It is no secret that the world of investing and finance is overwhelmingly male. The good news is that women are starting to become more interested in investing and taking ownership over their finances, becoming more interested in growing their wealth. Women face unique issues versus men, and their finances must address these issues. In short, investing should be tailored to meet these unique financial needs.
Women Have Unique Financial Issues versus Men
Women’s Issues
Women have certain unique issues versus men that make it imperative that women’s financial strategies are tailored to meet these needs. In particular, women tend to live longer, and so must have more in retirement funds, but can also take advantage of a longer investing time horizon; women are also paid less during their life and so have less to invest initially; women tend to interrupt their careers for childcare, which also potentially introduces a wider gap in compensation between them and men and lowers their overall lifetime earnings potential; women also shy away from investing and the stock markets due to lack of education; and women tend to be more risk-averse.
Women live longer and must consider their retirement needs
Women have a longer life expectancy than men. This means that women need to make sure that they have adequately planned for retirement and increased health costs versus men. In fact, women may even have more unique health needs than men in later years, which could render them immobile, or not able to be independent, leading to a further need for funds.
But women are not thinking about retirement in their earlier years, as they are too busy focusing on the present, with its challenges of balancing career, home, family, etc. Women are doing themselves a significant disservice and must think about retirement. The way to do that is to invest.
It is hard to think about the future and to put funds on the side for investing. But it must be done. In fact, women should turn the fact that they live longer into an asset, as the longer you invest your funds, the more you allow those funds to compound and grow your wealth. See “Time is your friend” and “It’s never too late to start investing. Just start.”
Women tend to have a lower overall lifetime earnings potential
There is an income gap between women and men and a woman, on average, earns $0.84 for every $1.00 earned by a man. Women also tend to have more childcare and family responsibilities men and also interrupt their careers when having a family, leading to further gaps in wages. This leads to having less money to invest to begin with, meaning a smaller amount to compound and grow for women.
Women lack of education about finance and investing
Women are just not as exposed to finance and investing in the same manner as men are. The investing and finance industries, while realizing the importance of educating women, simply are not appealing to, or nor make the topic interesting to women. This results in a lack of education amongst women about topics in finance and investing.
The good news is that the severe consequences of the pandemic have highlighted the importance to women of having solid finances, having a steady cash inflow, an emergency fund, no debt and importantly, investing their funds in the stock market. We have seen an increase in women wanting to learn how to invest their funds and the industry practitioners should absolutely seize upon that interest to offer investing education to women.
Finance consists of a wide variety of topics, but it is clear that investing is the area where the fewest women feel confident, compared to topics such as savings and real estate. However, investing is a must to simply keep the same standard of living and to grow wealth for the future. See “Inflation is the silent killer of your financial wealth.”
One way to increase the interest for investing amongst women is to show women how their investments can also change the world for the better. In fact, women want their money to work, not only for them, but also to bring broader benefits to the world.
“To solve this crisis, we need to take the conversations to women and not just expect them to come to us. We need to talk, we need to engage, we need to be relevant and we need to be accessible.” - Holly Mackay, UK finance expert, founder and managing director of Boring Money
Women, by nature, tend to be more risk-averse
Preferring wealth preservation versus wealth accumulation leads to women being more risk-averse and this shows up in discussions with women, who would rather invest in bonds, with guaranteed return of principle rather than stocks, which is inherently riskier than bonds. However, the increase in value of your return is lower with bonds than it is with stocks. Of course, bonds have a place in your portfolio, but they should not be used at the expense of investing in stocks. By taking less risk in their investment portfolios, women can fall short of reaching their investment goals.
Women tend to focus on wealth preservation while men focus on wealth accumulation
Generally, women tend to be more focused on wealth preservation while men are more focused on wealth accumulation. This starts when women are young, as they are usually taught to save their money, while boys are usually taught to grow their money. It is also a byproduct of how women view their money – they generally use it to take care of others, while men tend to view their money as theirs. The conversations around money, saving and/or growing it, do have some impact on how women focus on wealth.
Thus, because women tend to preserve their wealth, they are more prone to saving it versus taking the risk of losing it in investments, especially as they tend to have lower levels of financial experience and knowledge. In fact, the thought of running out of money in old age is a significant concern of many women, and this keeps women preserving their money in savings accounts versus growing their wealth in investments.
What can women do?
Women must become financially confident. Financial or money matters causes the most stress for women. Having confidence around financial matters, which comes with knowledge, goes a long way towards alleviating this stress and puts women on the path to financial independence and empowerment, and growing their wealth.
In fact, by nature, women have a decided advantage when it comes to building long-term wealth by investing: women tend to be more patient, allowing compounding to work its magic; women live longer, so have the benefit of time to grow their wealth; women tend to be more diversified in their investments, which lowers the risk of investing and is a natural segue to investing in index funds in a general broad-based market index (our favorite way to invest!); and women ask questions, thus becoming more informed about the nature of their investments.
Women just need to start.
How?
Reaching out to more experienced friends, reaching out to a professional financial advisor, and increasing their own knowledge will help women take that first step. WE truly believe that the best type of investment for a beginner, and for someone who does not have time to actively monitor their investment portfolio, is a general broad based market index fund, such as the S&P500 index. See “No time for research? Invest in an index…”
Our mission is to empower women through financial education. Especially in the topics of investing. Take a look at what we offer and let us know how we can help. The best gift that a woman can give to herself and to her family is taking that first step and following through with action.
Just start.
Check out our website SHALnCO for more resources on investing, including courses and eBooks. We also offer this Substack newsletter and products.
Nothing in this email is intended to serve as financial or investment advice and you should do your own research and consult with appropriate advisors.