Women are paid less than men and are more likely to quit work to take care of loved ones, which has a negative impact on the amount of money they will have to save and invest over their lifetime. Even so, only half of Americans (50%) believe that women are at a disadvantage compared to men when it comes to long-term investments, according to a new NerdWallet poll.
The survey was conducted in July 2021 – in the middle of the pandemic, which has only deepened the systemic and socialized disadvantages of women. The fact is, however, that women have to overcome these hurdles in order to invest and build wealth in a sustainable way. Below is some advice on how to tackle five investment disadvantages that disproportionately affect women.
1. Assess your risk tolerance
According to the NerdWallet poll, about 1 in 6 Americans (16%) think women are more risk averse than men. When choosing investments, it is important to consider and acknowledge your personal risk tolerance. However, if you are so risk averse that you are unlikely to meet your financial goals or are avoiding the stock market altogether, it is probably time to reconsider your strategy. Diversification is an effective way to reduce your risk while growing your portfolio.
You can diversify your portfolio not only according to asset classes – for example stocks and bonds – but also within asset classes. That could mean investing in companies of different industries and sizes. If a particular company or industry underperforms, the rest of your portfolio can make up for it.
Diversification doesn’t have to be complicated. Funds like exchange traded funds or mutual funds are made up of a mix of investments so that you are diversified within a single asset. Try to strike a balance between your risk tolerance and your goals, and use diversification to make it easier for you to invest in your future.
2. Increase your savings as best you can
The survey shows that nearly a quarter of Americans (23%) believe that women who earn less than men are at a long-term investment disadvantage because they have less money to invest. As of 2018, women made an average of 82 cents for every dollar men made. And this gap is significantly larger for many women of color. Inequality of earnings means that women often have to save a higher percentage of their income than men.
If you have a 401 (k) through work, you may be able to set up automatic incremental increases – for example, 1% per year. You can also increase your contributions if you receive a raise if you can continue to comfortably live on your old carry-over income.
However, because part of the wage gap is due to employment differences – often gender norms and expectations tend to encourage men and women to move into different industries – some women may not have enough income or earn the raise necessary to take this advice follow. If so, your best option may be to look for new vacancies or areas of activity. And if you have a partner to share the expenses with, discuss how you will contribute to the budget if that gives you more money to spend.
3. If possible, also invest during a career break
More than one in five Americans (21%) think caregiving-related career breaks are a long-term investment disadvantage women face compared to men, according to the survey. These disruptions were exacerbated by the pandemic as millions of women left work, many due to a lack of day care or personal schooling. But if family finances still allow, those who have an income spouse don’t have to stop investing.
A spouse IRA allows the non-earning spouse to contribute up to $ 6,000 per year (or $ 7,000 for those aged 50 and over) as long as the couple files tax together. If it is unreasonable for you and your spouse to exhaust both IRAs, you can split the money you would invest in IRAs and contribute equally to each.
You can also use household income to: a. to contribute taxable brokerage account in your name. You do not have the tax advantages of a retirement account, but there is no limit on the amount of contributions or income and you can withdraw your money at any time.
4. Finding resources
Around 1 in 8 Americans (13%) believe that women’s lack of investment knowledge is a disadvantage compared to men, according to survey results. Find free or cheap financial advice and resources is easier than ever, although it is important to check your sources to make sure they are legitimate. Your bank or broker likely has financial tools and educational content, and you can also look for additional financial resources online or in a book in your local library. Review resources that are new to you and be skeptical of sources that promise you a certain return on investment if you follow their advice.
Also, understand that you don’t need to know all about investing before you start. The best you can give your investments is time to grow. So learn the basics and dive in. An inexpensive way to start investing is with a robo-advisor that uses algorithms to manage your investments based on your goals and risk using tolerance and time horizon. As you learn more about investing, you can take a more active role in managing your portfolio if you wish.
5. Encourage other women to talk about it and invest
Finally, NerdWallet’s survey found that 18% of Americans believe that women are at a long-term investment disadvantage compared to men because they are not encouraged to invest by others. As early as childhood, girls can be taught how to handle money from the perspective of budgeting, while boys can be taught how to deal with money from the perspective of asset accumulation or investment. By being willing to discuss financial issues with friends, colleagues, and loved ones, women can encourage one another to invest in their futures.
Money is still taboo in certain circles, but it doesn’t have to be. Ask women you trust how they will build wealth for the future or if they have already thought about investing. By opening the conversation, you are making it okay for women in your life to talk to you and ideally other women about investment concerns and uncertainties, but also about strategies and successes.