Why cash ISAS don’t cut it for women any more

Who are the better investors, men or women?

Given that, both historically and in the present day, men are the more numerous investors, you might think that experience gives them the advantage. But a 2018 study by Warwick Business School found the opposite: women are more successful investors because they tend to think long term, trade less frequently, and avoid riskier investments1.

Yet women remain far less likely to invest and put those skills to the test. While more women subscribe to Individual Savings Accounts (ISAs) than men do, they tend to choose Cash ISAs over Stocks & Shares ISAs – and, unfortunately, this can cost them.

Women hold more than half of all ISAs but, in the last tax year for which data is available (2017/18), 3.4 million women subscribed to a Cash ISA versus 2.9 million men, while just over a million women paid into a Stocks & Shares ISA compared with 1.3m men2. The result? The average market value of a woman’s ISA in 2017/18 was £2,812 lower than that of a man’s3.

 

Cash savings vs stock market investing

Stocks & Shares ISAs are not without risk. Over the long term, however, there’s a good chance they will beat the return you could get on cash savings. With interest rates currently at rock bottom, not only are you going to be earning virtually nothing on cash savings, but your money will also be losing value in ‘real terms’ because of inflation – which erodes the spending power of your money over time.

A Cash ISA might feel like the safer option, and it’s certainly prudent to keep your emergency fund in cash. But, for savings you want to access in the medium to longer term (five years or more) – for example, if you’re looking to put a deposit down on a house or planning for your retirement – a Stocks & Shares ISA may give you a much better chance of growth (more about this below).

 

How much could I make?

The best rates you can get on a Cash ISA at the moment are around 1%. How much you could earn from a Stocks & Shares ISA will depend on your specific portfolio and how it fares. With investing, the golden rule is to stay put for as long as you can to give your money the chance to recover from any negative years. If you’re investing for kids – in a Junior ISA, for example – it makes a lot more sense to invest because you’ve got a long time to make up any losses and give your money a fighting chance to grow.

 

Can I get my hands on my money?

Your money is still accessible in a Stocks & Shares ISA, though not quite instantly: most investment platforms will take a few working days to sell your investments and send the cash to your bank account when you need it. However, you can open one Cash ISA and Stocks & Shares ISA in each tax year, so why not have both and use them for shorter-term and longer-term savings?

 

What will I need to consider?

If you decide a Stocks & Shares ISA is right for you, there are some key questions you’ll need to ask yourself:

What do I want to achieve?

Are you investing for a specific purpose – for example, for your retirement? If so, stability might be your priority. But if you’re at the beginning of your savings journey, or simply want to make your money work harder, you might be happier to take on a bit more risk. Being clear about what you want, and by when, will help you to choose the right product.

How long am I prepared to invest for?

Stocks & Shares ISAs tend to perform better over a longer term. So, make sure that putting money into one for at least five years aligns with your other financial plans.

Would I benefit from a helping hand?

Investing doesn’t have to be scary, but it can feel intimidating for women who haven’t dipped a toe into stock markets before. A regulated financial adviser can provide reassurance that any decisions taken are the right ones for your circumstances. They can do this by helping you understand the advantages of investing in a Stocks & Shares ISA and the value of utilising the current tax year’s allowances before they’re lost, as well as the importance of conducting regular reviews to ensure performance aligns with your long-term goals.

The value of an ISA with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than you invested. An investment in a Stocks & Shares ISA will not provide the same security of capital associated with a Cash ISA.

The favourable tax treatment of ISAs may not be maintained in the future and is subject to changes in legislation.

Please note that St. James’s Place do not offer a Cash ISA.

1Warwick Business School, Are women better investors than men?, June 2018

2, 3HMRC, Individual Savings Account (ISA) Statistics, June 2020

 

Source of Article: https://partnership.sjp.co.uk/article/detail/sjpp/why_cash_isas_dont_cut_it_for_women_any_more.html