How Much Money Women Are Losing By Not Investing
My mother swears by her investment guy. His name is Al and for as long as I can remember, he came over once a year to sit at our dining room table and help my mom make informed decisions about her investment portfolio.
My father was not allowed to sit in on these meetings. My dad is entirely risk-averse; so much so that, even though my mother was Al’s client, it was not unusual for Al to receive anxious calls from my father, panicking about some failing stock. Eventually, my father and Al had to hash out some personal boundaries.
My parents’ relationship with wealth management is not gender typical. Generally speaking, women are better savers: 73% of working women participate in their employer-sponsored retirement plans, versus 66% of men. Women are also more likely to invest larger chunks of their income in savings than men are. But when it comes to the stock market, men dominate while women hesitate.
How women fell behind
For years, the underlying narrative about female investors centered on the idea that women are too emotional, too financially illiterate and too risk-averse to be successful. These financial myths have since been debunked; women are just as good at investing as men are, if not better. But the fact remains that women are less confident about diving in without knowing what they’re doing. This uncertainty can leave us sidelined for years, essentially hobbling our financial futures.
Loreen Targos began investing when she was 16 years old. After inheriting mutual funds and stocks from an immediate family member, Loreen realized she had the power to exploit the market’s financial potential. She began schooling herself on stocks, subscribing to Barron’s and reading books about Warren Buffett and contrarian investing. Around 2007, she used her autodidactic financial education to cherry-pick a stock; when the market rebounded after the recession, she watched as that stock grew 400%. Now that she’s 30, Loreen hopes her investments can help supplement the income she earns as a scientist for an environmental protection agency and eventually provide for her retirement.
Loreen’s is a feel-good story and it’s unique, especially among millennials. A 2016 poll shows that almost 80% of millennials choose not to invest, citing, among other factors, a lack of disposable income. And they’re not wrong; millennials make less money than their parents did and they have to contend with more student debt and higher costs of living. For many twenty-somethings, investing in the stock market would mean cutting back on necessities, like paying bills and buying groceries. This is especially true for millennial women, only 21% of whom currently invest.
Closing the gap
Sallie Krawcheck — formerly one of the most senior women on Wall Street — thinks the one gap women really need to concern themselves with is the investment gap. So, in May of this year, she launched Ellevest, an online advising platform designed to empower and educate female investors.
It’s a savvy move based on real data about women’s investment habits. 92% of women say they want to learn more about financial planning. Of all the women currently investing in the stock market, 42% do so using accounts managed by professionals. One woman I spoke with told me she prefers working with an investment professional because she likes the security that comes with knowing someone else is keeping an eye on her money.
Ellvest isn’t the first robo-adviser to try to tap into the female market, but it is the first to be built by women, run by women and funded primarily using female contributions (tennis star Venus Williams is a key investor.) Through Ellevest, Krawcheck hopes to cash in on some of the $11.2 trillion dollars women hold in investable assets. Without investing in diversified portfolios, Krawcheck estimates that women are leaving up to $2.1 million on the table.
Don’t fear investing—fear what will happen if you don’t.
It’s critical for women to seize the opportunities presented by the stock market because women need financial security more than men do. As a result of the wage gap, women will lose out on at least $530,000 over the course of their lifetimes (for black and Latina women, these numbers are even higher.)
Many women leave the workforce at some point during their careers to raise children or to care for other relatives, resulting in large periods without an income. On average, women outlive men by five to seven years. And when you put all this together, you begin to understand why women over sixty-five are 80% more like likely to live in poverty than their male counterparts.
Women avoid the stock market for many reasons: Some don’t have the money or time; others feel like the market is not being marketed to them. But ultimately, what’s preventing women from investing is fear. And this fear is misplaced. Women shouldn’t be scared of investing; we should be scared of what will happen if we don’t invest.
I spoke with one woman who told me her biggest financial fear is not being able to provide for herself. She says, “My mom always taught me how important it is to have money of your own, and financial independence. Financial health gives you independence in all other aspects of your life.”
She adds, “Investing is scary but the thought of being tied to a bad boss, an abusive relationship, an apartment with black mold—all because you lack the financial resources to get out—is a whole lot scarier.”