This International Women’s Day, we talk to Alexandra Lipski, founder of Closing The Gap, which aims to get more women into investing. Alex is a keen investor herself, and was luckily keen to share some of her experiences and tips with us.
What made you start thinking about investing? And what were the basic steps between thinking about it and actually making your first investment?
For me it began over a drink with a close friend of mine. I joked that I had just bought contents insurance, and that it was about time I started doing more adult things, like buying shares. He looked at me somewhat sheepishly to say he’d bought his first shares at 17. What? Was this a thing that some people were doing? Investing seemed like something you did with your spare cash when you were old.
This conversation then sparked a journey down the Google rabbit hole. I tried to read as many articles as I could, and I started speaking to friends and family about their investments. All that research translated into an actual investment (in an index fund) a year later. Looking back on it, I don’t think I needed to do the level of research that I did, but everyone needs different levels of knowledge to feel confident.
Investing is generally seen as being for the long term. What motivates you to keep investing, when you could be doing cool things with that money right now?
The concept of saving is hammered into many of us as children. You usually save for something – a new computer, a holiday, a house, etc. Some of us stretch a little further and build a savings cushion in case we leave or lose our jobs.
Investing is ultimately about creating wealth, which goes more to putting yourself in a financially secure position than it does to purchasing a specific object. Step one for me was developing a mental, and then a physical, separation between my savings and my investments. Just like how my KiwiSaver is separated from my other money.
To really engage in investing, I needed time and genuine interest. Plenty of people don’t have either, and that’s why KiwiSaver is so important. But for me, I wanted to have more control over my investments. I found the more I did things myself – bought index funds, bought shares, read about investing – the more engaged I became.
I found myself questioning my own consumerism, wondering if I really needed the things I was buying. After all, most things we buy lose value the moment we buy them. (I may have gone on a Marie Kondo binge.) People invest with the intent of the opposite happening. And once I started, particularly when I bought my very first shares, I did feel like I was doing something cool with my money.
You’ve done quite a bit of investigation into the gender investment gap, where women invest less and later than men. And lots of research (including by the FMA) shows women and men have different attitudes to investing, with women having less confidence in financial markets, and being less likely to take risks. Do women need to “think like a man” to be investors?
You’re right, research suggests that men and women have different approaches to investing, and typically women are perceived as more risk adverse. I always hear this mentioned in a slightly negative way. The irony is that this trait may be part of what actually makes women great investors.
According to various studies, women tend to trade between 35% and 45% less frequently than men (which reduces the transaction fees that eat away at returns). This buy and hold approach means they’re less likely to try to time the market. In turn this means less panic and less irrational behaviour (which is buying when prices are high and selling while they’re low).
While men are more likely to invest based on “gut instinct”, women spend more time researching their investments before buying. A recent study by Fidelity Investment found that women’s investments earn an average of 0.4% greater on an annual basis those of men.
With all of that in mind, I don’t think that women need to “think like a man” to be great investors. What’s stopping us is that we aren’t investing in the first place.
Through your work with Closing the Gap, you meet a lot of women who are just starting out with investing. What are some common preconceptions or worries they’ve faced, and how have they overcome them to get started?
A lot of women genuinely don’t know where to start. They might have thought that investing was for the uber-rich (not anymore – there are platforms out there where is no minimum investment), or that it’s incredibly complicated (again, there are providers who are cracking through the jargon), or that they will lose all their money (most advice suggests building a diversified portfolio to reduce the impact of one company failing or a recession).
Step one to overcoming those concerns is a conversation. That might be them reaching out to a family member, or coming to a Closing the Gap session, or asking their friends. Money has been a taboo for so long, that once you make it an ‘OK’ topic for discussion, you’d be surprised how far knowledge and curiosity will take you.
If someone is thinking about getting started, what’s a good first step that will leave them enthusiastic rather than overwhelmed about investing?
Most beginners will find it easiest to buy an index fund (aka exchange traded fund or ETF), which is essentially a basket of shares that tracks an index. Or you could start with a managed fund, where the shares in the basket are picked by a human.
But to really get enthusiastic, I recommend thinking about companies and industries you’re passionate about. It could be a tech company, a fashion label, an energy company, an entertainment streaming service, the agricultural sector, etc. Pick something and, if you’re feeling brave, consider putting a small amount of money in the game. It will change the way you see that company. Suddenly the sales of that product or service will mean more to you, and you might be more excited about new releases or developments. You’ll be more aware of its competitors, the other companies it relies upon. And if that sounds a bit scary, find someone you trust to talk you through it.