COVID-19 a trigger for more women to start investing in equities.

In ASX’s recent Australian Investor Study, the increase in female investors was among the most encouraging findings. Women comprised 45% of total new investors over the last 12 months.

The rise of female participation in Australian share investing has been a positive trend over several years, and accelerated by the COVID-19 market shakeup.

Women value other goals, such as volunteering, going back to study or learning a new skill and getting their finances in order.

For first-time investors, women are more likely to buy a residential investment property and term-deposits than men, who are more likely to buy shares.

Such investment choices lead to an important question: Are women less likely to invest in other growth assets, such as shares, because of a general aversion to risk or due to a self-perceived lack of investment knowledge?

Pritchard says some women are averse to choosing shares or other listed investment options because they are less familiar with the sharemarket.

She shows her clients how they can save for a property deposit more easily if cash is allocated to share or other listed assets, rather than left sitting in the bank and earning low returns.

“Clients don’t often realise that putting $1,000 of their own money into shares is inherently less risky than putting $100,000 into a property that is then leveraged (through debt),” says Pritchard. “The perceived risk is often quite a lot less than the dollar exposure.”

Focus on financial security

This apparent difference in risk aversion between the sexes goes beyond sharemarket education.

Dale says: “The biggest challenge for women is that they face far more headwinds in simply generating enough surplus cash to be able to invest due to reasons such as taking career breaks and being more likely (than men) to be engaged in part-time or lower-paying employment. This means women often focus more on financial security rather than wealth accumulation.”

Regardless of why women are less likely to take the investing plunge, Dale and Pritchard advise against erring on the side of complete caution.

Dale comments on previous research that suggests “men are prone to overconfidence when investing, giving the illusion they are better investors than women”.

She adds: “The real reason for their success is due to the learning experience from investing itself. Women tend to be more realistic about their abilities and knowledge, making them less likely to trade and therefore missing out on investing and its learning experience.”

Learning through experience

Like Dale, Pritchard prescribes a “learning by doing” method to getting involved in investing. “The best way to educate yourself is by taking action… starting small and ramping up once you are comfortable, as opposed to reading lots of information, disseminating and comprehending it before taking the plunge, Because, if you wait for that day, you’ve probably lost five years in the market.”

The next question is, how much should I invest? Pritchard says the key is knowing how much you can safely invest or risk without causing significant life changes.

“If you know how much you can invest while still keeping a good cash buffer, it naturally increases your resilience for investing in other areas because you know that if worst-case scenarios are realised, your life won’t be majorly affected. You are using resources you know you can spare for investing purposes. That’s responsible investing.”

Starting out

Both experts have pointers for those new to share investing. The first step in the journey, Pritchard suggests, is creating a budget, so you know what you can safely invest.

If picking stocks presents a barrier to investing, a good starting point is Exchange Traded Funds. “ETFs are not about outsmarting the market and are a great fit for first-time investors,” she says.

(Editor’s note: Take the free ASX online ETFs and Exchange Traded Products course, to learn about ETF features, benefits and risks).

Depending on one’s financial knowledge, Dale suggests two paths: “First, if you have never invested and have little or no knowledge of it, a starting point would be to search highly recommended peer-reviewed books on how to set out, as they tend to be practical and simple.

“Second, if you are ready to take the plunge but find the first step daunting, I recommend opening an online broking account. Go with a big name you are familiar with, set up a watchlist of ETFs and stocks, use the incredible amount of information that comes with the account– such as articles and podcasts – give yourself a starting deadline to place your first trade and do it.”

Women and the value of financial advice

An encouraging Australian Investor Study finding was that women were more open to receiving financial advice than their male counterparts.

Just over a third of respondents said they would choose a financial adviser because they were not comfortable making investment decisions. However, a common obstacle here was finding a suitable adviser.

Pritchard says that in most cases, she is the client’s first adviser and was found through word of mouth. “In cases where people might struggle to find a good adviser via word of mouth, there are many resources to help you find one, such as Google reviews, Facebook reviews, the Adviser Ratings website and the ASX Find an Adviser service.”

Given that the relationship with a financial adviser is long-term (and perhaps lifelong), Pritchard emphasises the importance of ensuring the fit between you and your potential adviser is right. Often, that comes down to how you feel after your first meeting or phone call.

Pritchard, who works with many millennials, says the amount you have in the bank or at hand isn’t important to the client-adviser relationship.

“While cash is important, when you’re younger, cash flow is more important. If you have the ability to save and invest over time then you could benefit from speaking to an adviser. You may not have $100,000 when you are 20 years old, but you have the ability to earn for another 50 years, so that becomes a valuable conversation.”