Investment Management

What everyone can learn from women and investing

Women may outperform men but face unique financial challenges.

Article published: March 11, 2024

In this article:

Women continue to gain economic power and break financial barriers.
On average, they handle money differently than men – and one outcome is that they earn better investment returns.
However, women still have a higher risk of less financial security overall and need to think holistically about the risks they face.

This year marks the 50th anniversary of the Equal Credit Opportunity Act, which made it illegal for banks to deny women credit based on gender. Since then, women have continued to break financial barriers and gain economic power. (In fact, some economists suggest that spending on Taylor Swift and Beyoncé concerts, related travel and merchandise increased third-quarter GDP by $5.4 billion and kept the U.S. out of a recession in 2023.)

As more and more wealth is transferred into the hands of women, everyone can learn a few lessons from the ways in which they approach money differently – both the positive and the not so positive. Consider these four points:

Women may be more successful when they invest

Multiple studies have shown that women may earn higher returns than men when they invest in the stock market – nearly 2% higher annual return on investment, according to analysis of investor data performed by Warwick Business School. A major driver of the difference cited is their infrequent trading; Vanguard’s 2023 How America Saves report showed that women traded about 30% less than men.

According to a study by McKinsey & Company, women are also more likely to hire financial planners, and a separate study by Boston Consulting Group pointed out that they take more time to make investment decisions, both of which could work in their favor.

Lesson:
Women may earn higher returns by resisting the urge to tinker with their portfolio and following their plan.

Women face unique financial challenges

Unfortunately, women need to be good investors because they can face a perfect storm of challenges that compound one another and make it hard to save enough.

On average, women:

Make less money than men (due to things like caretaking responsibilities, overrepresentation in lower-paying industries, fewer women in senior roles and pay inequity)
Live longer than men
Feel more of a financial impact from events like divorce or widowhood
Feel less confident and engaged when it comes to long-term financial planning, thanks to social norms, family history and the financial industry’s historically male makeup

While these are the realities, awareness can empower women to take action. For example, because they live longer, women need to save more than men for retirement.

Saving earlier can help reduce the financial impact of needing to save more. It’s especially important because so many women leave the workforce at some point to take care of children or other family members. So, encourage the young women in your life to start saving as soon as they start working! Fidelity reports that almost 70% of women wish they had started investing sooner.

As for those cultural norms? There’s evidence they’re starting to erode – in the Boston Consulting Group study, only 40% of baby boomer women said they take the lead in financial decisions, compared with 59% of Gen X women and 70% of millennial women. That’s good news, because given the high potential of divorce or widowhood, everyone should prepare to be fully responsible for their finances at a moment’s notice.

Lesson:
It’s critical to stay engaged with your money. Everyone should clearly understand the financial realities they face and have a plan to address them.

Women tend to be more risk averse

Gender research consistently shows that women are more risk averse than men when it comes to everything from investing to driving to extreme sports.

Minimizing risk can be a smart move in a lot of cases. But investors need to keep in mind the relationship between risk and reward: Lower risk usually means lower potential return.

One outcome of women’s lower tolerance for risk is that, on average, they hold nearly 30% of their portfolios in cash investments, according to Boston Consulting Group’s Managing the Next Decade of Women’s Wealth. But while cash may be considered a “safer” investment, it can also act as a drag that stops you from reaching goals (and thanks to inflation, it often doesn’t even maintain its value).

The additional financial challenges women face don’t mean they should avoid investment risk. In fact, taking enough risk is one of the most important tools for long-term financial goal planning (and women’s longer lifespans can make them candidates to take more risk, longer) – along with saving more and starting earlier.

Lesson:
When you think about investments, make sure you consider both tangible risks (financial loss) and intangible ones (not having enough money for retirement).

Women focus more on values than money

According to our Everyday Wealth in America 2023 research, women who have a goal of building wealth are more likely than men to say that they’re seeking security, comfort or freedom. But overall, they’re less likely to consider making lots of money or building wealth an important goal at all.

One downside of this mindset can be a lack of focus on investing, especially when combined with the financial challenges women already face – it’s easy to let taking care of loved ones and their needs take precedence over long-term savings. And indeed, fewer women than men are saving for retirement.

But on the positive side, women’s goal-focused approach can give them an emotional equilibrium that makes it easier to stay the course during volatile markets and keeps them motivated even when it feels like progress is slow.

Lesson:
Make your financial security a priority. To stay on track, focus on what you’re trying to achieve with your money, not on your account balance or market movements. Being financially secure means you’re less likely to become a financial burden on loved ones.

We can help

If you – or the women in your life – want to adjust your approach to money, whether it’s saving more, taking more risk or simply getting started investing, your planner is here to help you and your family come up with a plan that’s right for you.

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