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Why Is There A Gender Gap In Investing?

November 21, 2018

Women who invest in stocks perform better than men. So why is there a gender gap in investing?

You’ve probably heard that women earn a smaller salary than comparable men. But did you know there’s also a gender gap in investing? Men tend to have more money saved for retirement than women. Fortunately, there are simple steps for women to take that will help them secure their financial futures.

Key takeaways:

– The gender gap in retirement: women have less money in their retirement accounts than men do at the same age.
– Portfolios for women tend to be more risk-averse, which leads to lower returns over time.
– Women also have more credit card debt.
– Closing the gender gap: when women do invest in the stock market, they outperform men.
– Including real estate in a portfolio helps to diversify it.
– The good news: There are resources to help women close the gender gap.

Why women should invest more

Women tend to live longer than men, so their money has to last longer. Having a retirement account that’s not sufficient hits women especially hard. That’s if they have any savings at all. Right now, female seniors are 80% more likely to live in poverty than their male counterparts.

Only 53% of women have started saving for retirement, according to Ellevest.

One reason is that more women in the early stages of their careers (ages 25-44) are out of the workforce caring for children. Later in life, the percentage of women saving for retirement is about the same as for men.

Closing the gender gap: It’s important to get started early.

Compounding is the process of generating earnings on an asset’s reinvested earnings. To work, it requires two things: the reinvestment of earnings and time. It is powerful but compounding requires decades to really begin making a difference. Those who begin investing later in life have less time for compounding to work its magic. They tend to have smaller account balances as a result.

Partly as a result of their later start, women who are saving for retirement have less in their accounts than men do. In 2015, the median pre-retirement (age 55-64) American woman had saved about $81,000 in her retirement account. The median man, meanwhile, had accumulated a little over $118,000 – about a third more.

Taking even small steps toward saving early on provides for bigger account balances later.

You can take small steps to close the gender gap in investing. The way to start investing is actually pretty simple. Just open an account and start putting money in it! If you have a retirement plan at work, contribute to it. If the plan offers a match, make sure you’re contributing enough from your paycheck to get all the free money you can.

You might need to look at your spending and see where you can free up some funds to invest. The more you can invest, the better. But if you can put only a little in, then contribute a little. Some is better than none when it comes to investing.

Prioritize retirement savings. They have tax deferral benefits compared to regular investment accounts. Take advantage of them. Save early and often!

Women have more cash in their accounts

When women do set aside funds for retirement, they often invest in “safer” investments. Their money earns less because they’re not taking on as much market risk.

The average level of cash in the portfolio for a female investor is 68%, compared to 59% for men. It loses ground to inflation each year. Over longer periods of time, the risk of inflation weighs more heavily on the portfolio than the risk of market losses.

Cash is a poor choice for retirement accounts if withdrawals won’t start for many years. Over the long term, equities have returned about 6-8% over inflation. With this return, of course, there’s more risk. But if you don’t need the money for twenty more years, a market drop should be taken in stride.

Significantly more men (45%) are willing to take on more risk to get a good investment return, unlike the 28% of women who are willing to do so. No risk, no return!

Anyone who has a lot of cash can fix their situation by setting up a periodic investment program through “dollar cost averaging”. If you have a 401(k), this is what happens when you deposit money from your check each pay period. But you don’t have to have a 401(k) account to move your cash systematically into investments with better rewards.

Plan to invest a certain amount of cash each month on a certain date. For example, you could invest $1,000 of your cash on the 15th of every month.

Don’t take too long! 

Four to six months is a reasonable time frame to get your cash invested. If you’re having a hard time getting started, a financial advisor can encourage you. Slightly over half the women in the US have an advisor. Asking for help to reach your goals is perfectly OK.

Women carry more credit card debt – here’s a strategy to pay them off

Most likely a result of earning less than men, women tend to rely more on credit cards for their expenses. With more debt, it’s harder to save money, for retirement or any other goal.

Ideally you want to get rid of all your credit card debt. Depending on how much you have on your cards, and how much room you can find in your budget for saving, this could take some time. But if you keep paying more than the minimum, and you don’t add any more to it, you will get to a balance of zero.

The fastest way to pay them off is to pay the extra amounts on the card with the highest interest rate (and make minimum payments on the others.) Once that card is done, go to the next. Another way to pay them off is to tackle your smallest debt first. That will give you a quicker win and help you stay on track.

Women outperform men when they DO invest

Surprise! When women do invest in the stock market, they tend to outperform men. Female investors don’t trade as much as men do. Their male counterparts incur more losses, and pay more fees, as a result of their higher trading level. Because women think long-term, they can ride out short-term volatility and avoid losses.

This is definitely an area where women are closing the gender gap and should keep up the good work!

Women real estate investors

More women are entering real estate investing. Real estate provides income and appreciation, two things that are great for your portfolio. Since real estate isn’t directly tied to the stock market, it provides diversification. Property generates income and appreciation even when stocks aren’t doing well.

There are a number of ways to get involved with real estate investing. There are investing pools called REITs (Real Estate Investment Trusts) that are much like mutual funds. These trusts pass on most of their income generated to the investors. Of course people can buy actual property as well, which also helps diversify. Technology has brought real estate investing into the 21st century with crowdfunding, too.

Women can close the investment gap, with more action and education where necessary.

Get started investing sooner rather than later, even if you don’t have very much to invest. Equities and real estate provide much higher returns over time than bonds or cash. Younger investors should have very little of the latter in their retirement portfolios.

Investors closer to retirement can have more. However, they should still have riskier investments to manage long-term inflation after retirement. Either way, it’s best to build a diversified portfolio.

Hiring a financial advisor can help you get started, and stay on track. Make retirement saving a key goal, whether at the beginning of your career, the middle, or the end.


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