Some studies show that women and men differ considerably in their approaches to investing.
Fortunately, some of those differences are to women’s advantage — some research shows that women are actually better investors than men. Unfortunately, other differences can be detrimental to their portfolios. So whether you’re a woman or an important man in a woman’s life, let’s look at why you — or your daughter, sister, or wife — shouldn’t approach investing exactly the same way as men.
Average Life Span of Men and Women in the U.S.*
* All races
Facts of Financial Life
Although they make up nearly half of the work force, some women don’t know how to invest their savings because they grew up under-prepared for relationships with money. Here are some considerations to keep in mind:
- Look Ahead: It’s important to start investing as early as possible. Women, on average, still live about four years longer then men and overall spend far more years single over the course of their lives.
- Get Worked Up: Being a stay-at-home parent or serving as the caregiver for an aging parent may be an ideal solution for a family, but it hurts many women financially. Women still do the bulk of parenting and caregiving, and end up, on average, losing several years of maximum IRA contributions, 401(k) buildup, and service years for Social Security. Furthermore, over and above still-existing wage discrimination, many women on the “mommy track” tend to have slower salary growth, which further limits their retirement nest eggs and overall savings.
- Hold Hands: More women lean on their financial advisers for guidance. As a result, they generally make out better than the larger proportion of men who refuse to get help with investment selections.
Navigating the Path to Prosperity
Whether or not women grew up in households that talked frequently about money-management, as adults they need to emphasize wealth building. Here are some steps to consider:
- Stop Practicing Overly Safe Investing: Many women tend to weight their portfolios too heavily in lower-risk fixed-income investments, such as CDs and high-grade bonds, that are less likely than stocks to overcome long-run inflation.
- Track the Ticker: Men are much bigger consumers of financial media, such as print and cable business news. Although following stock prices throughout the day may be going overboard, women who don’t pay attention to financial events should increase their daily awareness of market trends, economic conditions, and the overall business climate.
- Continue Controlling Impulse: Despite men’s current information advantage, some studies show that many of them are more likely to make impulsive investments based on tips, sudden notions, or fear of missing out on an opportunity.
- Take Pride in Patience: In general, women aren’t as driven as men to either hang on to a stock that they just “knew was a winner,” or constantly change investments to outperform the market. Landmark research by Terrance Odean, professor of finance at University of California (Berkeley), shows that men are more apt to be traders rather than investors, and achieve significantly less return than more patient men and women – partly due to transaction fees that drag down their portfolio performance.
Given the research, as well as the longer life spans and lower earning capacity women experience on average, it is clear that they generally need to save and invest differently in order to secure a comfortable retirement.