In spite of significant gains in education, employment and public office, women still aren't investing in a way that could help provide financial independence and security.
Because women earn less than men—and statistically live longer—they need to make their money work even harder.
The solution is to get women not only to invest, but also to save and invest more aggressively when appropriate.
My last two columns have focused on what are, to me, two very important topics: the importance of investing and how investing in a 401(k) is one of the most accessible—and easiest—ways to get started. Historical statistics and personal experience with all types of investors leave me with no doubt that, over time, investing in stocks can be one of the best ways to grow wealth and achieve financial security.
Okay, you may say, I get it. But a recent Schwab financial literacy survey of the money attitudes of young adults demonstrated that there's one group that still has a long way to go in "getting it"—women. And this, as you might imagine, disturbs me greatly.
How women are still financially behind in spite of some advances
According to the survey, young women were half as likely as young men to have an investment account. That's not to say the women weren't interested in finances. They worked several jobs, saved, paid off debt and saw the importance of a financial plan. They just didn't invest. So why is this?
A study conducted in the late 90s by Brad M. Barber and Terrance Odean concluded that, even though women had many traits that would make them good investors, they were far less confident than men in their investing ability. Another recent survey by BlackRock shows that even when women had investment accounts, they kept the majority of their money in cash.
Is this just a crisis of confidence or is something else working here? In general, women have made a lot of advances. We’re outpacing men in college and advanced degrees, we comprise 47 percent of the workforce, we’re entering previously male-dominated fields and we’re getting elected to public office at unprecedented rates. But in spite of all this improvement, many women still aren't investing in a way that could give them financial independence and security.
Why women need to start investing now
There are lots of statistics about the gender pay gap worldwide. And in the U.S., women still only earn 80.5 cents to a man's dollar. Plus, it's well acknowledged that women outlive men. So the importance of investing to help make up for this deficit is obvious.
Earning fewer dollars means women need to save and invest even more. Living longer requires even more retirement savings to not outlive your money. To me, the solution is to get women not only to invest—but also to invest more aggressively when appropriate. The question is how?
What we can do about it—together and individually
Like so many things, I believe it comes down to taking the mystery out of investing. Often the more we know about something, the less intimidating it is. So for those of us in positions to support financial education—financial planners, educators, employers and parents—the first line of offense is to get the information out there. Help everyone, and especially women and girls, understand the basics. Encourage them to think about their goals and put market risk in the context of long-term market opportunity. If appropriate, you might even help someone open an account and choose initial investments.
And every person can help themselves by taking these crucial steps:
- Begin with an emergency fund. The first step to financial security is having enough cash in a savings account to cover at least three to six months’ worth of unexpected expenses. This fund will not only help you in case of an emergency, but can also give you the confidence to start investing and help weather a market downturn.
- Look to retirement. Whether you're in your 20s or your 40s, you can't afford to wait to start saving for retirement. And even though women are known to put others’ needs first, when it comes to retirement, you have to think of yourself. Start taking charge of your own financial future by taking full advantage of a company retirement plan. Contribute at least up to the company match, more if possible. Don't have a company plan? Open an IRA. The point is to save as much as you can as soon as you can. Living to 90-plus is becoming more common. You need to be prepared.
- Invest in stocks. Part of being prepared is learning to make the most of your money, and that can mean investing in stocks. Your first thought may be that you don't want to take the risk. Market downturns definitely happen, but being too cautious can also put you at a disadvantage. Here's a statistic I mentioned in a previous column: from 1926 to 2017, a dollar kept in cash investments would only be worth $21 today; that same dollar invested in small-cap stocks would be worth $22,997 today.1 So where to begin? Many broad-based mutual funds and exchange-traded funds make it easy to invest in a cross-section of stocks. An index fund or target-date fund can make it easier. Using a robo advisor can also be a good way to begin. You don't have to know a lot to start; you just need to know where to start.
- Plan for your other financial goals. Once you've started saving and investing for retirement, branch out. Think about other goals—a down payment on a home, a child's education or a vacation. Investing a portion of your savings in stocks may help you reach those goals faster with the caveat that money you think you'll need in three to five years should be in less risky investments. Stock investing should ideally be long-term, understanding how much risk you can stomach, and how much risk you can afford to take.
- Ask for help and advice. When you have questions, ask your benefits administrator, your broker, even a knowledgeable friend or family member—but ask. There are also lots of online investing resources to explore. Need more? Consider working with a financial advisor. I think of a financial advisor sort of like a personal trainer, someone to guide you and keep you going when you might otherwise be tempted to call it quits. He or she should understand your feelings, situation, and goals. Never hesitate to ask questions, including how your advisor is paid.
No time like the present
Time is a crucial factor in investing. If you have a long time ahead of you to invest—and you commit to keeping your money invested—time will help you weather the inevitable market ups and downs. That's not to say you can't start investing later in life. But, again, I want to stress that money you'll need in the short-term shouldn't be in the stock market. That said, I encourage everyone—not just women—to make the most of their hard-earned savings and build financial independence through investing. It doesn't take a lot of money; it just takes getting started. And there's no time like the present.
 Source: Schwab Center for Financial Research. The data points above illustrate the growth in value of $1.00 invested in various financial instruments on 12/31/1925 through 12/31/2017. Results assume reinvestment of dividends and capital gains; and no taxes or transaction costs. Source: Morningstar, Inc. Based on the copyrighted works of Ibbotson and Sinquefield. All rights reserved. Used with permission. The indices representing each asset class are CRSP 6-8 Index (small-cap stocks) through 1978, Russell 2000 thereafter; and Ibbotson U.S. 30-day Treasury bills (cash investments). Past performance is no guarantee of future results.
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