Investing In The Stock Market With Jill Jackson
📋In 2017/18, some 3.6 million British women and 2.9 million men opened a Cash ISA account. Yet, in the same tax year, more men held a Stocks and Shares ISA (1.3 million) when compared with women (1 million), according to HMRC (25 June 2020).
💸While women are great at saving, research suggests that we are sometimes overly cautious (or risk aware, if you will) when it comes to taking the steps needed to be more in control of our financial futures. This gender investment gap has a direct impact on women’s wealth, pensions, and overall financial wellbeing.
👀Sure, women may prefer to keep their funds stashed in cash savings accounts, but why is it important to invest, and where should you start?
💚In this episode of The Wallet, we are joined by Jill Jackson, Managing Director of The Big Exchange, the pioneering investment platform that helps create a positive impact for people and the planet while making their customers' money work harder for them. Jill is a passionate advocate for democratising the investment industry, breaking down overly complicated terms and processes that have historically alienated and excluded people from the market. She hopes this will help get more people investing.
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You can listen (39 min) and subscribe here:
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1. Invest, and invest early
By failing to invest, you are missing out on opportunities to build on your financial worth. The broad aims of investing are to look after and grow your wealth, and to secure a passive income when you no longer work. Investing makes your money work harder for you by putting it into assets (such as stocks, bonds and property) through taking more risk and expecting a higher return. This is especially relevant given the current opportunity cost of investing: saving your money. In this low interest rate climate, putting your cash into safe and accessible savings accounts, although much less risky, will produce you a low return at around 0.1%. When we consider that the UK inflation rate outstrips the return on these savings accounts, by not investing, the real value of our money will fall. Hence, even keeping money in cash is not 100% risk-free, since the spending power of money goes down over time, meaning you cannot buy as much next year with the same amount of money. Indeed, Jill argues that it is important for us to get out of the mindset that keeping our money in cash is ‘risk-free’, and, instead, we must learn to take control of our finances and manage the associated risks with investing. Of course, the value of your investments will fluctuate and, in a worst-case scenario, it is possible that you could lose your initial investment. However, through financial education, diversification and a long-term view, the potential to gain money is far greater than if you never invest. Benefits from investing can include:
Creating wealth over time
Saving for retirement
Earning higher returns
Reaching your financial goals
Earning your financial freedom
“If you’re saving for retirement, or if you’re saving for a big event in your life, it is unlikely that incoming cash is going to do all that for you and fulfil those financial goals because the only thing you are going to get back on it is low interest in this environment”
When you are starting your career and money is scarce, investing for the long-term is unlikely to be at the top of your priority list. For many of us, it seems easier to delay any investing decisions until we secure our dream job that allows us to make up for lost time and money. In reality, however, those of us in our twenties are in the ideal position to enter the investing world, even with our low salaries and university debt. This is because, while money may be tight, time is on our side. Past your twenties? It doesn’t matter – the same principle applies: the earlier you invest, the more you will be able to benefit from the ability to grow your wealth. Jill jokes that in her early twenties, a good investment seemed to be a fashionable pair of denims at the time, but she now encourages her niece and nephew at the same age to invest.
Early investments lead to disproportionate returns. The reason for this is compounding – the ability to grow an investment by reinvesting the earnings and earning interest on interest. The power of compounding enables investors to generate wealth over time and requires only two criteria: (1) the reinvestment of earnings, and (2) time. Albert Einstein recognised the importance of investing early, referring to compounding as “the eighth wonder of the world”.
Given that investing requires a degree of self-discipline, it can be helpful to envision the purpose for your investment. In fact, studies have shown that people who have a clearer picture of themselves in the future are more likely to invest money today to fund their future-self (Ersner-Hershfield et al., 2009) . Putting yourself into this mindset could be as simple as creating a clear financial goal and budgeting towards it so that you can visually see your financial future.
2. Where do I start?
Getting started with investing can be daunting. Jill explains that there are some small steps that can make your journey easier to embark on. Investing requires you to have some money (even if it is just a little) and so before going ahead, it is important to ensure that you have the following prerequisites covered:
You have repaid any expensive outstanding debts (this does not include ‘good’ debts, such as student debt or mortgages)
You have enough money to cover your basic living expenses
You have enough money to cover your short-term goals (goals achievable within 5 years)
Optional (but recommended): you have an emergency fund that is sufficient to pay all of your most important bills for three months
One of the biggest golden rules of investing, Jill argues, concerns financial education: it is never wise to make an investment in a financial products you do not understand or cannot explain to others. Jill recommends that a good place to start is by looking at your pension (if you already have one) to this end. By researching your pension, and by seeing where it is invested in the stock market, you can gain confidence from the knowledge that you are already an investor. This also produces the double benefit of allowing you to reflect on where your pension is invested and whether this sits well with your conscience – you might want to change funds if your pension is currently invested in fossil fuels, for example. If you do not have a pension, however, financially educating yourself is about reading up on the assets you are considering to invest in, and weighing up the pros and cons associated with each asset – this includes reading the terms and conditions before you go ahead with making any specific investments! Essentially, by doing this simple research exercise, you should be able to understand basic investment principles such as:
How does the stock market work?
What do the major stock market indexes represent?
What is the benefit of diversification?
What is the difference between investing in an individual stock versus investing via a fund?
What are the different asset classes available for me to invest in?
Once you have understood some of these basic principles, Jill advises that you first define the time horizon for your investment and consider the destination you want to reach by the end of your investment. By doing this exercise, you will determine how much risk you will be able to take on with your investment. Jill provides a personal example to illustrate this point: if she is trying to start a university fund for her 16 year-old now, she would take on less risk with her investment than if she were to start a university investment fund for her 11 year-old now. This is because, over a longer-term investment horizon, she will be better equipped to cope with stock volatility and changes in the economic environment given that her investment will have more time to recoup any possible short-term losses. Essentially, don’t start thinking about the risk until you know how long you’re willing to invest for.
Only once you have established how long you are willing to invest for, you can start to think about your risk tolerance as an investor. Jill acknowledges that she has taken on more risk with experience and that, when you lack knowledge, it can be better to ease your way into the investing world starting with less risky investments. This can mean starting little and, once you become more comfortable, investing more of your money with a higher risk tolerance. Jill strongly urges people to invest via funds rather than investing in the stock market via individual company shares. This is due to the principle of diversification: by investing in funds, you are less exposed to the performance of just one company and, therefore, limit the risk of you losing all your initial investment.
Now you are at the stage where you have determined your investment time horizon and risk tolerance: it is time to choose your investment platform. An investment platform (such as Hargreaves Lansdown, Vanguard, AJ Bell and The Big Exchange) are essentially websites through which you can open an investment account and buy and sell investments through. These investments can be in funds or single asset investments. Again, this stage requires a bit of research and browsing through investment platform websites to decide which is best for you. By investing through these platforms, you can choose a portfolio that has already been built for you (“ready-made portolios”). You can even go one step further and look into the strategy of the fund and whether it aligns with your own personal values. The Big Exchange is an example of an investing platform that democratises the investing world by helping to get people started. The Big Exchange ‘bundles’ their investment funds into three categories that are based on the risk their investors are willing to take on: (1) the ‘cautious investment’ category for those who want a more stable return over the longer-term; (2) the ‘balanced investment’ category for those who want to balance risk with reward; and (3) the ‘adventurous investment’ category for those who are willing to take higher risks for the potential of higher returns. The aim is to select a fund from one of these three overarching categories that best suits your personal investor profile. Once you have chosen a fund to invest in, you can sit back and watch your money grow!
“Investing really is the only way that you’re going to be able to financially support yourself for the rest of your life.”
3. The investing gap
It is no secret that women have been historically – and continue to be - disenfranchised when it comes to financial markets. We are all aware of the gender pay gap and the unfortunate truth that women bear a greater brunt of the domestic and childcare burden. To make matters worse, women have been indirectly excluded from informal financial education due to society’s role in dissuading women from discussing finances. Yet, there is another malevolent force at work when it comes to financial inequality: the investing gap.
The gender investing gap is the discrepancy between the amount of money the average woman gets back on her investments over her lifetime, versus the average man gets back on his investments over the course of his lifetime. The gender investing gap is concerned with the fact that women are less likely to invest than men, which places women at yet another huge financial disadvantage. Research from Kantar (2018) suggests that the value of investments held by women aged between 21 and 53 is just half that of men across the same age range. Further, 52% of women have never held an investment product compared to 37% of men. If women are less likely to invest, they could face further disadvantages in the long term. A study conducted by YourMoney (2019) found that a third of UK women wouldn’t be able to support themselves financially after a separation with their partner. In addition, despite a longer average life expectancy, women’s pension pots are generally smaller than men’s: by the age of 65, the average woman in the UK has around £35,700 in her retirement fund, while men manage to save £141,000 (The Chartered Insurance Institute, 2018).
There are a number of complex factors underlying the gender investment gap. While lower average income is one of the more obvious factors, more subtle factors range from women having lower levels of engagement with investment providers to having a greater risk aversion. Women have also been shown to have, on average, lower levels of confidence when it comes to investing: a study led by YouGov Omnibus (2018) found that only 13% of women think they have a good amount of knowledge and understanding of investing, and, when asked to rate how confident they are in choosing an investment account, fewer than a third of women rated themselves a 6 or above out of 10 for confidence. What we find is that many women avoid investing in their financial future due to lack of confidence arising from misconceptions about investing. Moreover, women are put off from managing their finances due to the complicated jargon, disengaging material and lack of trust. Jill makes the simple, but profound point, that “what you can’t see, you can’t be”; given that women are so underrepresented in senior positions in finance, it can be difficult for young women starting out to identify themselves as investors. As the only female MD of an investment platform in the UK, Jill works tirelessly to combat the microaggressions that perpetuate the gender investment gap.
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You can listen (39 min) and subscribe here:
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Resources:
You can follow and connect with Jill at The Big Exchange:
The Big Exchange: https:/bigexchange.com
Instagram: @thebigexchange
Facebook: Thebigexchangecommunity
Twitter: @thebigexchange_
