It is no secret that sometimes women have to do more with less, and unfortunately, the area where this seemingly affects us the most is our finances. We have all heard of the gender wage gap, as well as the unfortunate truth that historically, women have been discouraged from discussing their finances. But there’s yet another danger threatening our financial well-being.
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The gender investing gap reveals a serious divide in the investment habits between men and women over the course of their professional careers. According to Money, in some instances, women miss out on approximately $1 million in investments in comparison to their male counterparts over the course of their professional lives.
There are actions we can take as women to make sure we’re effectively investing. Find out what contributes to the gender investing gap and what we can do to take control of our finances and make the investment divide a little bit smaller.
What is the Gender Investing Gap?
The gender investing gap is the discrepancy between the amount of money the average woman gets back on her investments in her lifetime, versus the return the average man gets back on his investments over the course of his lifetime. Simply put, because women earn less than men and we approach finances with different long-term goals, this ultimately leads to a divide in terms of investment returns and retirement savings. Spoiler alert: our investments yield substantially less! This directly related to that wage gap — because women are earning less, they have less to invest to begin with. That being said, relative to the investment, the percentage of a woman’s return is greater than what men generally get on their returns. So there’s at least that sliver of good news.
There are different factors that contribute to the gender investing gap as it stands today, and some of these factors are easier to navigate than others. But there are measures women can take with our finances to ensure we’re making the most pragmatic moves possible with our hard-earned cash. The first step is to understand the potential obstacles.
What Contributes to the Gender Investing Gap?
Without question, a huge contributor to the gender investing gap is the gender wage gap. Due to the fact that the average woman only makes 80 percent of a man’s salary (Black women make 21 percent less than white women while Latinx women make 31 percent less than white women) this means that full-time working women need to invest a greater percentage of their paychecks in order to earn as much on their investments as their male counterparts.
Couple this with the fact that women are also more likely to take time off to act as caregivers to elderly family members and raise children, and the investment divide becomes even greater as earning potential diminishes. This uneven playing field creates somewhat of a bleak outlook on our financial futures, and may contribute to the fact that 71 percent of women choose to keep their assets in cash compared to 60 percent of men. This is a great investment strategy for financing those more frequent expenses like childcare, groceries, and paying off debt, but it is not so helpful for long-term investments like retirement and your 401(k).
In a survey conducted on 5,000 full-time workers by Willis Towers Watson, less than 50 percent of the women participants listed retirement as their highest priority in terms of finance. Contrast this with the 60 percent of males who confided that retirement was their #1 investment priority and you begin to see why a divide in investment returns persists in the American workforce.
What Happens When Women Invest?
The grand irony of it all, however, is that when women do invest, they outperform or are considered “smarter” investors than men by industry experts. In a survey conducted between 2012 and 2016 by the Warwick School of Business on a group of 2,456 investors, researchers found that, of the group, the female investors did better than their male counterparts by 1.2 percent each year. Shocking, right? The truth is, while women may be more conservative with their money throughout their careers, that risk awareness and pragmatism actually plays in a woman’s favor in terms of choosing the stocks and playing cool when markets are volatile.
While this is all fantastic news, the deck remains stacked against women when it comes to investing. Even though men traded their stocks 45 percent more during the 1990s due to what industry experts referred to as “overconfidence,” women ultimately still hold on to a lot of fear when it comes to money. But that no longer needs to be the case. There are ways to approach investing that are both sensible and financially fruitful.
How to Make the Most of Your Investments
Don’t get me wrong, saving money is great! Investing, however, is powerful. When you put your money in an investment account versus a savings account, there is, of course, inherent risk. But, along with this risk comes the potential for greater earnings. Additionally, if your financial future is something you would like to begin planning for, there are a litany of resources online that can make sure you don’t go at it alone.
Ellevest, for example, is an online investment firm geared towards helping women make smart decisions with their money. Do you want to save for the down payment on a home? Ellevest can make personalized recommendations about how much you should put away each month and project how long it will take to reach your investment goal. When investment firms understand the nuances of variables like the gender investing gap and the gender wage gap that opens up the possibility to actually invest like a woman and successfully plan for the future.
Betterment and Wealthfront are also popular players in the investment arena. Like Ellevest, Betterment and Wealthfront are two robo-advisors with digital investment management services with apps and over-the-phone financial advisors. However, the two have slightly different approaches when it comes to the novice investor.
If you’re new to investing, experts at Betterment can help you choose the correct funds for your financial goals in a way that is unbiased. This is because Betterment advisors are not incentivized to sell certain funds, allowing them to customize investment plans on an individual basis. Betterment will allow you to jump into investing by choosing from a number of paths that will help you get a better sense of your goals. For example, for investors that are unsure about future money needs but would like to build wealth over the years, the General Investing option could be a great direction for you. Conversely, if you have big plans for your investments, getting started with a more aggressive portfolio like Betterment’s Cash Reserve plan can help you get the most bang for your buck with a high-yield portfolio.
If you’re not ready to jump head-first into a potentially aggressive investment plan, Wealthfront is a great option for those that want to invest more conservatively with the power of passive investing. Wealthfront advisors are also masters at mitigating unnecessary risk by choosing low-cost, low-tax accounts and then watching your progress to create a portfolio that best suits you. If investing makes you nervous, Wealthfront’s risk-averse advising will be a great comfort as you get your sea legs in the waters of finance.
Not only is it important to manage investments made through your current employer’s 401(k) plan, it is equally important to manage investment accounts provided by previous employers. Blooom (yes, three Os) is a great resource for managing retirement plans. Once you sign up, Blooom will help you create the best portfolio for your 401(k) by choosing the right funds and assessing the progress of your investments. If managing your 401(k) is something that stresses you out (raises hand) then reaching out to bonafide investing experts might be a great way to mitigate your future goals and give your present self peace of mind.