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It’s a cliché as old as investing – when it comes to their future money, women simply aren’t prepared to take the risks that men are, and therefore miss out on the potential for investment returns. But is it really as simple as that? We’ve looked at our own data to see how much truth there is in the adage that women are risk averse.  

When you join Nutmeg (and each year thereafter), we ask you a series of questions to help determine your appetite for risk – how you feel about short-term movements in markets that may be reflected in your portfolio and your understanding of the link between investment risk and both the potential downside and upside. Based on the outcome of the questionnaire, you’re then able to select a risk level that matches your goal, timeframe and how comfortable you are taking risk with your investments.  

We’ve looked back at the decade’s worth of data that we have for Nutmeg investors to see what our clients can tell us about the battle of the sexes when it comes to investment risk.  

We’re all taking less risk with investments post-Covid 

The last two years have certainly been difficult for equity and bond market investors. Cast your mind back to the start of March 2020, and the outbreak of Covid was beginning to dominate the news agenda and global stock markets were starting to respond to the uncertainty and realisation that the virus could have a much more prolonged impact than first thought.

On March 16th, the S&P500 fell 7% shortly after the market opened – causing emergency measures to kick in and suspend trading, the third such break to trading in a week. By the close of the day, the S&P500 had dropped 12%, its third biggest single day percentage loss. But the S&P500 would fall further – a week later, on March 23rd the decline from its previous high (on February 19th) would reach -34%.   

After somewhat of a rebound for markets by the end of 2020, the return of lockdown restrictions around the world in 2021, followed by supply chain disruptions, rising inflation and changing central bank monetary policy – to name just a few factors – equity markets have seen continued volatility in 2021 and 2022. This has had an impact on higher risk portfolios, which have a higher allocation to equities.  

But 2022 was also a difficult year for lower risk investors. Lower risk portfolios tend to have a higher allocation of bonds, which are usually considered less volatile than equities. However, 2022 was a brutal year for bond investors – seeing some of the biggest losses in global bond markets for decades.  

Against this backdrop, it’s perhaps unsurprising that all new investors have shown a lower appetite for risk since the onset of the Covid-19 pandemic in 2020. In 2013, the average risk level for a new Nutmeg investor was 6.67, with 53% of new investors selecting a risk level 8, 9 or 10/10.

By 2019, we had seen this start to fall – the average new investor risk level was 6.27, and 46% of investors were in the highest three risk levels. And finally, in 2022, the average new investor risk level was 5.88, with 34% of investors in risk level 8, 9 or 10.   

When we look at the over 200,000 people investing with Nutmeg – male investors do take more risk, but only just. The difference between the average risk level of new female investors and male investors is just 0.25 points today, compared to 0.59 points in 2017. 

Before the pandemic the average female investor had a slightly higher appetite for risk than they do now, with a typical risk rating of 6.14/10. Now, the average new female investor has a portfolio risk rated 5.65/10.

Understanding risk is an essential part of your investment decisions and the level of risk you take with your investments should be carefully considered and tailored to your personal financial goals – how long you want to invest for, your future family and life plans, the income you expect to earn during that period, and so on. 

Fundamentally we need to reframe what ‘risk’ means when it comes to money. There are several kinds of risk including ‘inflation risk’ – where rising prices erode money’s buying power; and ‘shortfall risk’ – where people face the threat of not having enough money to live off in retirement.

Investing may help address both these risks, but any investment comes with the risk of financial loss – and that has to be weighed up against the threat of inflation and potentially falling short of being able to afford the lifestyle you want.  

A high-risk approach may well be the strategy that best fits your goals, particularly if you’re looking to make returns over a long timeframe and can ride out short-term market dips in order to take advantage of the potential long-term market rises. A low-risk approach may be more suitable if you have a shorter timeframe or are less comfortable seeing short-term dips in your portfolio.  

Risk warning

As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Past performance and forecasts are not reliable indicators of future performance. 

Nutmeg client data correct as at 21 February 2023. Average risk rating calculated as the mean for the fully managed and socially responsible portfolio ranges, where risk levels are available from 1 – 10 (where one is the lowest risk level).