Confidence is Key: Do Women Investors Have Different Needs?
Updated: Apr 7
March is Women's History Month and we're here to celebrate, educate and motivate!
While the COVID-19 pandemic has had negative effects on plenty of financial plans, it’s also done something rather extraordinary for women and investing. The rise of pandemic-fueled financial complications actually spurred more women to take charge of their finances. One way they did this was to dip their feet into the world of investing to ease the financial strain on themselves and their families.
And even though more women have begun investing in recent years with great success, there are still many more male investors in the market than women. While there may be many reasons for this, we believe that more women would be more likely to invest if only they have the right guidance, knowledge, and confidence to help them make decisions.
What Is Risk Aversion?
First, I have to start with a discussion about risk aversion. Risk aversion refers to an individual’s personal risk tolerance and preference for more or less risky investments. An individual with low risk tolerance is more likely to choose an investment with the least amount of risk or to prioritize cash savings over investments.
The right amount of risk aversion can be a good thing. For example, a healthy risk aversion can prevent someone from over investing in highly risky fad investments like meme stocks. But too much risk aversion can lead to missing out on some great opportunities.
The problem with risk aversion is that investment options with the least amount of risk also typically have the smallest return on investment, which means less money in your pocket. Additionally, too much risk aversion can cause some people to keep too much of their savings in cash, which quickly loses purchasing power due to inflation.
So how does risk aversion relate to women investors specifically?
Without overgeneralizing, some studies have found that as a group, women are more risk-averse than men. Of course, this tendency to be risk-averse may not be biological at all, but rather a product of social and gender conditioning. It’s worth realizing, however, that women may have to work harder to prepare themselves emotionally for the inherent risks associated with investing.
Do Women Have Different Investment Needs?
Beyond differences in risk aversion, there are many other areas that women differ from men when it comes to investing and financial needs. Some of these areas include:
Investing knowledge and confidence
Differences in lifespan
Different priorities and thought processes
The persistence of the gender wage gap
Investing Knowledge and Confidence
Because finance and investment products and services have historically been marketed toward men, women have had less opportunity to build the confidence needed to begin investing. Even one of the most relevant portrayals of investing in pop culture, the 2013 movie The Wolf of Wall Street, is catered toward men and makes professional investing out to seem like a boy’s club.
Also, men have historically handled the family financial decision-making—almost exclusively up until recent decades. Although that’s changing and has been less true for millennial women and beyond, it still has lingering effects and women can often be more nervous about jumping into managing their family’s finances.
Differences in Lifespan
It’s also important to consider that women usually live longer than men. Longer lifespans can lead to different financial needs, such as planning for a longer retirement timeline as well as more potential future healthcare costs.
Women need to take into account financial planning differences such as when they should begin accessing their retirement funds, as those will likely need to last them longer than their male counterparts. In many cases, this fact alone means that women’s investment strategies should be quite different from men’s.
Women Think Differently
Women are more likely to think about money in terms of how it can provide for themselves and their family, rather than just in the numeric sense as men do (again, without overgeneralizing too much). These thought patterns can affect how women see their money and when they feel comfortable investing it.
For many women, deciding how much to invest and projecting investment returns may be less about the numbers. Instead, women are constantly thinking about how their monthly income will meet family and personal needs such as grocery shopping, vacations, and childcare before they start investing. Similarly, they want to know the lifestyle that specific return projections will afford them—rather than just knowing the numerical value of the projections.
The Persistence of the Gender Wage Gap
Men and women also have differences when it comes to making money. The wage gap is something that simply must be acknowledged when talking about women and finances. Despite recent progress, men still make more money than women for the same work and experience. Wage differences are even more stark for women of color. While progress has been made over time, the wage gap is a factor that does affect women’s ability to save and invest.
Photo by Joel Muniz on Unsplash
Why Should Women Invest?
With all the ways that women differ in financial needs from men, it’s still important for them—perhaps even more important given their longer lifespans and the persistence of the wage gap—to invest their money strategically.
Better Results Than Men
Even though fewer women invest than men, women often have more success than men in their investment performance, especially when it comes to the stock market. One reason for this is that women may be less likely to act impulsively with their investments. Women are more likely to buy and hold investments even during market downfalls rather than make frequent trades.
While it’s not true for everyone, women are more likely to be ethical investors. This means that women will typically do the research to make sure that the companies they invest in have ethical practices like being socially conscious, environmentally friendly, or generally helping people in some way. I believe the evidence is clear—women who invest are also making the world a better place!
With millennial women being much more involved in their personal and family finances, investing is a way to take full control of your financial freedom. While women are more likely to keep their extra money in a savings account rather than an investment account, it’s important to consider the risks of holding too much cash when making decisions on whether or not to invest.
The problem with allowing your extra money to sit in a savings account long-term is that you are only earning a minimal amount of interest on that money. As time progresses, the value of your money will likely decrease due to inflation. You have more chances for a significant return on investment through exploring your various investment options.
Let Us Help You Begin Your Investment Journey With Confidence
Although it might seem intimidating, learning more about investing and gaining investor confidence is the best option for your future success. If you think you could use some guidance as you begin investing, you may benefit from seeking the advice of a financial coach.
At Wealthly, we specialize in financial coaching for millennial women and young couples. We want to help you work toward financial health whether that be with budgeting, debt repayment, or learning more about the world of investing so you can create the best outcome for your future.
To see if we can help you begin your investment journey, email me at firstname.lastname@example.org or to schedule a 1-on-1 Financial Coaching Call today click here.
Happy Women’s History Month!
Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual.