Investing PinterestAs financial institutions wake up to the fact that women are a major market, it seems that not a day goes by without new research coming to the fore about women and money. On one hand, we’re told we’re great investors, on the other hand, we’re told we lack confidence and that we’re “leaving money on the table.”

I don’t know about you, but I’m confused.

What is not confusing is that women have to account for specific factors when it comes to long-term financial planning. These include:

  • Women generally live longer than men.
  • Women typically take time out of the workforce to care for children and/or older relatives.
  • Notwithstanding that women are increasingly becoming the breadwinners, women tend to earn less than men for the same jobs.

These factors exert extra pressure on the need, for both men and women, to build nest eggs that financially support them for the duration of our lives.

Ensuring an adequate nest egg, however, doesn’t happen through saving alone (although that is a significant factor). Unfortunately, inflation – “a sustained increase in the general price level of goods and services in an economy over a period of time” – means that dollars we save today will be worth less in the future. Saving is a necessary but insufficient condition for long-term financial success. In short, it’s the combination of saving AND investing that is the key to maintaining the purchasing power of our hard earned (and hard saved) dollars.

Alas, here’s where the alarm bells goes off: The data indicates that we women are not getting this investing thing right.

We’re Not Investing Enough

Wells Fargo recently released findings – based on their own internal participation rates – suggesting that women are less likely than men to participate in 401(k) plans. And for those who do sign up to participate in a 401(k), individual women tend to contribute less of their paychecks than individual men.

Along these same lines, according to Blackrock’s Global Investor Pulse survey, 55% of women globally (compared with 47% of men) agreed with the statement “I am not willing to take any risks with my money.” This suggests there’s a lot of money being kept in low-return vehicles or, worse, under mattresses when women are making investment decisions.

We’re Not Investing in The Best Products For Building Long-Term Wealth

Women are generally more risk averse than men. As Nelli Oster of Blackrock explains, we tend to hold more of our assets in lower-risk investments such as cash and fixed-income products, as opposed to investing in the stock market.

There are a number of theories as to why this risk aversion exists, including lack of confidence and psychological make-up. Oster states, “Women tend to report stronger mental imagery than men and experience nervousness and fear more pronouncedly. This may result in women underestimating the probability of high likelihood gains, and exhibiting more pessimism when faced with risky decisions.”

Whatever the reasons, given women’s statistically longer life spans than men, our collective retirement nest eggs need be built to last and that requires that we up our collective investing game.

And Yet, When We Do It, We’re Better At It Than Men?!

So here’s how this seemingly contradictory research plays out.

Women tend to think about investing differently to men: we seek more help, we think about money in the context of our lives and security, and we’re more likely to ask for help. We’re also less likely to over-trade our accounts and lose money by racking up lots of fees.

A study undertaken by finance professors Brad Barber and Terrance Odean over a six-year period concluded that men trade 45% more than women, reducing their net returns by 2.65 percentage points per annum. In comparison, women reduced their net returns by 1.72 percentage points. It may not sound like a lot, but it makes a big difference when compounded annually.

Oster notes that “men’s generally higher impatience when it comes to seeing good investment returns makes them more prone to attempt market timing, and to get hurt when timing is off.” By way of example, during the market crash of 2008-2009, women were more likely to hang on to their equity investments while men were more likely to trade out.

Oster also explains that women’s “tendency to think in terms of qualitative longer-term goals (known as ‘mental accounts’) can lead them to separate money earmarked for different purposes into different investment accounts. This, in turn, can result in inefficient portfolio allocations overall. Similarly, women who are overly concerned about financial security may predominantly focus on downside protection and not take enough risk in their portfolios, subjecting them to insufficient income in the future.”

Broadly speaking, it appears that women fall into two buckets:

  1. Those who lack confidence and don’t invest enough or in the best products
  2. Those who are confident and therefore take more risk while simultaneously benefiting from the behaviors that can make women better investors.

If we assume “less confident women” invest less and “more confident women” invest more – then it follows it’s the “more confident women” whose investment returns are being compared to men. What can we learn from those more confident women investors?

women and investing pinManisha Thakor, Founder & CEO of MoneyZen Wealth Management learned from her investment hero, the legendary Houston investor Fayez Sarofim that “nervous energy is a great destroyer of wealth” and that you shouldn’t confuse activity with progress. She notes that the high net worth women she works with embrace this more “feminine” (and statistically successful) evidenced-based (a.k.a. index or passive) investment approach practiced by world-class investors ranging from Warren Buffett to Dimensional Fund Advisors’ legendary David G. Booth and Rex Sinquefield.

In other words, Thakor suggests it is precisely women’s proclivity toward long-term wealth creation over short term trading profit that makes them so ideally suited to be successful investors. She goes on to suggest it’s Wall Street’s obsession with creating “sexy, new, high fee, active financial products” that keep women (rightly, in her opinion) from being more interested in investing – and thus the solution isn’t to change women, it’s to change Wall Street. “Were there more discussions and services focused on “zen-like” high quality, buy and hold offerings, there likely would be higher female participation rates in investing,” says Thakor.

So, What’s The Takeaway?

Oster of Blackrock has some takeaways for both sexes:

  • Women should consider increasing their comfort level with personal finance to improve their confidence.
  • Women (and men) need to align their investing with their overall goals. Women may need to take on more risk, although that doesn’t necessarily mean taking on more risk than men.
  • Women may want to review their investment allocations across their different “mental accounts” and portfolios to ensure they’re effectively allocated.

How To Take Action

There are many resources available to help women with financial literacy. At GoGirl Finance, we recommend investing in professional financial planning support. A financial planner will help you solidify your goals and a roadmap for attaining them.

You can find a Certified Financial Planner (CFP) to talk to among the experts we’ve interviewed on our site. (And, if you’re based in New York, join GoGirl Finance, LearnVest, Blackrock and Goodwin Procter on June 3rd for an evening with Alexa von Tobel, who will be laying out the fundamentals of a financial plan.)

Additionally, there are some fantastic technology platforms available which can help you review your overall investment allocations. A favorite of mine is Personal Capital, which has a rich array of free services and provides a free financial planning session for anyone that integrates accounts with an aggregate balance of $100,000 or more.

Finally, please let GoGirl Finance know about your specific pain points and challenges. We’re always excited to hear from our readers as it helps us to better serve your needs.


GoGirl Finance has an affiliate relationship with Personal Capital. Please note that we only have affiliate relationships with products that members of the team use and/or products that have been specifically reviewed by the experts we work with.