When it comes to financial planning, women have historically been more conservative investors compared to men. I introduced this concept in my earlier blog called Generational wealth transfer & what it means for women. While a cautious approach has its merits, particularly in mitigating risk, there are compelling reasons why female investors might want to reconsider this strategy and embrace a more balanced, growth-oriented approach to their investments.

The cost of being overly cautious

One of the main downsides of conservative investing is the potential for lower returns. While lower-risk investments like bonds and savings accounts provide stability, they often fail to outpace inflation over the long term. This means that even though the principal is protected, the purchasing power of that money can erode over time.

Given that women generally live longer than men (by ~five years in many developed countries), there’s an even greater need for their investments to grow sufficiently to support a longer retirement.

By being overly cautious, female investors may inadvertently limit their financial security in later years, potentially outliving their savings.

The power of compounding & risk-taking

Taking on a moderate level of risk can be crucial for long-term financial growth. Equities, for example, have historically offered higher returns compared to more conservative assets. Over time, these higher returns, compounded annually, can significantly increase the value of an investment portfolio.

For instance, the S&P 500 has provided an average annual return of about 7% after inflation over the last several decades. While there are short-term fluctuations, the long-term trend has been one of growth. By investing more in equities, female investors can harness the power of compounding to build substantial wealth over time.

Investments in equities and alternative assets carry risk. The value of your investments can go down as well as up, and you may not get back the amount originally invested. Investing should be based on your personal financial goals and risk tolerance.

Balancing risk & reward

Embracing a less cautious investment approach doesn’t mean throwing caution to the wind.

Instead, it’s about finding the right balance between risk and reward. Diversifying a portfolio across various asset classes—stocks, bonds, real estate, and alternative investments—can help manage risk while still allowing for growth.

Moreover, female investors should consider their risk tolerance, investment horizon, and financial goals when adjusting their strategies. Younger investors, for example, can typically afford to take on more risk because they have more time to recover from market downturns.

Closing the Gender Wealth Gap

Taking a less conservative approach to investing helps in closing the gender wealth gap.

Despite progress in income equality, women often have less wealth than men, due to factors like the gender pay gap, career interruptions, and longer life expectancy. By seeking higher returns through more growth-oriented investments, women can build larger nest eggs, improve their financial independence, and secure a more comfortable retirement.

Boosting confidence through education

One reason many women may be cautious with their investments is a lack of confidence in their financial knowledge.

Access to financial education and literacy is the key to empowering women to make more informed investment decisions.

By learning more about different asset classes, market trends, and investment strategies, female investors can gain the confidence needed to take on more calculated risks.

Many resources are available, from online courses to financial advisors who can provide personalised guidance. Joining investment groups or networks can also offer support and insight, helping women feel more comfortable with the idea of taking on additional risk in their portfolios.

Conclusion

While a conservative approach to financial planning has its place, there’s a strong case for female investors to consider being less cautious with their investments. By taking on a balanced level of risk, women can better position themselves to achieve their long-term financial goals, build wealth, and secure a more prosperous future. As with any financial decision, the key is to be informed, intentional, and confident in your strategy.

Sapphire Capital Partners LLP is a signatory to HM Treasury's Women in Finance Charter and a supporter of the BBB's Investing in Women code. Please check out our commitment to diversity, equity page on the Sapphire website to learn about our efforts and progress made towards improving equity and inclusivity in our sector.

Sapphire Capital Partners LLP is authorised and regulated by the Financial Conduct Authority (FRN: 565716). This article is a financial promotion and is directed at professional clients and eligible counterparties only. It is not intended for retail investors. The content is provided for informational purposes only and does not constitute investment advice or a recommendation to invest. The value of investments may fall as well as rise, and investors may not get back the amount invested.