One of the best ways to build wealth over time is to invest. Interestingly, even though it’s commonly believed that women aren’t investing, there is a level of participation. On top of that, women might actually be better equipped for success when it comes to a long-term investment strategy.
Let’s take a look at some of the stats about investing and women, and then we’ll dig in a little more to understand the numbers and what they might reveal about women investors and the state of their financial future.
- On average, women experience an $80,000 lifetime pay gap when compared to men, when controlled for various factors.
- Women are leaving the labor force (and seeing a reduction in income) due to the pandemic at a greater rate than men.
- Women reach their peak earning power at age 44, with an average salary of $66,700, as compared with men, who reach peak earning power at age 55, with an average salary of $101,200.
- Nearly 34% of women haven’t started investing yet, compared with 24% of men.
- Women are more likely (18%) than men (7%) to learn about investing from their partners.
- Women are more likely than men to believe you can start investing with less money.
- Women feel less confident than men about making investment decisions.
- Women are up to 50% less likely to actively trade than men.
- At most income levels, women are more likely to participate in their company’s retirement plan.
- At all income levels, women have lower retirement account balances than men.
- About 39% of women have no retirement strategy, compared with 25% of men. Only 19% of women have a written retirement plan.
Women and pay
Although the gender pay gap has been narrowing over time, it still exists — and all of that plays into how women invest. The difference in pay, likelihood of promotions, and career trajectory all play into a woman’s ability to invest, and how much she can grow her portfolio.
- Women’s lifetime pay gap is $80,000. According to PayScale, even when controlling for various factors, including doing the same job with the same qualifications, the average woman still makes $80,000 less than the average man over a lifetime. Uncontrolled, however, that pay gap jumps to $900,000. For women of color, the pay gap, controlled and uncontrolled, is higher than for white women. And this pay gap doesn’t even take into account the losses due to compounding returns because that’s money women don’t have for potential investing.
- COVID-19 could further widen the lifetime pay gap. Research indicates that the coronavirus pandemic has disproportionately impacted women’s careers, particularly in the United States. In addition to the low availability of affordable child care, women are more likely to be caregivers in the U.S., and take off work to help children with their schoolwork and care. As a result, there’s the potential to see an even greater lifetime gender pay gap in the coming years as women try to get back into the workforce.
- Women’s peak earnings are reached earlier — and are less — than men’s. PayScale reports that, on average, women are 44 when they reach their peak earning power, compared with age 55 for men. On top of that, the average peak salary for women is $66,700, whereas the average peak for men is $101,200. This difference in earning power can have a huge impact on how much women can invest, as well as how much they can save for retirement.
Women and investing
Women and men make different financial decisions, including choosing to invest differently, and part of the reason might be due to the confidence gap experienced by women. Women are less likely to feel confident about investing. Female investors tend to employ long-term strategies because they’re not as likely to be involved in short-term trading.
Interestingly, though, these differences in investing might actually work in women’s favor, making them better investors overall.
- About 34% of women haven’t started investing yet, compared with 24% of men. The FinanceBuzz investing habits survey found that women are less likely to have started investing. Part of that might be due to the fact that, according to the Financial Industry Regulatory Authority’s Financial Capability survey, only 34% of women feel comfortable making investment decisions, compared with 49% of men.
- Women are more likely to learn about investing from a partner. Close to 18% of women learn about investing from their partner, whereas only 7% of men say the same thing. On top of that, according to the FinanceBuzz survey, men are far more likely to turn to online resources to seek financial advice. Women are more likely to seek investment knowledge from other people, with almost 23% of women saying they don’t know how investing works, compared with about 16% of men.
- Women are less likely to trade than men. Research from Vanguard indicates that women are up to 50% less likely than men to trade actively. In fact, Vanguard’s report finds that “Women at the margin are more aligned with Vanguard’s long-term investing principles, such as diversification and discipline.” On top of that, the FinanceBuzz survey found that men are more likely (60%) to check their investment portfolios once a week, whereas only about 41% of women check their portfolios weekly. The tendency to leave their investments alone might actually make women successful in the long run when it comes to seeing a higher return percentage.
- Women are more likely to believe you can invest with less money. Even though the FinanceBuzz survey found that most respondents believe you need at least $1,000 to start investing, women are actually more likely to believe you can start with a smaller amount. For example, women are more likely to believe that you can start investing with $50 or less, and less likely than men to believe you need more than $25,000. This could be an advantage for female investors in clearing a widely believed obstacle about getting started in investing.
Women and retirement
Unfortunately, women are 80% more likely than men to be impoverished during retirement, according to the National Institution on Retirement Security. Much of the disparity comes from the compounding effects of lower pay, and fewer working years as a result of career breaks due to caregiving responsibilities. Add to that the longer life expectancy for women, and it can create a potentially dire situation for women during retirement.
Vanguard’s research found that, at almost every income level, women were slightly more likely than men to participate in their company’s retirement plan. However, even with the high rate of participation by women, their average retirement account balances are lower.
The reality of lower retirement account balances despite a high level of participation makes it even more important for women to start their financial planning early and have a solid retirement strategy. However, Transamerica Corp. reports that 39% of women have no retirement strategy, compared with 25% of men, and only 19% of women have a written retirement plan. But in order to make the most of every dollar, women need to create an investing strategy they can use to maximize their returns.
What women look for in investing platforms
The FinanceBuzz survey found some interesting things about what women look for in investing platforms and brokerages. For women, the top features include:
- Types of investment accounts offered
- Low management fees and/or expense ratios
- An easy-to-use app
- Great customer service
- Availability of human advisors
Men — although interested in types of accounts, management fees, an easy-to-use app, and customer service — emphasized commission-free trades when shopping for an investment firm, and they didn’t cite human investment advisors as one of their top five features.
This likely speaks to the low confidence level women have with investing, and their desire to learn from others and get human help or investment advice if needed.
How women can get started investing
Now more than ever it’s important for women to start investing and close the gap with men. There are some simple ways to start investing — even if you don’t have a lot of money.
- Take advantage of an employer match. If your company offers an employer match on your 401(k), take advantage of that to boost your tax-advantaged retirement contributions.
- Open a retirement account for the self-employed. If you have your own business, open a retirement account. Many brokers can help you open an IRA or SEP IRA and invest for the future.
- Consider using a robo-advisor. With a robo-advisor, you can start investing without the need for confidence in stock picking. Robo-advisors offer a low barrier to entry for beginning investors and provide an opportunity to potentially grow your wealth while you learn more about investing and increase your confidence.
- Consider Ellevest. Founded by Sallie Krawcheck, Ellevest offers financial services and money management help aimed at those who identify as women and others who might face gaps when it comes to income and investing. With Ellevest, you can create a plan that takes into account systemic disadvantages so you can overcome them.
- Hire a financial planner. If you’re not sure where to start when it comes to your personal finances, hiring a professional could help you create a financial plan, Consider speaking with a financial advisor so you can move forward in a way that could help you achieve your financial goals.
Is Ellevest a good investment?
Depending on your goals and situation, Ellevest could be a good choice to help you invest. Ellevest is designed to help individuals who identify as women make the most of their investment portfolio, based on the reality of their personal finance situation.
Where should a beginner start investing?
Beginners should consider their individual needs and situation as they start investing. Some of the easiest ways to start investing include participating in your employer’s retirement plan, signing up with one of the best robo-advisors, and setting aside a consistent amount each month.
What’s the best way to learn more about investing?
There are many different resources to use, based on your style of learning. You can look online, read books, work with a financial professional, or even learn just by doing. Think about your situation and choose a combination of strategies that work best for you.
Systematic and social realities can make it harder for women to build wealth over time. By learning about the stock market and other financial markets, and being consistent about investing money as early as possible, women can increase the chance they will overcome these barriers. This could improve the outlook of their financial future and their overall chances of achieving financial security later in life.
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