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Five rules women are following to close the investment gap

Sophie Lund-Yates explores some of the golden rules for investing, and why some are better at it than others.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

There’s evidence women are better at following rules than men.

Men are three times as likely to be caught speeding than women and we’re less likely to be involved in a car accident while driving.

While changes to the law mean women can no longer benefit through lower insurance premiums, research by HL suggests that our rule-following habit is paying off in another area – investing.

This may come as a bit of a surprise, because women are less likely to invest in the first place, but our research shows women have generated an estimated annual return nearly 15% higher than their male peers over the five years to 30 September 2019. And that’s not the only difference, women are also less likely to lose money on their investments than men.

So how are we doing it? Well, the data suggests it’s because we’re more likely to follow these golden rules of investing.

Unlike the security of cash all investments can fall as well as rise in value so you could get back less than you invest. Past performance isn’t a guide to the future. This article is not personal advice, if you’re unsure of the suitability of an investment for your circumstances, please seek advice.

1. Higher risk doesn’t always mean higher reward

Taking on more risk, which includes investing in individual smaller companies, or companies listed on alternative investment markets, can potentially mean higher returns. But there’s also a higher chance of losing money, especially if this kind of investment takes up a large portion of your portfolio.

Men are more likely to hold this type of investment – and that also means they’re more likely to see losses of over 30% overall. In fact, this is the single biggest drag on men’s performance. It’s worth remembering though, losses of this size are rare overall.

We’re not saying don’t hold more speculative investments – they can have a place in a balanced portfolio. The key is to make sure you hold a good range of different assets that meet your own attitude to risk, and that riskier holdings don’t dominate. Maybe now’s the time to run through what you hold, and if the majority of your investments are higher risk, consider changing the balance to include something less risky.

Our Wealth 50 list of funds could be a good place to start. Funds can carry less risk because they invest in multiple companies, so the risk is spread out, and can be an alternative way to gain exposure to certain sectors, regions or investment strategies.

Find out more about our Wealth 50 list of funds

2. Put your whole team to work

We’ve all heard of keeping cash under the mattress for a rainy day. And having some cash on hand is a sensible move. A basic rule is to make sure you have easy access to 3 – 6 months’ salary, because you never know when a boiler might need fixing, or the car won’t start.

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But investors can cause problems for themselves if they keep too much stashed away, either literally or in an account. This is something we see men and women doing, but our data shows men hold a higher portion of cash un-invested, which could mean missing opportunities.

Investors should consider using spare cash to increase their investments if they are happy to accept the risk. You can’t expect to maximise performance if half the team’s been left on the bench. Let your money get to work for you.

Estimated difference between men and women's 30 year returns on £10,000

Source: Hargreaves Lansdown research, October 2019.

3. Don’t waste your money

Charges can’t be totally avoided. But they can be reduced. If you hold lots of similar investments, say, multiple large oil and gas companies, or funds that invest in a similar pool of assets, you could be paying numerous management or dealing fees for investments that are very alike when it comes to performance.

The other way charges can stack up is by over-trading. Men are statistically far more likely to tinker with their investments – buying and selling shares more frequently.

We think that’s because men tend to feel more confident when they invest, trading on the back of what feels like good or bad news in a bid to “beat” the market. This can cause double the trouble. Firstly, racking up dealing charges that nibble away at total returns. Then there’s the small issue of getting your timing wrong…

4. Time in the market, not timing the market

If a car was rolling down a hill, it would pick up more and more speed as it went, gathering momentum the further it was allowed to go, and so on.

That’s broadly how investors should think. Through the power of compounding, you’re far more likely to see strong returns in the long term by staying invested than by hopping in and out the market when it feels right. Trying to buy low and sell high is a natural instinct, but being out of the market risks missing its best days. Evidence shows missing just a handful of the best days in the market over the last 30 years would have proved very costly.

This is where the saying “time in the market, not timing the market” comes from. Keep in mind though, past performance won’t necessarily be repeated in the future.

With women more likely to leave their investments be, they stand a higher chance of seeing their investments grow over time, rather than trying to make decisions on when to invest or sell, and missing out on opportunity in the process.

5. Sit back

All-in-all, making the most of your investments involves maintaining a long-term view, and letting your cash and investments do the work. While our numbers suggest women are already doing this more than men, it’s something everyone should keep in mind going forwards.

Investing in riskier things, or trying to time the market can be valid strategies depending on your situation and attitude to risk, but why not consider leaving it to the experts?

Fund in Focus – Unicorn Outstanding British Companies

Kate Marshall, Senior Investment Analyst

We think this fund is a great choice to get exposure to a diverse range of outstanding companies in a single portfolio. It's looked after by expert fund manager Chris Hutchinson, who's been running the fund since the end of 2006.

Hutchinson has the flexibility to invest in UK companies of all sizes, but has tended to focus on small and medium-sized companies. This means he's able to take advantage of Unicorn's pedigree in smaller company investing. Smaller businesses have heaps of potential and, if he gets it right, he’ll hold on to them as they grow into larger firms. There’s a greater chance of failure though, so the risks are higher.

The manager specifically looks for companies he thinks are leaders in their field. These businesses should be more likely to keep competitors at bay, grow earnings consistently and make plenty of cash.

There are only a handful of businesses that meet his high standards, so he invests in a small selection of around 30 companies. It means each one can have a significant impact on performance, though it increases risk.

More about this fund, including charges

Unicorn Outstanding British Companies Key Investor Information

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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