In the U.S., men are investing and accumulating wealth at a greater pace than women, fueling the gender investing gap. Closing the investing gap is essential so that women accumulate enough retirement assets for their entire lives. On average, women in the U.S. have a life expectancy of 80.2 years compared to men having a life expectancy of 74.5 years, according to WorldData.info. Women must be active investors to accumulate more retirement savings to last their long lives.
If women invested at the same rate as men, there would be an extra $3.22 trillion of assets under management today, and $1.87 trillion additional capital into responsible investments, according to a BNY Mellon Study. There are numerous reasons for the gender investing gap that, as a society, we must work toward bridging:
- The gender pay gap– In 2022, for every $1 that men make, women earned 0.82 cents. The U.S. Census Bureau has found that even though Equal Pay Day has brought awareness to the gender pay gap, women would need to work three additional months to catch up to men’s pay. With less money to invest, women may invest less or not participate in the markets due to having fewer investable assets.
How do we bridge it? Companies can help close the pay gap by allowing women to participate in leadership and assess their pay and employee benefits programs to be inclusive to all. Hiring third-party consultants to review employee pay, develop programs to reduce hiring biases and pay discrepancies, and implement new policies can help bridge the pay gap.
Developing employee leave programs that benefit women and all caregivers with leave pay when they are absent from work to care for family members. Program benefits, including short-term insurance and a ‘pay bank,’ where employees donate their unused leave to benefit others, can help provide paid leave, and flexible work schedules can become policies.
- Investor confidence– Many women tend to feel they don’t understand investing. They also feel more comfortable saving in savings accounts or investing in property and less comfortable investing in market-driven investments, according to the BNY Mellon Study. There are also biases in marketing investments to men versus women, which can deteriorate their investing confidence.
How do we bridge it? Creating company financial education initiatives and marketing wealth-building programs to women is an excellent way to start. Encouraging financial professionals to specialize in working with women and encouraging more women to join the financial services industry can help. Awareness in marketing to include women in advertisements, financial education in schools, and better communication that women must invest in their futures can help female investor confidence.
- Risk avoidance- Women tend to feel less confident about investing in the stock market, alternative investments, and REITs. They often view investing outside their employer’s retirement plan as risky. When it comes to risk tolerance, women also have a lower tolerance to market risk than men:
- 9% of women report a high level of risk tolerance
- 49% have a moderate risk tolerance
- 42% have a low risk tolerance
Source– The Pathway to Inclusive Investment, BNY Mellon
How do we bridge it? While risk, performance, and results are part of investor reporting, it isn’t appealing to women. Instead, education and marketing directed toward women about risk, performance, and results must include the reason for investing. Many women invest for a cause to make the world a better place, which requires taking some risk.
- Income expectations- Many women think they need a few thousand dollars in disposable income each month before they invest. The same study found that many women believe the IRS limit for IRAs is the amount they must invest, which isn’t accurate. Also, women who describe their financial health as poor are less likely to invest.
How do we bridge it? Financial professionals can help bridge this gap by encouraging women to start investing- regardless of income and at any amount. Fund companies can market that investing consistently; even a small amount can add up over time thanks to the power of accumulation. Financial education at work and in schools are great avenues to illustrate that no income is required to start investing.
- Investing for a cause- Women are motivated by their investments’ impact but often have difficulty finding investment strategies that align with their values. Or, some socially responsible investments may not produce the consistent positive returns that help women accumulate wealth.
How do we bridge it? The financial industry must develop funds and investment strategies that align with women’s values that impact people and the planet. These strategies may produce returns that enable women to be financially confident and provide for those they love and the causes they care about. Also, fund companies must market to women by depicting confident women making an impact on our world and its people through their investing.
While these reasons present problems and solutions to bridge the gender investing gap, the important thing is that women invest in their future by consistently saving and investing. Next, working with a financial professional can help women develop a financial plan and design a portfolio of strategies that align with their values and produce positive returns.
Important Disclosures
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
Non-traded Real Estate Investment Trusts (REITs) invest in commercial real estate or real estate related debt, but unlike exchange-traded REITs are not listed on a national securities exchange. Non-traded REITs differ from exchange-traded products with similar strategies, and can carry significant risk that should be understood prior to investing. Significant risks include, but are not limited to: sector concentration, geographic, illiquidity, interest rate, change in governmental, tax, real estate, and zoning laws, and debt. Alternative investments, including REITS, may not be suitable for all investors, and the strategies employed in the management of alternative investments may accelerate the velocity of potential loss
Socially Responsible Investing (SRI) / Environmental Social Governance (ESG) investing has certain risks based on the fact that the criteria excludes securities of certain issuers for non-financial reasons and, therefore, investors may forgo some market opportunities and the universe of investments available will be smaller.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by Fresh Finance.
LPL Tracking # 1-05355004
Sources:
https://im.bnymellon.com/us/en/intermediary/inclusive-investment.jsp
https://www.americancentury.com/insights/investing-women-closing-gender-investing-gap/
https://www.payscale.com/research-and-insights/gender-pay-gap/
