You don’t buy a home insurance policy with the hopes that your property will be flooded or burned to the ground. You don’t invest in life insurance with dreams of dying sooner rather than later.
Likewise, investing in preparation for a divorce isn’t about making plans to part ways with your partner. It’s merely about being prepared, should the event arise.
The fact of the matter is, 42% of Britons will go through it. For many, that’s a hard pill to swallow, and often prompts a chorus of “but that won’t be me!”. And maybe it won’t, but it’s prevalent enough to warrant at least a passing thought.
Granted, it’s a dreadful prospect if you’re very much in love but, as with any back-up plan, it’s hopefully one you’ll never need.
When divorce does happen, over two-thirds of petitions are filed by women. There are significant financial distinctions and implications between being the one filing the papers, and the one receiving them.
Usually, the petitioner bears the brunt of the cost right from the start, shelling out £1,000 to £1,500 in solicitor’s fees and divorce centre charges.
While that initial sum may not seem exorbitant, by the end of the process, legal fees and lifestyle costs run a typical Briton £14,561.
As of 2020, the average UK saver had £9,633 stowed away. That makes the cost of divorce a huge outlay for many. So large in fact, most can’t pay up without incurring some debt or taking out a loan.
Suffice to say, that can turn a hard time into one even more challenging and arduous.
It’s even more challenging for women, who are less likely to have that amount of money on hand for an emergency. It’s a triple-punch blow of making less, being less likely to invest what we make, and even when we do invest, it being a substantially smaller amount.
When Freetrade surveyed female investors, 52% invested more than £1,000. Meanwhile, 70% of men did.
Unfortunately, this means we’re often less financially prepared for unexpected changes in circumstances or unforeseen life events. Not only that, but it tends to mean we’re less financially assertive.
Hopefully, it goes without saying the implication isn’t that women with greater financial security and confidence will be hit with some newfound desire to get divorced.
The point is that with greater financial security comes the ability to make decisions not out of fear or necessity, but rather, from a place where money is no obstacle. In tandem, that brings greater opportunity for choice, including ending an unhappy relationship if need be.
Times are changing, but there are still cohorts of stay-at-home partners dependent upon the home’s breadwinner.
Historically, this meant women had less access to a personal income stream than men. In turn, likely feeling less able to make their own financial decisions.
The gap is closing here, and has been since the early 1970s. But even increased participation in the labour market doesn’t necessarily coincide with a kindred rise in the power to invest.
Women are still more likely to work part-time, in large part due to taking on much more responsibility where child-rearing is concerned.
This means it’s even more important that women give their money the chance to grow. Kicking that journey off can be a blocker but it really doesn’t have to be.
27% of female Freetraders aged 26-45 reported feeling more confident after making an investment. Likely, it’s the ripping off the plaster effect. Once you do it, you realise a lot of the anticipated fear just wasn’t work the anxiety.
Keeping cash or savings accounts rather than investing is a good way to lose out on the opportunity of higher returns. There are risk-conscious ways of developing your portfolio when you’re first dipping your toe in the water. Had you invested over the past 20 years, buying shares tracking a broad market index, say the S&P 500, would have pulled in 7.5% per year on average.
Meanwhile, keeping your cash would have brought in about 1.4% growth per annum - that’s not enough to cover inflation. In essence, meaning you’re losing money.
Putting these investments away in a SIPP (or Self Invested Pension Plan) is a key way of protecting your pension in a divorce in the UK. That way, should it happen, your pension is split, separated and safe.
Of course there’s no free lunch and there’s a trade-off at play here. Taking a step into risk assets, you have to acknowledge stock markets regularly go down as well as up in the pursuit of cash-beating returns.
The key point, though, is that it’s not a case of either stuffing pound notes under the mattress or piling it all into the latest hot stock.
You can regularly invest into a readymade basket of stocks like an index ETF, at low cost, and with the goal of growing your savings above the rate of inflation.
If investing feels daunting, remember it isn’t one-size-fits-all. Your blend of assets should reflect your tolerance for risk. The good news is, there really is no obligation to invest in anything that would keep you awake at night.
There is a big difference between the latest hot stock and a sensible, diversified portfolio designed to aim for growth and hopefully provide a buffer if the market drops.
Having a portfolio like this ticking over in the background can be a sensible way to build up your savings instead of letting them languish in a vault somewhere. And if you never end up using those investments for the purpose you’d perhaps intended, that’s no skin off your nose.
Because the great news is, you’ve still boosted the opportunity for your money to grow. That’s why there’s no worst case scenario when it comes to investing in a contingency plan.
If you don’t need to use the reserve cash - then you’re all the better for it, with a little extra padding in the pocket too.
With that comes the power to make the financial decisions you want to. Even a little bit more in the bank can give you a lot more flexibility in how you live.
And that’s how investing hands you the opportunity to make the decisions you might need to - rather than taking the only decision on the table you can afford.
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