How to Invest as a Single Woman

When you’re a single woman, you are forced or required to learn a lot of things on your own, some of which take you out of your comfort zone.

One of those things might be investing. Many women don’t like the idea of handling their own investments because they doubt their competence, even though women are actually better than men at investing.

While you might find this idea uncomfortable, the reality is women are behind on three key areas: the gender pay gap, the gender pension gap and the gender investing gap.

With women earn much lower than men, single women need to find other means to ensure a comfortable work-life and retirement-life. To get you started on that journey, here is a quick guide on how to invest as a single woman.

1.    Set your financial goals

Before you can begin investing, it is important to establish financial goals. What are the life goals you have and how much will they cost?

It is a good practice to break them down into short, medium, and long-term goals.

 a.    Short-term goals: These are the financial goals you have for the next 12 months or less. For example, if you’d like to buy a new gadget, go on a city break during your next leave, or finish paying off any outstanding debts.

 b.    Medium-term goals: These are any financial requirements over the next two to five years, or two to ten years. They may include building an emergency fund, buying a home, going back to school for further education, paying school fees etc.

c.    Long-term goals: Beyond the next ten years, the most important goal is saving/investing for retirement. You may also be sending kids off to college, paying off your mortgage, buying another home etc.

Once you have established these goals, put a price tag to each one. Can you afford each one with your current income? If the answer is yes, then you don’t need to rock the boat.

 If the answer is no, then some of the other tips on our list will help.

2.    Build your emergency fund

There are two major things people ought to do before they start investing. The first is to get rid of debt. The interest rates on credit cards and loans are usually much higher than typical returns on investments, so it is prudent to clear your debts first.

The second thing you need to do is build an emergency fund. This is a cache of about six to twelve months’ income to protect you from the shocks of life such as a pandemic outbreak, job loss, ill-health, flooded home, damaged car and so many others.

An emergency fund will prevent you from having to dip into your investments and incur penalties if something should go wrong. An emergency fund is also money you can access, unlike certain investments.

So, if you haven’t built an emergency fund, don’t start investing yet. Keep the emergency fund as cash and not stocks, cryptocurrency, or even mutual funds.

3.    Learn the basics

Now that you have an emergency fund, a monthly or quarterly investment budget and some goals, it’s time to get into the pool.

But no need to dive in; start with your toes.

The investment world is a complex system, so it will take some time to get used to the different investment products and the lingo.

There are different ways you can learn about the different terminologies and platforms. You could learn on YouTube, Udemy or some other eLearning sites. We have courses PaceUP Invest Platfom

However, the most reliable way is to learn from a financial expert with fiduciary responsibilities.

A financial advisor with fiduciary responsibilities will teach you one-on-one not just about investing, but also about yourself. Some of the things they’ll help you discover are your investing strategy, your risk appetite and how much you should be putting aside each month.

4.    Start investing early

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Something your financial advisor will tell you is to start investing early and the reason behind it is compound interest.

Compound interest is the amount of interest you get each year that causes your investments to snowball overtime.

For example, if at the beginning of the year you invest €10,000 at an interest rate of 10%, you would expect to have €11,000. Actually, you’ll end up with an extra €47. Where did it come from?

Compound interest adds interest on your interest, yielding impressive returns in the long run. If you never add any money to that initial investment but the interest rate remains the same, in twenty years you’ll have €67,275.

Wow! If you’re making monthly contributions to that amount of just €100 each month, that figure will increase. All you would have contributed during that time would be €24,000, but now you have enough money to buy a small flat. The amount you will have is by contributing monthly with an initial capital or €10,000 will be around €148,245.75

The secret ingredient to compound interest is time. The earlier you start, the more your money can multiply.

5.    Maximise your pension

 In general, women contribute less towards their pension as a result of being underpaid and overreliance on their male partner has the finances or future investments covered.

There are tens of thousands of retired women in Germany living in poverty. They didn’t make enough contributions to their pension while they were working, so they have to rely on the bare minimum the government provides each month.

The average pension for a single woman in Germany is €1,388. However, many women get less than €1,000 per month, which is below the threshold of being at risk of poverty - €1,074.

Just in case you were wondering, the single men fare better at €1404. That is why you have to stay on top of your pension contributions as a single woman and the best way is to at least meet your company’s pension contribution match.

If you work for a company that matches at least 2% of what you contribute, it means that your money automatically doubles once you meet your employers’ match.

That’s the easiest, quickest interest rate anywhere in the world. Some people have been able to retire comfortably by investing in their pension alone. But of course, these were people that were either paid a lot, or started early.

6.    Choose stocks over cash

 A survey by UBS found that single women feel more knowledgeable about money and investing than married women. That positive mindset makes a difference when choosing how to invest. Instead of playing it extra safe and only investing in cash, single women have the confidence to invest differently.

The first one you might want to consider is the stock market. The stock market is the easiest to get into because you can start with very little. There was a time you had to have a large amount of money and a stockbroker before you could buy shares in companies, but apps got rid of that hullabaloo.

A lot of women are happier with cash than stocks mainly because they are risk averse and haven’t learnt about the value of stocks. While cash loses value over time due to inflation, stocks generally tend to appreciate.

You can keep stocks for a longtime and even pass them on to kids, relatives or charities. But of course, there is some risk involved and stocks can lose value.

Another way to invest in the stock market is via mutual funds. Mutual funds are a collection of different shares, bonds and other investment products. This assimilation reduces risk and some mutual funds have performed consistently well for decades.

Again, your investment strategy is something you need to discuss with your financial advisor.

7.    Always make an educated decision

As we talk about stocks and before you dig into other investment products, it is important to only put your money in things you can explain.

You can invest in REITS, ETFs, stocks, bonds, commodities, forex, cryptocurrency, real estate and so many other options to choose from. All of these have the potential to either make you a lot of money or lose your life savings.

It is therefore critical to learn as much as you can about any product before you invest. Just because your friends and the news say the results are too good to pass up doesn’t mean you should follow blindly.

Sure, not investing immediately could mean you miss some of the growth, but it will prevent you from ever being in a position where you felt swindled or deceived.

 If you don’t understand a product, learn more until you do, then decide whether to invest or not. Seek expertise always.

8.    Diversify your investments

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One of the things you’ll learn quickly is to diversify your investments or risk losing your whole basket of eggs. We’ve mentioned diversification earlier in the form of mutual funds.

Even with those, you can still invest in several of them, as well as buying direct stocks, bonds, ETFs and other instruments you have studied and comprehend fully. We do not expect you to be an expert, but learning the minimum is good and leave the expertise to the experts to help you along the way.

When you diversify, there is a very slim chance that you’ll lose all your money. As some stocks go down, others will go up and vice versa. While we wish we could always pick winners, that is rarely the case.

The best we can do is a carefully selected bouquet of investment products that will continue to grow in value.

One positive trend in the UK is an increase in the number of single women investing in residential property. This has followed a similar outcome in South Africa, where more single women bought houses in 2018 than men or even married couples.

If this trend were to catch on across Europe, it would usher in a more equal world that will help close the investing, income and pension gaps.

9.    Leverage tax-free/ tax deferred investments

 You have to watch out for taxes. Find out what the regulations are for different types of investments in your country. Most countries limit taxations on pension investments in order to encourage more people to save for the future.

However, other investments are usually subject to tax. By carefully analysing the laws, you can manage your investments to make the most of it.

For this, you can rely on the services of a financial advisor or a tax consultant.

10.    Join a supportive community

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Finally, find a group of women on a similar journey. You have a much higher chance of being successful if you have people sharing their skills and experiences.

As you grow as an investor, you will have many encounters that will shake your confidence or try to tempt you into doing something risky. Having a supportive network will keep you on the right pace and help you finish your race strong. Join our PaceUP Invest community.