Today I thought I’d discuss a topic I’m passionate about, but have never covered before—the gender investing gap. Although women tend to be more effective investors than men and earn higher returns, we don’t invest as often.
Women keep up to 71% of our assets in cash, and some of us aren’t investing any of our money at all. About 66% of men currently invest in the stock market, compared to just 48% of women. One of the main causes of this investing gap is that many women don’t feel confident in their money management skills. They don’t believe they have enough financial education to invest and grow their wealth.
Women also tend to earn less income and take more frequent breaks from the workforce than men to take care of children or sick relatives. This may leave us with less disposable income to invest. Taking steps to close this investing gap is important because women live longer than men, so we’ll need bigger nest eggs to support ourselves in old age. Here are a few tips to help you level up your investing game and achieve your financial goals.
Invest Even If You Don’t Feel Ready
My biggest piece of advice is to start investing even if you don’t think you’re ready. Truth be told, even as a personal finance writer, I don’t feel like an expert on investing. There are still lots of investing topics I want to learn more about, such as active trading and cryptocurrency.
But luckily we don’t have to be investing gurus in order to grow our wealth. If you’re employed, you probably have access to a 401k plan. Your employer may even match a percentage of your annual contribution as part of your benefits package. This is essentially free money, so try to contribute at least enough money to your 401k to get the full employer match. That extra cash infusion from your company will really help accelerate your progress toward your financial goals and help close the investing gap.
Take Advantage of Your 401K
Your employer chooses the investment vehicles that are available in your 401k, which are often mutual funds. This makes investing simpler because you don’t have to pick stocks and bonds yourself—the options have already been narrowed down for you. I’m a freelancer so I don’t have an employer-sponsored 401k, but my spouse does.
The options in my partner’s 401k were mainly Vanguard mutual funds, so we chose a target date fund based on our desired retirement year. This type of fund is designed to have the right level of risk for investors in a certain age bracket, and will automatically readjust and become more conservative as the target retirement date approaches. Investing in this kind of fund ensures we’re striking the right balance between risk and reward for our stage in life without having to rebalance our portfolio ourselves. Although target date funds do come with modest management fees, it’s likely worth it if you prefer a hands-off investing approach like we do. Typically, a 401k retirement account is relied on by most. However, a great way to protect against inflation, governments, and still receive tax benefits is changing from a 401(k) to gold ira to protect the future of your finances.
Robo-Advisors Simplify Investing
If you want to invest additional funds outside of your 401k, robo-advisors can make it easier to set up and manage a taxable brokerage account. Ellevest is a particularly good option because it was designed by women for women.
The app creates an investment strategy that takes into account the financial challenges women face so you can still meet your goals despite work pauses or lower lifetime pay. Ellevent will also rebalance your portfolio for you in line with your investment strategy, making it a truly hands-off tool. You’ll have to pay a small monthly membership fee, but it’s worth it for the guidance you get.
Don’t Be Afraid Of Risk
Another reason women shy away from investing is that we tend to be afraid of risk. We’re worried that if we invest our money in the stock market, which seems volatile, we may lose it all. But if you invest in the right vehicles, putting your money in the stock market is a stable way to grow your wealth over time.
Although the stock market can have wild swings in the short-term, it produces pretty steady long-term gains. Over the past 64 years, the S&P 500 (which is a benchmark used to measure stock market’s performance) has yielded an average annualized return of 11.88%.
If you try to pick individual stocks and time the market, deciding when to buy and sell based on price fluctuations, you’re much more likely to lose money. But if you choose diversified assets like mutual funds or index funds, investing is generally pretty safe.
Mutual funds and index funds pool money from investors like you and me and use it to purchase a wide range of securities including stocks, bonds, and real estate. When you invest in a mutual fund, you get a share of this larger, diversified portfolio, which helps lower your risk of losing money. Individual stocks are more likely to fail than the varied basket of securities that a mutual fund contains, and that’s why the stock market gets a reputation for being risky. But it’s a relatively safe bet if you choose wise investments.
Frontload Your Retirement Contributions
Women are much more likely to leave the workforce to take care of children than men. Although I’m undecided, I may want to be a stay-at-home mom myself. Knowing that I may take a career break sometime within the next ten years to have kids, I’m trying to frontload my retirement contributions by investing as much as I possibly can. Investing a lot now while I’m young and compound interest is in my favor will help offset the effects of any future career breaks and investing pauses when I’m older.
Contribute To A Spousal IRA
If I decide to leave the workforce to have kids, I’ll probably open up a spousal IRA so I can continue saving. A spousal IRA is an investment vehicle that allows breadwinning spouses to make retirement contributions on behalf of their stay-at-home partners who have little or no income. Usually stay-at-home spouses can’t have IRAs because you must fund it with income you earned yourself. But this special type of IRA allows you to fund your retirement contributions with your partner’s earnings while maintaining full ownership and control of the account. This is one of the main ways you can close the investing gap during your non-working years, so I highly recommend you look into it.
What are your thoughts on the investing gap? What steps are you taking to combat it in your own financial plans? Share your experiences and insights in the comments section below!
Vicky Monroe is a freelance personal finance and lifestyle writer. When she’s not busy writing about her favorite money saving hacks or tinkering with her budget spreadsheets, she likes to travel, garden, and cook healthy vegetarian meals.