Previously published Puget Sound Business Journal June 3rd
Today, women control a third of total U.S. household financial assets — more than $10 trillion.1 But in households with assets valued between $2.5 million and $5 million,1 the share controlled by women is only 23%.1
With the Great Wealth Transfer underway — the intergenerational transfer of $30 trillion1 in financial assets from baby boomers to younger generations — women have the potential to greatly diminish the prevailing gender investment gap.
By one estimate, there would be an additional $3.22 trillion in global assets2 if women invested at the same rate as men. The same study revealed that women still face barriers to investing, primarily driven by a lack of comfort and a perceived need for a substantial disposable income, with respondents believing they require an average of $50,000 to participate in financial markets.2
Furthermore, only 9% of women indicated a high or very high level of risk tolerance2, further contributing to the investment gap.
Here are three steps women can take to enhance their financial literacy and foster the confidence needed to navigate and eventually embrace investing:
- Build a foundation: While each woman’s situation is different, there are a few basic things women can do to be in a position to take charge of their finances. Start by determining what leads to the greatest sense of security. For example, reducing debt, establishing an emergency fund and participating in their employer’s retirement plan can establish a strong financial foundation.
- Get involved: Take an active role in the financial planning process and ask questions to understand the components of an investment plan. In addition, seek out educational workshops to create a group dynamic for learning that can make broader financial topics easier to digest. Gaining understanding is the first step toward removing the cloak of secrecy that makes investing intimidating.
- Get started: Sometimes, the easiest way to get started is to simply commit and take action. Women often wait too long to begin investing, but it’s better to start early, even if it’s with a small amount of money. Consider a goal-based investment plan to create motivation and make it easier to stick to a plan. For example, buying a house, starting a business or starting a college fund can make an investment plan more “real.” It is also critically important to retain a financial adviser who understands women’s unique financial goals, concerns, experiences and investment needs. In a study, 86% of women agreed that having investments managed by a professional makes life less stressful.3
Research suggests that women possess innate instincts that make them effective investors, outperforming men by 40 basis points3 in an analysis of over 5 million customers spanning a decade. These traits include:
- Patience and discipline: Women tend to be more patient and disciplined in their investment decisions, which can help them avoid impulsive or emotionally driven investing.
- Long-term focus: Women often have a longer-term focus and are more likely to prioritize financial goals that extend beyond short-term gains. This can lead to a more strategic and balanced investment approach.
- Attention to detail: Women tend to be more detail-oriented and may conduct more thorough research before making investment decisions. This can result in a more informed and well-rounded investment strategy.
- Risk awareness: Women may be more risk-aware and risk-averse than men, which can help them avoid overly risky investments and maintain a diversified portfolio.
- Collaborative decision-making: Women may be more likely to seek out advice and collaborate with others when making investment decisions. This can lead to a more comprehensive approach to wealth management.
Through active financial engagement and leveraging their natural strengths, women will make significant strides in narrowing the investment gap and shape the future of wealth creation.
1 Baghai, Pooneh; Howard, Olivia; Prakash, Lakshmi; and Zucker, Jill. "Women as the next wave of growth in US wealth management." McKinsey Insights, 29 July 2020, https://www.mckinsey.com/industries/financial-services/our-insights/women-as-the-next-wave-of-growth-in-us-wealth-management
2 "BNY Mellon Investment Management: It’s Time to Create a More Inclusive Investment World." BNY Mellon, 2 Feb. 2022, https://www.bnymellon.com/us/en/about-us/newsroom/press-release/bny-mellon-investment-managementpercent3a-itpercent27s-time-to-create-a-more-inclusive-investment-world-130254.html
3 “2021 Women and Investing Study.” Fidelity Investments, https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/about-fidelity/FidelityInvestmentsWomen&InvestingStudy2021.pdf