Women overinvesting in Cash ISAs face low long-term returns

Published by IFA Magazine, 24th August 2020

The research by Schroders studied the attitudes to risk of 23,000 people and found that women aged from 18 to 34 were much more likely than any other group to be influenced by others when making a financial or investment decision. Women continue to overinvest in Cash ISAs, with the gender gap between the number of men and women holding these products failing to narrow over the last five years, says Bowmore Wealth Group, the integrated wealth manager.

Latest HMRC data shows women represented over half of all Cash ISA holders last year*, at 55% (3.59m) of the total (6.47m). Men held 45% (2.88m) of Cash ISAs last year. In each of the last five years, women have always represented more than half of all Cash ISA holders.

This overinvesting in Cash ISAs by women means they are overexposed to the negative real returns (i.e. after inflation) these products offer.

Bowmore Financial Planning, which is part of Bowmore Wealth Group, says cash has historically underperformed as an asset class over the medium and long term and this could continue. Interest rates in the UK will likely remain at their record lows for years in order to help drive an economic recovery post-coronavirus.

Cash has delivered average annual returns of 4.9% since 1925, lagging behind global bonds (6.6%), rental property (7.2%), gold (7.7%) and UK equities (12.4%)**.

Research*** suggests that women often perceive themselves to be less knowledgeable about investing and less confident when making investment decisions than men which translates into a desire for lower risk investments, such as Cash ISAs.

Separate research has also suggested that women are more likely to consult with other women before making a financial or investment decision. This can create a self-reinforcing cycle if those other women consulted also do not hold higher risk investments.

Women aged 25 to 34 are the most likely to hold Cash ISAs of all age groups, at 23% (811,000) of the total number of women with Cash ISAs last year (3.59m).

Bowmore Financial Planning says savers who do not want to take on too much risk may want to consider investing in other asset classes to supplement the returns on cash savings – for example, investment-grade corporate bonds.

Jill Ellicott, Chartered Financial Planner at Bowmore Financial Planning, says: “We need to break the cycle of women being over-exposed to low returning savings products.”

“Cash ISAs should not be relied on to create wealth long term – in a normal environment, inflation would easily outstrip the interest rates on offer which leads to the value of savings being eroded over time.”

“There is arguably an advice gap here too. There is a considerable amount of research out there which suggests women do not think they get the same financial advice as men. Pre-determined biases could be resulting in some advisers pigeonholing women in lower risk categories.”

“If people, particularly women, do not fully understand their risk appetite and do not have access to the information or advice needed to make informed decisions, then we will not see the gender gap in Cash ISAs narrow.”

Men represented half of all Stocks & Shares ISAs last year, at 56% (1.3m) of the total number of individual holders (2.3m). Men have held more than half of Stocks & Shares ISAs for each of the last five years.

*2017/18 year-end March 31. Latest available

**Global Financial Data

***Barber and Odean 2001, 2002; Croson and Gneezy 2009; Hira and Loibl 2008

Link to article: https://bit.ly/3j9sFjb