Women are smart, conscious, and deliberate investors, yet many have struggled to find their place in the male-centric financial world. It’s time to recycle tired narratives and empower women to take control of their finances, and that starts by leaning into their solid investing instincts.
What makes women such rockstar investors? Let’s find out.
1. Propensity for Saving
Women tend to earn higher returns and save more than their male counterparts, according to data from Fidelity Investments. On average, women’s portfolios earn an extra 40 basis points or 0.4% comparatively. While 0.4% might not seem like a windfall, that increase can make a big splash overtime.
Accompanied by higher returns, women are also projected to save more than men. When analyzing workplace retirement accounts, Fidelity found that women saved an average of 9% of their salary, with men at 8.6%. This trend persisted across all salary categories from entry-level to executive. Outside the workplace, like IRAs and brokerage accounts, women saved 12.4% on average, whereas men saved 11.6%.
What does this scenario look like in the long run? Over a 45-year investment window, women who save 9% of their income with a 6.4% average return are projected to earn 15.4% more than male investors (8.6% with 6% return)—a whopping $276,170!
Better savings habits but lower account balances—something doesn’t add up.
Even though women tend to out-save men, their 401(k) balances are falling woefully behind. Vanguard research found that men’s account balances were nearly 50% more than women’s, reflected in part by the staggering wage gap.
It’s critical to actively work on closing the wage gap, and part of that solution is asking for a raise at work to earn what you deserve. Women need to save more to build wealth and support their lifestyle since they are projected to outlive men by 5 or more years.
Diligent saving is a crucial metric for a healthy investing strategy—one that women have in spades!
2. Build More Stable, Long-Term Portfolios
Generally, men are more likely to be overconfident in their ability to actively manage their portfolios. This perception leads to more frequent trading, yielding high fees that dampen overall returns. In fact, Fidelity found that men are 35% more likely to trade investments and end up trading 55% more than women.
Research shows that actively managed funds aren’t the superstars that they claim to be. The S&P Dow Jones Indices released data that found actively managed funds significantly underperformed the index benchmarks. After a decade, 85% of large-cap funds underperformed the S&P 500. Give the fund 15 years, and it’s still trailing by 92%.
Women tend to avoid jumping on this bandwagon by more frequently adopting passive investing principles. Low-cost passive investing (ETFs, index funds, target date-funds, etc.) minimizes trading and keeps investment fees at bay. Fees can eat into your net returns, so employing tactics that reduce those fees is best for the long run.
When in doubt, diversify.
The same Fidelity report also noted that the percentage of women who are properly allocated for their age has increased 40% over the last three years. Proper allocation ensures your portfolio is well-diversified, another area where women tend to be more balanced.
This study revealed men are more likely to have their savings fully invested in equities, suggesting a lack of proper diversification. A diversified portfolio works to balance market exposure, protecting your investments over the long run.
It’s a long road ahead.
The Warwick Business school also discovered women take a more long-term view of their investments, which plays a big role in their higher returns.
As financial advisors, we are always talking about long-term investing. You can’t reach your investment goals in 1, 5, or even 10 years. Investing takes time, patience, and strategy. Women are building investment portfolios that stand the test of time and are doing it in a risk-conscious manner.
All things in moderation.
Remember, there is a fine line between risk-conscious and risk-averse. Women tend to shy away from equities due to the volatility attached to those securities, but it’s all about striking the right balance and building a portfolio allocated for your risk, investment goals, time horizon, and personal circumstances.
3. Make Informed, Well-Researched Decisions
When it comes to being a savvy investor, education is the name of the game. Financial literacy is crucial to finding long-term success—an area where women are flocking. Women tend to walk into the market with both eyes open and conduct a sufficient amount of research before diving in like reading books, blogs, and seeking professional assistance.
Fidelity reported that their live and online education materials have seen more female participants than ever before, a 25% increase year-over-year. A study by Prudential also found that women are more likely to use the services of a financial advisor. Echoing this research, Spectrem Group found that 40% of men didn’t seek out financial guidance compared to only 20% of women who said the same thing.
Women investor’s curiosity toward the market has been a crucial advantage over the years. This has led to more women asking strong questions and finding the answers before investing their money in the market.
4. Better Equipped to Handle Market Volatility
The market is and always will be volatile, but women tend to handle this volatility better. Why? Their portfolios are suitably allocated to their risk tolerance and capacity, they tend to trade less frequently, and they view investing as a long-term vehicle.
Investing is a domino effect, each decision impacts another. Being able to withstand market ups and downs helps women make strategic choices. While every investor reacts differently to market conditions, an overconfident investor might be more tempted to time the market and buy more when times are good and sell more when times are bad.
Impulsively buying and selling securities doesn’t lead to long-term success, a trait men tend to fall prey to more than women. It’s prudent to keep overconfidence or emotions from driving your investing behaviors.
5. Align Investments with Goals and Values
Where men tend to zero-in on returns and performance, women tend to think about how their investments are tied to their goals and values. This crucial connection helps them put their portfolio in context and build it with their goals in mind.
This holistic approach to investing helps women find more purpose and meaning in their strategy, encouraging long-term activity.
Investing is less about returns and more about reaching your goals. When you think about investing in terms of reaching your goals, you are likely to make healthier decisions and consider your investments a long-term vehicle.
Women Are the Future of Wealth
While men have dominated the financial narrative for years, women are coming into more and more wealth, carving out a well-deserved place for female investors. McKinsey & Company found that women today control a third of total US household financial assets, topping $10 trillion. With the great wealth transfer on the horizon, women are projected to control much of the $30 trillion dollars baby boomers are expected to pass down. As the years go by, women are becoming the new face of wealth, and as such, need the right guidance to grow and preserve that wealth for generations.
Investing is by far the best way to set yourself up for financial success. It’s time to celebrate the many ways women approach investing and help them build portfolios that achieves their goals and find financial fulfillment.
At Abacus, we are passionate about empowering women to build portfolios that match their goals and help them find success. Are you ready to reclaim your investing strategy this year? Give us a call today.