It doesn’t take a genius to realize that women are different than men.
And during the course of my career, I found that this holds true in the investment world as much as any facet of life.
Indeed, women face a number of unique challenges when it comes to building and keeping a nest egg.
With that in mind, here are a few thoughts for you or the women in your life.
The Challenges Women Face
First, women do earn less than men on average. Over the course of their careers, women earn about 76% of what men do.
Part of the reason is that women are statistically more likely than men to work part-time jobs. Then, there are gaps in employment due to the birth of a child or other family matters. It all adds up to less money earned over a lifetime, which makes it tougher to accumulate a nest egg. One direct consequence is lower Social Security payments.
Second, women tend to live longer than men. In fact, 30% of women will live to see their 90s. That means the nest egg has to last a lot longer for women than it does for men.
Unfortunately, many women aren’t doing a good job with their finances. Nearly 30% of non-married women, age 65 or older, are considered poor. Three times as many women are widowed, as well, and widows have the lowest median income of any household.
Are Women Just Not Interested in Investing?
One reason why is that many women simply don’t invest. There are about 62 million women ages 21 to 64 in the workforce in the United States. Yet just 45% participate in any sort of retirement plan. So why don’t more women invest?
The reason is insecurity. Poll after poll shows that women are often insecure about investing – which, frankly, baffles me.
Women are often the CEOs of the home, so I don’t believe the stereotype that women aren’t as good with numbers as men. What’s more, I often found in my experience that women make better investors than men.
A study conducted by SigFig backs that up. The study looked at a million portfolios for 2014 and found that women outperformed men by a whopping 12%.
Yet a 2013 Wells Fargo study showed that 49% of affluent women said the stock market was “too risky” for them. Unfortunately, that’s the kind of thinking that will land you in the lowest median income category later in life.
After all, the stock market is the best place for long-term growth. Leaving your money in a bank at near zero percent just won’t get you to a secure retirement.
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Finally, many women still make a critical mistake even after deciding to invest: They don’t take enough risk. I always like to quote the famed investor and writer Robert Arnott: “In investing, what is comfortable is rarely profitable.”
I can’t emphasize enough that risk and reward is a trade-off. You have to take some risk and step out of your comfort zone at times to get a nice reward in return.
Six Steps to Take
Based on my past experience – I no longer give professional advice – these six steps can help ensure a financially independent future:
- Consider working beyond 62, which will raise your Social Security benefits. Do so even if your spouse is already retired.
- If you’re employed at a major firm, put money into the company’s 401(k). Many employers will at least partially match your contributions. Do NOT turn down the free money your employer is giving you.
- This suggestion I give to every one – set up a financial plan (possibly in conjunction with your spouse) with specific goals set.
- Don’t pass the buck to your spouse on finances because the stock market bores you or scares you – especially if the money is held jointly. If he has a financial advisor, make sure you both meet with them. And ask lots of questions. Your future may be riding on how well the advisor does their job.
- Another suggestion for both sexes – diversify. This gets back to adding risk. Add in other asset classes like real estate and perhaps gold. Among stocks, don’t forget to add in foreign exposure. Nearly two-thirds of stock market capitalization lies outside the United States.
- If you’re in or near retirement, consider long-term care insurance. With so many women living into their 90s, it’s almost a must.