We invite you to explore this article from our archives, though please note that investment, pension, and tax regulations evolve over time, meaning some information may no longer be up to date. Nevertheless, we hope you find it intriguing.
It’s a longstanding belief in the investment world that women tend to be more cautious with their money than men, potentially missing out on investment opportunities. But is this notion entirely accurate? To uncover the truth, we analyzed data from our own Nutmeg investors.
At Nutmeg, we annually assess your risk appetite with a series of questions that gauge your tolerance for market fluctuations and your understanding of the relationship between investment risk and the potential gains or losses. Based on your responses, you can choose a risk level that aligns with your goals and comfort with investment risks.
Over the last decade of data collection, we’ve examined the gender dynamics of investment risk-taking among Nutmeg clients.
Post-COVID Investment Behavior
The past two years have introduced significant challenges for equity and bond market investors. Remember March 2020, when the COVID-19 pandemic began dominating headlines and affecting global markets? On March 16, 2020, the S&P500 plunged 7% at the market’s opening, prompting emergency trading suspensions for the third time in a week. By day’s end, it had declined by 12%, marking one of the largest daily percentage losses in history. Ultimately, the S&P500’s decline from its previous high reached an alarming -34% by March 23.
After a market rebound in late 2020, various factors, including renewed lockdowns, supply chain issues, inflation, and shifts in central bank policies, led to continued market volatility throughout 2021 and 2022. This volatility heavily impacted higher-risk portfolios, which typically have a stronger equity allocation.
Yet, even lower-risk investors faced challenges in 2022. Typically considered more stable, lower-risk portfolios predominantly comprise bonds, but last year marked one of the most difficult periods for bond investors, with notable losses in global bond markets.
Given this backdrop, it’s understandable that new investors displayed a decreased risk appetite following the COVID-19 pandemic. In 2013, Nutmeg’s average risk rating for new investors was 6.67, with 53% opting for a risk level of 8, 9, or 10 out of 10.
By 2019, this risk level decreased slightly to an average of 6.27, where 46% of new investors chose the top three risk categories. Fast forward to 2022; the average risk rating dropped further to 5.88, with only 34% selecting risk levels of 8, 9, or 10.
Analyzing over 200,000 Nutmeg investors reveals that while male investors tend to take slightly more risks, the gap is minimal—just 0.25 points on average today compared to 0.59 points in 2017. Prior to the pandemic, women showed a somewhat higher risk appetite, averaging a risk rating of 6.14/10; now, the average new female investor’s portfolio risk rating sits at 5.65/10.
Understanding Risk in Investment Decisions
Comprehending risk is crucial for investment choices, and it should be aligned with your personal financial objectives—considering your investment timeline, future aspirations, and expected income during that period.
It’s important to redefine what ‘risk’ entails in financial contexts. Different types of risks exist, including inflation risk, where rising prices diminish purchasing power, and shortfall risk, which describes the potential inability to sustain one’s lifestyle in retirement.
Investing can mitigate these risks, but it inherently carries the possibility of financial loss, which must be balanced against the inflation threat and the risk of not having sufficient funds to support your desired lifestyle.
A high-risk investment strategy could be beneficial if your goal is long-term returns and you’re prepared to endure market fluctuations. Conversely, a low-risk approach may better suit those with shorter investment horizons or who are uncomfortable with volatile market conditions.
Risk Warning
As with all investments, your capital is at risk. The value of your Nutmeg portfolio may fluctuate, and you could end up with less than you initially invested. Past performance and forecasts do not guarantee future results.
(Note: Nutmeg client data is accurate as of 21 February 2023. The average risk rating is derived from the mean across fully managed and socially responsible portfolio ranges, measured on a scale from 1 to 10, where 1 indicates the lowest risk level.)
Feel free to let me know if you need any changes or additional information!