Article by: Lillian Kazmierczak - Finance Writer for Toarc United
It's well known that women outlive most men; it is also accepted that these women will live on less than their male counterparts. While there are many reasons this has occurred for generations, there are also reasons why and ways to change this for future generations. This will not be the blog that blames men or cries about inequality, I will present some facts, and they are facts. Exam some of the reasons for this and then talk about how women can empower themselves to reap the benefits of investing just as men are doing. This is not a female-only blog; this is for anyone looking to empower themselves to invest.
If you're new to this blog or toarcunited.com in general, you'll need to know that we are here to Motivate, Innovate and Elevate. My goal is to give you enough information to get you talking, thinking, and doing, so you can live your best life!
Starting With Some Facts
In a recent NerdWallet survey, 56% of Americans said they invested in the stock market, but only 48 % are women, compared to 66% being men. Although investing is the best way to grow your wealth and ensure your financial independence and retirement success, women struggle with this more than men. This needs to be addressed head-on as more and more women head into retirement single or widowed(with much less long-term wealth than their counterparts), and also for the future generations of women who need to start investing now.
Females are investing with 20% less than men because they make 80% of what men earn. While this is antiquated as hell, it is what it is, and unless women fight for the other 20%, we may never see it.
Women are more much more likely than men to put their careers on hold to raise a family, leaving them with social security and investment income gap. In addition, they will have more health-related bills as they age due to longevity vs. their husbands, whose longevity is shorter.
An S&P Global survey found that 26% of women have money in the stock market, while a BlackRock survey found that female investors keep 68% of their portfolio in money market accounts, CDs, or Treasury bills.
How the Gender Gap Affects Female Investors
Twenty cents less on a dollar doesn't sound like much, but in an eight-hour day, that is $1.60 a day, $8.00 a week, and $416.00 a year. That buys two weeks to 1 month of groceries or half a mortgage payment for many women and families.
First things first, If Joe and I are doing the exact same job and Joe gets twenty cents more than me, we already have an issue(it's another blog entirely).
So, Joe is making $25,000, and I am making $20,000, and we both are putting 9%
away for retirement, Joe will have $2,250 at the end of the year, and I will have
$1,800. I will have $450 less than Joe at the end of the year. Skip to our retirement…Joe and I stuffed this money in a mattress for the next 25 years, and the cash saved for Joe is 56,250, where I saved 45,000. That's an $11,250 difference. Now that is a significant difference. At this point, I think I should marry Joe or really look at my investing options!
Since the gender gap is not going away tomorrow, women need to think long and hard about what and how they invest. While they may not have as much money to invest, they can have as much money at retirement by investing wisely.
Career Gaps Effect on Female Retirement
In her book Lean In, Sheryl Sandberg discusses how 43% of the female workforce leaves to raise a family. In addition, women's roles in today's culture encourage them to raise their families and later in life involve eldercare duties. Both of these come at a financial price for women, especially women who are single or widowed. For example, consider she leaves the workforce to have a child and returns when that child is in high school, she is out of the workforce for ten years, If that woman works with Joe and me, she has lost a possible $200,000 in potential income and her 9%( $18,000 mattress money) for investments. The more children she has, the larger the income/investment gap becomes. That is a big chunk of lost retirement investments funds for her, her spouse, and her family.
Now consider that as she gets older, one or both of parents require caregiving, and even if she splits this with one or more of her siblings, she is losing even more of this potential retirement income at a time when she needs to ensure she has the most she can for her retirement. This is just how it is, and once again, planning is crucial even at a young age.
The last year has proven that anything can happen. There will be literally a nation of people that have lost investment income due to the pandemic; females, especially single females, have been impacted by this. The loss of employment income and staying at home with your kids has taken a year-long toll on financial independence and retirement investment. Unfortunately, most of us are not getting the money back and will have to find a way to make up the missing investment funds or simply do without(Ouch!). The latter is not a female-only issue; it involves anyone affected by the pandemic's economic effects.
Female Created Obstacles
In Fidelity's 2017 study of women and investing, 88% of the women stated that they would invest in the stock market if they had better education in investing. Yet, most admitted they were exposed to little or no education in money and investing. This needs to end now!! We can no longer let this happen; all children, not just girls, need to be educated in finances. Would you send your child to the store with one hundred dollars without explaining how to spend some and bring home the change to use later? Then why are we sending our adult children out into the economy without the tools to save and invest the most they can? We are literally creating economic issues in years to come. We don't want a generation with no supplemental retirement income or the programs we will have to fund to help them through it! We face a self-made crisis if we don't start ensuring the next generations know how to retire(If you haven't read my blog on Pension Portability, you should read it after you finish this one).
Women in the BlackRock study invested in cash-based investments(Treasury bonds, CDs, and money market funds); only 26% of the women in the study invested in the stock market. As a result, 68% of these women are losing out on a a large portion of investment earnings that come with some risk. Diversity is the key to investment income; without it, these women fall short of their intended retirement goals.
We, as women, need to educate ourselves on investing, especially in the stock market. You don't have to dump all your savings in it at once. Start small; as you earn a bit, add a little more. Your confidence in your ability to invest in the stock market will grow as your retirement grows. But need to invest in stocks if you want the maximum financial benefit from your investment. You don't have to go big or go home, but you have to show up at the least!
A SoFi survey of millennial women identified 56% of these women as stating fear held them back from investing( Girls, you need to read my first two blogs..). Not only was I floored by this, I am horrified that this amazing group of females that has had a lifetime of internet exposure chose not to google investing! How does
56% of a whole generation NOT google this.
How are we as parents not having this conversation with them, and I mean our sons and daughters by them. As parents, we want them to have what we didn't, which means they need to be investment savvy where we were not! Granted, not every young adult wants this conversation, so start it when they are old enough to understand money. But, you live what you learn; if you want them to be good with investing, you need to expose them to it at a young age, not as they go off to college.
What Women are Doing Right
The Fidelity study also showed that women save 9% of their paychecks while men save 8.6%. The survey also showed that women invest 1% more in workplace 401ks than men. So despite earning less and having less to invest, women are finding ways to save smaller amounts of money and invest some of this. If they can do this, imagine what they can do with this when they are educated on investing and have confidence! That could be a massive boon for the stock sector.
They are also earning 1% more than their male counterparts. According to Openfolio, women investors outperformed men in 2014, 2015, 2016, and 2017.
The same study showed that in 2015(a rough year for the stock market), men lost an average of 3.8% while women lost 2.5%.
Goldman Sachs showed that 43% of female-managed mutual funds outperformed 41% of male-managed funds. While women don't have some kind of investing mojo men don't have, women follow some investing rules that men don't. Women don't react to market fluctuations as men do; they are less impulsive, less likely to change their asset allocations, and less likely to trade as the market fluctuates—the investment community toats both methods. Men tend to check their investments five times a week, whereas women check them as little as three times a week, which may explain why men trade more frequently.
One interesting part of the NerdWallet study showed that 66% of the women vs. 55% of the men chose to have an investment professional manage their account. Some women had more than one investment account and cited it was easier to have one person manage all accounts, and some cited their lack of investment knowledge but recognized the need to save for retirement. Women recognize the need to save for retirement and the need for financial help when they lack the skill and knowledge. With a little more knowledge and a bit more money, women could be well on their way to financial independence.
How Women Can Own Investing
If women want to own their investments, they will have to work on the gender gap and get serious in their quest for equal pay and salary raises. It's not that it's unachievable; it's that women have chosen not to be aggressive in their pursuit. While women who are fierce as men are labeled "Biaches," many women have never been encouraged to speak up for what they want. Women need to work harder to find the balance and use it to make the change.
Women also need to understand that longevity and health are interwoven; you need to save as if you will be alive until you are one hundred and you are ill. The older you get, the bigger the likelihood you will have a form of illness. Prepare for this as you save and invest. Better you be healthy and have significant retirement funds than you get one disease that wipes out your fund while you live another fifteen years. While you can't plan for everything, you can use commonsense in preparing for it.
Fear of investing and the unknown are real. Education can ease anxiety. There is a Google tutorial for everything; watch them and learn. Read, study if you need to. Knowledge is power, and in this case, it can lead to financial independence and more secure retirement. Jumping in the waters can start with dippin' your toes. You have to start to invest if you want that nest egg!
Embrace portfolio diversity; all your eggs in one basket won't work. You need to diversify that portfolio for maximum earnings; while women shy away from risk, the risk is required to achieve your desired result. Take your risk early when you can afford it and use it to invest in safer investments later; you will also have more to invest.
Learn to invest better, educate yourself and share the knowledge. Investment firms acknowledge that women are investing; they are creating investment classes and programs specifically for women. Take advantage of these. Have a conversation with your sisters and friends, generate a dialogue about investing, and form an investing club. Get online and find a platform, throw five bucks in every couple of weeks, compare your gains to your friends, and create competition while creating a portfolio. Investing and sharing as a group holds lots of perks. Let your kids see you invest and create a friendly competition. You may be surprised when they want in!
Just because you retire doesn't mean you have to stop investing; there are plenty of investments you can enjoy when you are retired. Your money can work for you as long as you want it to. You may not be as risky later, but there are plenty of low-risk investment options to choose from.
Ladies, we are doing many things right in the investment arena; we should be proud of that and use it to improve on what we've done. With a well-deserved pay raise and better investment knowledge, you can have the financial freedom and retirement you are working towards. Seek out female investment opportunities, and don't be afraid to take some risk. Stocks are necessary for diversity, so take the risk. Even a bad investing experience can be a great learning experience. A sound financial future is your goal; you owe it to yourself to cross that finish line.
If you're looking for more Thoughts of a Random Citizen, head on over to the podcast section. I think you'll find some fascinating podcasts to listen to.