The ISA gender gap has doubled. Why risk thousands by avoiding stocks and shares ISAs?

More women hold ISAs than men, but they’re worth £3,000 less on average. I’ll explain how stocks and shares ISAs can help to close the ISA gender gap.

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Ahead of International Women’s Day, the latest figures reveal the ISA gender gap has doubled in a decade. According to Hargreaves Lansdown, on average, women have almost £3,000 less in their ISAs than men. But the biggest gender difference is in the type of ISA. Recent statistics from HMRC show that 4.4 million women invest in a cash ISA, compared to only 785,000 in a stocks and shares ISA.

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, comments that “despite the super-human effort women are making to build their savings,” the gender gap is widening as they’re “hampered by the fact so much of it is in cash.”

Let’s take a closer look at the reasons behind the ISA gender gap and explain why women (and men!) should consider investing in stocks and shares ISAs.


Why are women shunning stocks and shares ISAs?

Sarah Coles from Hargreaves Lansdown points to circumstances being a key driver of the ISA gender gap. Their research reveals that a £30,000 income is the ‘tipping point’ for people choosing a stocks and shares ISA over a cash ISA, disadvantaging women on lower salaries.

However, the ISA gender gap is also due to women’s attitude to risk. Sarah Coles believes that “women tend to over-estimate the risk that investments will lose money over the long term – overlooking the fact that on average they tend to rise.”

You can invest up to £20,000 a year in a cash ISA and enjoy the same tax-free benefits of a stocks and shares ISA. But let’s take a look at why doing so could be a missed opportunity to achieve far higher returns.

Why choose a stocks and shares ISA over a cash ISA?

Sarah Cole reports that “on average, stocks and shares tend to outperform cash over the long term,” meaning that “women pay the price for sticking with cash”.

Let’s look at an example. If you invested £10,000 in an ISA, what would it be worth after 20 years?

  • The highest interest rate on offer for an easy access cash ISA is currently 0.66%, according to Hargreaves Lansdown. Value of cash ISA in 20 years: £11,400.
  • The average annual return on the FTSE 100 over the last 35 years is 7.75%, based on research from IG. Value of stocks and shares ISA in 20 years: £44,500.

That’s a difference of over £33,000, thanks to the power of compound growth on higher returns.

But there’s another sting in the tail for women investing in cash ISAs. Sarah Coles comments that women “also underestimate the risk their cash ISA will lose value after inflation,” which she currently describes as a “racing certainty.” If your cash ISA is paying 0.66%, the current inflation rate of 5% is actually reducing the real value of your money by more than 4% every year. 


Three tips for investing in a stocks and shares ISA

A survey by AJ Bell showed that 20% of women felt they didn’t understand investing, and 15% “didn’t know where to start”. But women should take confidence from the fact that they are more likely to exhibit good investing traits than men, according to Hargreaves Lansdown. Indeed, their female clients’ portfolios outperformed their male clients’ portfolios by 0.81% on average.

So, if you’re considering investing in a stocks and shares ISA, here are my three top tips.

1. Pick your ISA provider carefully

It’s important to pick the right ISA provider and, to help you, our experts have put together a guide to our top-rated ISA providers.

My stocks and shares ISA is held with Hargreaves Lansdown, one of our top-rated providers. They offer five ready-made ‘master’ fund portfolios to help people who are investing for the first time. Or, for more confident investors, there’s a choice of nearly 4,000 funds to pick from, including 71 funds selected for their Wealth Shortlist.

2. Invest for the long term

Research by AJ Bell also found that 71% of women would rather not take risks even if it led to lower returns, compared to 57% of men.

Our Foolish philosophy is to buy and hold investments for the long term to reduce the risk of market downturns. The value of my ISA fell by 33% after the global financial crisis in 2008 but had increased by 46% by the end of the following year. Investing over the long term helps to average out returns.

3. Diversify your portfolio

Investing in funds is a simple way to diversify your portfolio and spread the risk of one sector underperforming. Hargreaves Lansdown’s survey revealed that 44% of their female clients invested mainly in funds, compared to 38% of men. And this approach paid off as their female clients were almost 50% less likely to suffer losses of more than 30%.

You can find more information on funds and other investment options in our guide to stocks and shares ISAs.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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