Should Women Invest Differently?

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The Balance / Joyce Chan

A woman’s relationship with money is likely more complicated than it is for a man—and for good reason. On average, women don’t make as much money as men. They also live longer, thus needing money for longer, and, for some reason, they generally don’t make investment decisions like men, who tend to be less conservative investors that take more risks.

So if you’re asking yourself, “Should women invest differently?” The short answer is yes. Differently not just from the way men invest, but also from the way they have been thinking about money and investing it so far. 

There are many factors that often drive women’s investment outcomes, and they may need to change if women want to build long-lasting wealth. Learn why, here.

Why Women Invest Differently 

A 2017 study by consulting firm Mercer revealed that women are more likely than men to lack financial courage. It further reported that individuals who lack financial courage have inertia when it comes to financial decisions, are likely to avoid financial discussions, and will not take advantage of investment opportunities because they are afraid of losing money. Unfortunately, this isn’t something new to the 21st Century—it dates back years, and may have started on Wall Street.

Trading stocks and investing has, throughout history, been treated as a sphere of male dominance. The signing of the Buttonwood Agreement in 1792 paved the way for the creation of the New York Stock Exchange (NYSE), and yet it still took 175 years for the exchange to get its first woman member—Muriel Faye Seibert in December 1967.

“There's just this long history of patriarchal attitudes that has built this foundation that's made Wall Street seem further off than it should be,” Saira Rahman, vice president of finance at financial tech firm HMBradley, said on the “Ladies Get Stocks, Too” panel, as part of the 2021 Finance Festival—a two-week virtual event focused on empowering women to take control of their wealth and future.

According to Katie Perry, vice president of marketing at social media investing platform Public.com, the perception of male domination in finance, for her, stemmed from pop culture, and that idea was challenged only when she took her job in finance.

“My view of Wall Street was everything you see in pop culture, it's usually white guys in suits, Leonardo DiCaprio, like throwing money off a boat,” Perry said. “And I think what keeps a lot of people, and especially women, on the sidelines sometimes is feeling like that culture is like kind of icky or not for them.” 

But there’s nothing to be afraid of. Investing in stocks may seem daunting, but women may actually be better at it than men.

While only 9% of women investors thought they would outperform men investors, results showed that women, on average, saw 0.40% higher returns than male investors between January and December 2016, according to a 2017 study by Fidelity Investments. This seemingly minor difference actually has a significant impact over time.  

“It's not a capability thing at all,” Judy Zhu, founder of MoneyGirls, said. “It's an access issue.”

In regard to access, women still only earn 82 cents to $1 earned by men, suggesting they may not have the capital needed to get started. Closing that gender pay gap could help women start investing so they can achieve their financial goals.

Why Women Need to Invest Differently

Not actively investing is not an option for women, simply because the deck is already stacked against them. Stashing away money in your savings account and contributing to your 401(k) plan are both great, but not nearly enough for a number of reasons.

The gender pay gap means women, on average, accumulate less money over the course of their working lives. Women also tend to live longer than men, so that’s a double whammy, because women now need to make their dollars stretch further. To top it all off, women’s payouts from retirement investment instruments, such as annuities, are lower on account of their longer life expectancy.

Women also tend to be primary caregivers and, on average, spend up to 44% of their adult work life out of the workforce, as opposed to 28% for men. This time adds up and further impacts the amount of money women earn and have at their disposal. Plus, meeting other obligations such as daily expenses or paying off debt may then take priority over saving and investing for retirement.

How Can Women Change the Way They Invest

Studies show that when women do invest, they tend to take a more conservative approach than men—and that’s OK. You don’t have to be an aggressive investor or a financial expert to start investing. There are many ways you can begin your journey to building an investment portfolio.

Define Your Investing Style

It may be tempting to go with the news and jump into day trading head first, but it’s your money and you should take calculated risks. For example, meme stocks may be all the rage right now, but they also come with a lot of strings attached. First understand your risk appetite and bandwidth to monitor your investments, and then decide which approach works best for you.

“If you're looking for long-term growth and something to create additional income, or at least a revenue stream for you when you're going to retire, you want to look at long-term investments,” said Lauren Silbert, vice president and general manager at The Balance. “Your risk appetite has to be higher. You have to be willing to lose what you're putting in, because you have no idea exactly what's going to happen. You also should be expecting a lot more taxes on those short term gains.”

If you’re not able to keep up with market moves in real-time, short-term trading may not be for you. 

Start Early and Don’t Panic

If you take the long-term approach, compound interest can be your friend. The earlier you start, the more your money will grow from the sheer amount of time spent in your investments.

Here’s a glimpse at the power of compounding: If you started investing $200 per month in the S&P 500 when you were 20 years old, you would have invested $2,400 by the end of the first year. The 10-year average annualized return for the S&P 500 as of April 15, 2021 was 12.19%. For this example, let’s conservatively assume an average annual rate of return of 10%, instead.

In 20 years, so by the time you’re 40, you would have invested $48,000 ($2,400 x 20). But since that money is invested, it would have actually grown to $137,460 if you saw an annual rate of return of 10%. That’s a growth of nearly 186% from when you started. If you don’t change anything except increase the time period to 40 years, your $96,000 ($2,400 x 40) investment would be worth over $1 million.

Stick to your investment plan, and don’t change course just because of wild swings in the market. 

“Don't jump out of the roller coaster,” Zhu said. “If you don’t jump out, you don’t care if you’re high or if you’re low.

Don’t Worry About Being a Pro

“I think women often suffer from imposter syndrome for everything,” Silbert said. “And often the idea is, I don't know what I'm doing here, so I'm just not going to do it at all.”

Investing requires understanding your risk appetite and not overextending yourself. Silbert said that newer investors can start small by not making giant commitments, and then learn by doing. It’s also a lot easier now with the advent of investing apps that allow you to trade stocks from your smartphone.

The key is to do your homework on your investments. If you’re feeling wary, consider consulting a professional like a financial advisor to guide you through your investment plan.

Understand the Risks, Don’t Shy Away From Them

Zhu breaks money down into three buckets—savings that you put into your bank account, long-term investing such as the 401(k), and gambling, which is more risky but a lot more fun to indulge in.

The first two options typically form the core of an investment portfolio, but as long as you understand the risks, indulging in some speculative trades with a portion of your money may not be an entirely a bad idea.

“I think meme stocks are extremely fun to mess around with,” said Rahman, a former derivatives trader, who said in the form that she was not giving investment advice. “If you want to invest in Dogecoin, go for Dogecoin. But understand that, a)  there's risk affiliated with it, and b) that you probably shouldn't have your entire life savings in Dogecoin.”


The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.