While women generally earn less than men, they can close in the gender pay gap by investing more, according to an article published in U.S. News.
Coryanne Hicks, a staff writer who authored the article said that women have the advantage over men when it comes to long-term investing. Citing Fidelity Investments report, women on average outperform men in returns by 0.4%. Even though this looks like a small difference, but if compounded over 40 or more years, this figure can yield a significant amount of money.
However, women prefer conservative modes of investing than men. Instead of putting their money in a more aggressive investment portfolio, they keep more than 70% of their wealth in cash.
Carrie Schwab-Pomerantz, chairperson and president of the Charles Schwab Foundation, said women’s low earnings discourage them to invest them in high-risk ventures. For every $1 paid to a man, a woman only gets paid 82 cents. And because of lower income, “every dollar saved is precious” for women. As a result, they choose to protect their earnings by investing conservatively, Schwab-Pomerantz added.
Playing the Game for Boys
Another deterrent for women in investing their wealth is the nature of the financial markets. Financial planning models used in most financial markets use men’s income, career goals, family roles, and preferences as bases. Men are often keen on the performance of their investments and how they can beat the market, women are more focused on meeting their financial goals, particularly of their families. A Merrill Lynch report proves this fact, stating that 77% of women prefer to use their money for their families.
Ways Women Can Engage in Investing
But there are ways women can use their financial “handicaps” to their advantage. Take for example their trait of being financially conservative. While their “risk-averse” nature can prevent them from making high-yield investments, this trait can also lead them to greater success in reaching their investing goals. The key is to start early in low-risk investments.
Being focused on goals will also help women outperform men in investing. They can do this by ignoring the highly competitive man speak of Wall Street and concentrating instead on alternative low- to moderate-risk investments.
Moreover, to become better investors, Merrill Lynch suggests women should overcome their reluctance to tackle financial matters. One way to do it is by learning personal finance and investment.