Women Need to Start Investing Their Money — Now
Ellevest’s Sallie Krawcheck on everything you need to get started.
Investing is a man’s world. Whether finance, portfolios, or money talk in general, women are often left out of the conversation — despite the fact that we actually control $5 trillion of the U.S. economy. From the lack of women represented on Wall Street to the staggering male-to-female ratio of investment advisors (86 percent are men over the age of 50), concrete financial advice for women is hard to come by.
Enter Sallie Krawcheck. The former Wall Street CEO is leading the women’s movement into untapped territory: the investment world. After helming some of the largest banks in the country, including Citigroup and Bank of America, Krawcheck left her place on Wall Street to financially empower women with a new digital investing platform, Ellevest.
Made for women by women, Ellevest takes into account the investment tips specifically catered towards women (like the gender wage gap and the fact that women tend to live longer than men). As women who aren’t well-versed in finance or investing, we’re typically offered financial advice that sounds like this: “cut back on those designer handbags and shoes and put your money in the bank instead!” Aside from being completely sexist (can men not buy designer handbags and shoes too?), that advice isn’t exactly helpful — which is exactly why Krawcheck knew a company like Ellevest was needed in order to deplete the financial gender gap.
So how do you know when you’re ready to start investing and why you should be investing differently than men? Krawcheck shares her best advice for getting started with BAZAAR.com.
Not investing your money can cost more in the long run.
“Women hold the majority of their money in cash; we don’t invest in the markets as much as men do, and this difference costs us a fortune over our lives. It can cost us hundreds of thousands of dollars and, for some women, millions of dollars. That’s a lot of money! Having less money can keep us in soul-crushing jobs, or in bad relationships; it can keep us from starting the business we’re dreaming about. In other words, it matters. And I figured if I wasn’t going to work to solve this problem, who would? There are too few women on Wall Street and too few women in tech, and I had the experience — and the curiosity, and the energy — to try to close the gender investing gap by founding Ellevest.”
Women can (and should) invest differently than men.
“Honestly, I fought this idea [that women need their own investing platform] for awhile. I argued we didn’t need our own thing, thinking ‘our own thing’ would be some junior varsity version of investing. The big a-ha was that if we women are investing less than men, then what’s out there isn’t working for us. So, by definition, we need our own thing.
“The second a-ha was that ‘our own thing’ didn’t have to mean it looks like what has (unsuccessfully) come before it: the remedial financial education, the ‘don’t buy those shoes, invest in the stock market’ messages. Instead, it could be more sophisticated than what’s out there and thoroughly modern. We could take into account in our investing plans that women live longer than men (very important, but no one else does it) or that our salaries tend to peak sooner than men’s (ugh, but still important to take into account) or that we take more career breaks.
“So we built Ellevest by spending literally hundreds, even thousands, of hours working with women on what they are looking for in investing. Let’s just say, it’s not about ‘beating the market’ or ‘outperforming’ — Ellevest is all about determining what your financial goals are and when you want to achieve them, and then our constructing a highly personalized investment portfolio that we’ve designed to get you there in the substantial majority of markets.”
“Investing was really built for men, by men. Think about it: it’s like a sport….and the industry symbol is a bull. Doesn’t get more phallic than that or feel more inaccessible to us.”
There are a few steps you need to take before starting to invest.
“Firstly, pay off any high interest rate debt, like credit card debt. And be up-to-date on payments on other types of debt such as student loan debt. Next, build an Emergency Fund of cash that covers three-to-six months of spending (in case of, you know, an emergency). If you have a 401(k) at work — and particularly if you have a 401(k) with a ‘match,’ in which your employer also deposits money — start investing there.
“But you’ll also want to invest for other goals in life besides just retirement. So after that, you want to find an investment firm that you trust. Best first question for those firms: ‘Are you a fiduciary?’ Fiduciaries are obligated to put your interest ahead of their own; other investing firms are not. I also recommend that you choose a investment firm that will invest your money in a low-cost, diversified investment portfolio. No chasing hot stocks or trading in and out of market, just a good old boring ‘low-cost, diversified investment portfolio.’ It should also be one that has more stocks in it when you’re younger (to give you the chance to earn higher returns) and less when you’re older (for greater stability).
“If you’re wondering how much money you need to have before you start investing, the answer is ‘not as much as you might think.’ You should target investing some percent out of every paycheck. If you must, start with one percent and work your way up to five percent, 10 percent, 20 percent.”
There are a few things you need to do before you’re financially stable enough to start investing.
“You’re ready once you have paid off any high interest rate debt and built up that Emergency Fund. That said, you should never invest any money that you might need in the short-term; even though the stock market has averaged a 10 percent return annually since the 1920s, it can still have its down periods. So the money you invest should be money that is for Future You, not Today You.
“Before you say that all your money is needed for Today You, please think again. Experts advise that you follow the 50/30/20 rule with your income: 50 percent should be for needs like rent and food; 30 percent for fun; and 20 percent for investing and saving for Future You. That includes money for retirement, and also for life goals like buying your home, starting a business or starting a family. Spending all of your money on Today You is a really, really, really, really bad idea.”
It’s important to remember women live longer than men when preparing for retirement.
“Ellevest invests differently for you if you’re a man or a woman. For example, for a woman’s retirement, we take into account that women live longer than men. So all things being equal, she’s going to need more money for that longer time frame. Our investing algorithm and our risk management approach takes this into account. We are the only digital investing firm that does this. That said, both men and women should make investing a habit, some amount out of every paycheck.”
So, why do men invest more than women?
“I want to make one thing clear: IT’S NOT OUR FAULT. Society puts so much guilt on us about these things: that we need to get more financial education so we can invest; that we are “too risk-averse” to invest; that we don’t have enough money to invest; that we need to earn more before we can invest. But the bottom line is that investing was really built ‘for men, by men.’ Think about it: it’s like a sport….and the industry symbol is a bull. Doesn’t get more phallic than that! Or feel more inaccessible to us.
“Instead, we women tend to be more about reaching our financial goals than ‘beating the market’ or ‘picking the winners’ or even making more money. In my view, we just needed an investing business that spoke our language, rather than making us do all of the hard work. And one that had no minimum investment size, so that it’s accessible to all of us. I hope that’s what Ellevest does.”
