If you aspire to be a regular investor but feel nervous about the risk of losing money, you’re not alone. The risk of losing money is a real fear that keeps many women in midlife from taking control of their pension and investments. But understanding your appetite for risk and matching it with appropriate investments can keep anxiety to a minimum while ensuring you can still potentially benefit from better returns than cash interest rates.
“All investing carries risk,” says Laura Suter, director of personal finance at AJ Bell. “Making a profit or generating income from your investments isn’t guaranteed so it’s important to be risk-aware and make sure you’re comfortable with the risk levels and potential returns.”
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Women aren’t naturally (that is, biologically) more risk-averse than men. According to the Government’s Women’s Budget Group, “Women are thought to make fewer trades because they are less likely to overestimate their knowledge and ability to ‘beat the stock market’.”
Women tend to have £50,000 less invested than their male counterparts, according to AJ Bell, amounting to a whopping £1.26 trillion investment gap countrywide.
To get comfortable with investing, understand your attitude to risk and find out what kind of risk-taker you are with our short quiz – a combination of light-hearted and more pointed money questions. You’ll learn the best way to invest to keep your anxiety at a minimum and your returns at a maximum.
At the bottom of this piece, check out Next steps for an easy guide for what to do next in your investment journey.
Take the NOON investing risk quiz
1. When you go to a fairground, you’re happiest:
A. Keeping your feet on the ground, avoiding the ups and downs of the theme park rides
B. Zooming around the dodgems expecting a few bumps but swerving the crashes
C. Riding the park’s latest rollercoaster, enjoying the inevitable highs and lows
2. You fancy a flutter on the horses, do you:
A. Place a small bet on the front runner. It’s low odds but it’s the best chance of getting your money back, plus a bit extra.
B. Spread your bets across the horses, that way you’re more likely to come out ahead
C. Put all your cash on the outsider. It’s a high-risk strategy but there’s the chance of winning big.
3. Which of these statements are you most likely to say about the way you invest?
A. ‘I’m scared about losing money- I’d rather have less growth, as long as I know my money’s relatively safe’
B. ‘I’m happy with a bit more risky investments (well-researched, of course!) with a solid base of more conservative ones’
C. ‘Only big risks bring big rewards and I can weather the storm’
4. If you lose money on an investment, do you:
A. Feel awful, obsess about it for days and castigate yourself for making a mistake
B. Take another look at why you’ve lost money and see if you should adjust your approach or research
C. Know that it was risky from the beginning so you’re not knocked off course by it not succeeding.
5. Thinking about possible gains from investing, how do you feel?
A. Anxious. Should I have done that? What if it all goes wrong? Is it the right thing?
B. Hopeful. After all, the amount I’m risking is what I can afford to lose
C. Excited! I know I’ve done my homework and all life is risk
If you answered mostly A
You’re a cautious investor who isn’t comfortable taking losses. You’re happy to miss out on the highs and lows of the stock market in favour of stable but lower returns.
You’re not alone: AJ Bell’s Money Matters research has found that 71% of women would rather not take risks but have less rewards.
What this means to your investments
To keep your exposure to volatility to a minimum, the proportion of shares you hold, either directly or through a fund, will make up between 15% to 40% of your portfolio.
Experts say 5 years is the minimum period anyone should be invested. Historically this is the amount of time needed to ride out any stock market bumps. Perhaps you are close to retirement, are saving for a big expense such as a home (yours or your children’s), or financial outlay for family in the not-too-distant future. Your financial circumstances will also affect how much of a risk taker you are.
If you have debt
Antonia Medlicott, founder and MD of pension and investment website investinginsiders.co.uk, says: “Your risk profile isn’t just about how much money you’re comfortable losing it’s also about the hit your finances can withstand. If you’ve got a lot of debt and little saved, you’re more likely to be a cautious investor because you can’t afford to lose money.
Being too cautious, however, could you see you miss out. Antonia adds: “Not assuming any risk could be the riskiest strategy of all. Leaving all your cash in your bank account means it will be devalued by inflation over time and you’ll miss out on making any return at all.”
If you answered mostly B
You’re a balanced investor prepared to take medium level risks. You might have a longer time to invest your money and you’re prepared to see the value of some of your investments dip, understanding that they have time to recover and grow.
You don’t, however, have a huge appetite for risk. To balance the ups and downs of share prices you’ll also hold lower risk investments.
What this means to your investments
You’ll have a bigger appetite for investing in shares, aiming for around 50% exposure. You’re comfortable watching the value of some of your equity investments go down because you have enough in your rainy-day savings account to cover unexpected bills. That means you won’t have to raid your investments when the stock market is down.
Choosing a multi-asset fund is a good way of doing this. It contains a mix of shares from countries across the as well as government and corporate bonds and cash savings. Investments generally come with a label to help you pick the one most suited for your risk profile. AJ Bell, for instance, asks you to pick whether you’re looking for growth, responsible growth or income. And then you’re asked to pick your risk appetite so the multi-asset fund can reflect that.
Its balanced fund for growth, for example, is made up of 55% shares, 34% bonds, 7% cash and 4% property.
If you like to invest ethically, the good news is that whatever your attitude to risk, there’s a responsible investment option for you weighted towards higher or lower risks assets. Check out AJ Bell’s guide to responsible investing.
If you answered mostly C
You’re a risk taker who wants the chance to earn high returns on your pension and investments in exchange for a bumpier ride along the way. You’ll likely be decades away from retirement so with time on your side you can invest in higher risk investments that offer the potential for much higher returns.
What that means to your investments
Your portfolio is likely to be made up of around 70% equities, or even more, offering you the chance for much higher growth in the value of your investments or pension. You may favour certain sectors and countries over others, for example tech stocks in the US, which means you’re more exposed to volatility in those markets but if they perform well, you’ll reap the rewards.
Remember – the more diverse your portfolio is, the less risk you are exposed to. You can spread your investments across continents, types of assets such as shares and bonds and industries like healthcare, renewable energy and technology. Some sectors, countries and asset classes are deemed riskier than others. If you need help choosing higher risk investments, or any investments for that matter, many investment platforms, including AJ Bell, offer ready-made portfolios to match your risk profile. There are also lots of other online quizzes available to help you work out your risk profile.
Your next steps
- Consolidate your pensions (it’s easier than you think) – Consolidating your pensions and keeping track of performance is one of the best ways to give yourself financial freedom. Here’s how to do it
- Learn how you can boost your pension savings – Midlife is a critical time for your pensions savings, especially because of the pension gender gap. Discover how to boost your pension
- Get more advice, insight and tips by signing up to the AJ Bell newsletter
Thanks to our sponsor AJ Bell for joining NOON to focus on how women can save for retirement, close the pension gender gap and educate ourselves to take control of our finances.
