felt worried or nervous after checking your investment performance recently, it’s important to keep this in mind.
For most investors, sticking to a carefully crafted long-term investment strategy, which has been stress-tested, is the best course of action.
3. Believing now is the right time to invest
Should you invest now? It’s a question investors often ask their financial advisers. When stock markets dip, you may be wondering if you should invest now in order to maximise the benefit of investing when the market is at a bottom.
It’s a process that’s more likely to appeal to men, the research found. Some 46% of men said they believe now is the right time to invest in their pension, compared to 33% of women. It suggests that women are more averse to taking investment risk at times of volatility. So, which gender is ‘right’?
The truth is there’s no universally right time to invest. It depends on your financial goals and means. If you’re already contributing regularly to a pension, it’s likely in your best interests to keep making the contributions over your working career, including during times of volatility. But should you increase pension contributions now? That will depend on when you plan to retire, what assets you hold and risk profile among other factors.
The ‘right’ time to invest should be about your circumstances rather than stock market movements.
We’re here for you if you’d like to discuss your investment portfolio, whether you’re concerned about risk or looking for opportunities. Contact us to set up a meeting and look at your long-term investment goals.
Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
How much of your wealth do you hold in cash? Whilst it’s often viewed as the ‘safe’ option, there is a danger of your assets losing value in the long term and holding too much in cash too.
It’s easy to see why people choose to hold large sums in cash. As it’s something we handle every day, whether physically or digitally, it can seem more tangible than other assets. The Financial Services Compensation Scheme (FSCS) also protects up to £85,000 should a bank or building society fail per individual. The combination of these factors may mean you view cash as the most appropriate way to hold wealth.
However, cash does lose value and this is particularly true in the current low-interest climate.
Interest rates have been at a historic low for more than a decade following the 2008 financial crisis. The Bank of England has recently cut rates even further. In March, as it became apparent Covid-19 would have an economic impact, the central bank slashed the base interest rate to just 0.1%, the lowest level on record.
Whilst potentially good news for borrowers, the rate cut isn’t positive for savers. It means your savings likely aren’t going to deliver the returns they once were, especially if you compare the current rates to the pre-2008 ones. Before the financial crisis, you could expect to enjoy interest rates of around 5%.
At first glance, lower interest rates can seem frustrating but don’t mean there’s any need to change how you hold assets. After all, your money is secure and whilst it might not be growing very fast, it’s not going down, right? This is true if you’re just looking at the amount that’s in your account. However, in real terms, the value of your savings will be falling.
Inflation: Affecting the value of savings
The reason the value of cash savings falls in real terms is inflation. Each year the cost of living rises and if interest rates fail to keep pace with this, your savings are gradually able to purchase less and less.
The Consumer Price Inflation (CPI), one of the measures for calculating inflation, for April 2020 suggests the inflation rate was 0.9%. This figure was down on long-term averages due to coronavirus restrictions, however, it’s still higher than the base interest rate. As a result, the spending power of cash savings will have fallen.
Year-to-year, the impact of inflation can seem relatively small. Yet, when you look at the impact over a longer period, it highlights the danger of holding too much in cash.
Let’s say you placed £30,000 in a savings account in 2000. Following almost two decades of average inflation of 2.8% a year, your savings in 2019 would need to be £50,876.75 to boast the same spending power. With low-interest rates for more than half of this period, it’s unlikely a typical savings account would help you bridge this gap.
When is cash right?
Whilst inflation does affect the spending power of cash savings, there are times when it’s appropriate.
If you need ready access to savings cash accounts are often suitable, for example, if you have an emergency fund. When you’re saving for short-term goals (those less than five years), a savings account should also be considered. Over short saving periods, inflation won’t have as much of an impact and can preserve your wealth for when you need it.
However, when setting money aside for long-term goals, investing may be a better option that’s worth considering.
Investing: When should it be considered?
Investing savings means you have an opportunity to beat the pace of inflation with returns, therefore, preserving or growing your spending power.
However, investment returns can’t be guaranteed and short-term volatility can reduce values. For this reason, investing as an alternative to cash should only be considered if your goals are more than five years away. This provides an opportunity for investments to recover from potential dips in the market.
If you’d like to talk to one of our financial planners about the balance of your assets, please contact us. Our goal is to align aspirations with financial decisions, helping you to strike the right balance.
Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.