Women Need to Think About Investing Differently Than Men

We live longer and earn less, on average. That changes how we need to save.

You know how to run a meeting, give a kickass presentation, and code an app that you’re developing on the side. But investing? Chances are you could do more.

For various reasons, investing continues to be dominated by men, and financial literacy tends to be lower among women, despite the fact that being a savvy investor is an important skill for anyone of any gender. According to the TIAA Institute – GFLEC Personal Finance Index, men showed higher financial literacy than women, answering more questions correctly (21 percent of men answered 75 percent of the questions correctly, compared to just 12 percent of women).

The results, while frustrating, shouldn't be surprising. Women are hit with a double whammy: Not only is personal finance and investing rarely taught in schools or at home, but women are often discouraged from talking about or managing money.

Traditional retirement models often assume an average (man’s) lifespan and average (man’s) salary trajectory, explains Ellevest's Krawcheck.

“I think, as females, we get such negative messages around money, or how it is not an area we're supposed to have expertise in,” says Sallie Krawcheck, CEO and co-founder of Ellevest, a digital investing firm targeting women.

The financial industry itself gets some of the blame. “A lot of advisors will use complicated jargon. People do it because it creates this mystique and makes it seem like it's more complicated, which justifies high fees and bonuses,” says Judith Lu of Miracle Mile Advisors in Los Angeles. But in reality, it’s not complicated.

The situation is made all the more unfortunate because investing skills are actually more important for women than for men. Women live, on average, 4.9 years longer than men. Not only that, but women make less money over their lifetimes. Women are also more likely to drop out of the workforce to care for children or elderly parents and women’s salaries peak in their 40s, while men’s salaries peak in their 50s.

All these disadvantages mean that women generally have less saved up for retirement. According to a survey by Student Loan Hero, only 52 percent of women had a retirement savings account while 71 percent of men had one. Not only that, but women had only about half as much saved, on average.


The longer lifespan coupled with the wage gap mean that women can and need to take on more risk with their investments. Traditional investing models often recommend putting 70 to 80 percent of your long-term savings into stocks, 30 percent into bonds, and then gradually changing the mix to include more bonds and less stock as you get closer to your goal, whether it’s college tuition for your kids or travel money for when you’re retired.

But women who are saving for retirement are not well served by these traditional models, which often assume an average (man’s) lifespan and average (man’s) salary trajectory, explains Krawcheck. That means women can think about keeping a large portion of their investments in the stock market for longer.

Unfortunately, there’s no set formula to recommend because the right mix of investments or the right amount of risk varies a ton depending on your income, amount of savings, age, and goals. To figure out the right mix for you, it helps to understand risk.

Taking on more risk generally means higher returns (but with more of a chance of losing your money), while less risk means lower returns (and less of a chance of losing money). Stocks are considered riskier than bonds. When you’re buying stock, you’re buying a tiny bit of ownership in the company. If the company goes bankrupt or the stock price suddenly drops and you sell, you could lose all your money. Bonds, on the other hand, are issued when a company (or government) needs to borrow money and promises to pay you back with interest.

Another thing you should know about risk: Buying individual bonds or stocks is more risky than buying funds, which spread the risk across many stocks or bonds. If you really like a company—say Tesla—and decide to put all your money into Tesla stock, you’d be in a bind if something suddenly something happens to the company. On the other hand, if you buy five funds (which spread your risk across hundreds of stocks or bonds), it’s unlikely that announcements from any single company or any single news event could affect your investments drastically.

Another factor to consider when weighing risk: your goals. If you’re saving money to buy a home in five years, or a new car, or trying to build a rainy day fund, you should not take on as much risk as if you’re saving for a retirement that’s 30 years in the future.

Women—all people really—should save as much as possible, as early as possible.

“You should only take on risk if you need to. When someone is very young and putting money into a retirement account, it's common to take risk; there’s plenty of time to weather all the storms,” says Lu. On the other hand, for money that you might need in the short- or near-term, like an emergency fund, or money you set aside for paying taxes, you probably wouldn’t want to put that into investments. “There should only be a certain amount of risk in there because if you invest and the market goes down, you won’t be able to pay for groceries or rent,” Lu explains.

For shorter-term investments, you could consider a CD, or certificate of deposit. A CD has higher interest rates than a savings account but is also fairly low-risk. You can buy CDs with 6-month, one year, two-year, five-year, and other intervals. Just be sure you don’t have to touch that money during the term of the CD. If you do, you’ll have to pay a penalty.

One thing experts agree on is that women—all people really—should save as much as possible, as early as possible. Saving early on gives you a leg up on growing that money. “The discipline of always having a bucket for savings, no matter what your competing demands are will always be beneficial in the long run. You’re planting a seed, if you plant it early enough, by the time you actually need it, it’ll have enough time to grow into a tree with lots of apples,” says Lu.


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