Nowadays, women and investing is becoming a hotter topic. Sites like Dow Janes and Ellevest target their marketing towards women as their investing needs and goals for retirement do not conform to the traditional path. For example, I’ve seen men do some of the riskiest things with their lives and those habits inevitably lead to shorter longevity. Therefore, women often focus more on longevity since they tend to outlive men. While evaluating their portfolios, women will want to pay attention to these three behaviors to avoid letting returns slip away.
In Vanguard's, How American Saves Study, it shows that women participate in their 401k contributions more than their male counterparts; however, they are saving at a lower rate.
Oftentimes these savings rates increase as the women become higher income earners. Some other factors for lower contributions and account balances involve women entering the workforce later in life and women often start at the entry level positions and work their way up. Between the lower rate of savings and the wage gap - currently 82 cents per every dollar a man earns - it’s even harder for women to save for a lengthy retirement.
Lower Risk Tolerance
Men and women differ in many ways when it comes to their risk tolerance. For instance, men take more risk when investing. To determine your risk tolerance, complete an investor profile. An investor profile is based on several different factors: risk tolerance, financial goals, and time horizon. Time horizon is arguably one of the most important factors to creating your investor profile. If this is a roadmap to retirement, think of the time horizon as the destination and the speed is your risk tolerance.
Another consideration when analyzing the lower risk tolerance of women is evaluating the downside potential. Many investors focus on how much they can make and the potential loss. Since women make less on average, the thought of losing their hard earned money is not worth the high risk.
Let’s assume you are able to contribute at a greater rate and you have a higher risk tolerance. Then the only thing standing in the way is research and execution. Research is not much of an issue for female investors, the concern is execution. Execution can be stunted in a variety of ways: trying to time the market, imposter syndrome, or they are just plain too busy.
Unfortunately, these three behaviors create a trifecta for lower returns and most women are repeat offenders. It’s not with malicious intent that women do it but instead it’s from natural programming with the instinct to protect. This protection resonates differently amongst women but it starts with their association with money. To take a closer look at that, sit down with me and make your investments a priority.
If you fail to plan, you plan to fail.