Posted by Cathy McCabe.
I see it in headlines and hear about it in my workshops all the time: Our old friend, the gender pay gap. What I hear much less about is the investing gap: Women don’t only earn less in the workplace; our investments earn less, too.
But rest assured, there are no systemic barriers to buying stocks, only psychological ones. In other words, the fault isn’t in our stock markets, but in ourselves. Knowing this is really empowering because it means that there’s action we can take right now to rewrite the story.
Until now, you may have been stashing your dollars away in your employer plan’s default fund, or perhaps, following some rule-of-thumb contribution rate. Making choices that are more in line with your beliefs and long-term goals, rather than knee-jerk, fear-based decisions, requires confidence in your investment abilities. Here are the 5 steps to help you become a more self-assured investor:
#1 Educate yourself. The language of equities and mutual funds is easier to learn if you’re willing to spend some time online, reading a wide range of blogs and message boards. You can learn a lot from the comments section, a lively forum of nuanced, real-life examples where advice is sometimes more expert than the musings of “experts” themselves. Seek out a community of women to share resources with and get tips; take advantage of workshops and workplace education.
# 2 Gauge your comfort level. Knowing yourself is another key part of your education. If you haven’t done so already, fill out a risk tolerance questionnaire to find out your investing style. How nervous do you get when you think about putting money in the stock market? Would a loss cause sleepless nights? Knowing your comfort level is a vital step. Women can be more risk averse than men, and this often has an emotional underpinning. Find an advisor you feel comfortable with and trust enough to talk openly about your goals and concerns. Most importantly, get a plan in place that will keep you on track.
#3 Figure out how much you’re comfortable investing. Many younger people I meet seem to spend more time planning their next vacation than they do planning their financial future. But younger people can get the most out of stock market investing. That’s because they are working with timeframes well into the future, and have time to let their investments compound. Obviously, it’s nicer to think about a mid-term pleasure than it is a long-term goal, but to be a bold investor, you need to define what your goals are–to be clear about what you’re investing for. Generally, any money you don’t need for at least 10 years in the future, may be invested in an equity mutual fund. Also, your tax bracket can be higher while you’re working, so putting as much pretax money as you can into a 403(b), 401(k) or IRA may be a smart move tax-wise.
#4 Diversify your holdings. A portfolio that is weighted towards lower risk assets means you won’t feel much of a loss during market downturns. To work toward a comfortable future, you may need to balance your portfolio with some growth-oriented, “risky” holdings, and that may cause you some initial discomfort. So, rather than make any sweeping changes to your asset allocation, take it slowly. Do only what makes you feel comfortable. You may consider dipping a toe into equities to test the waters at first, rather than plunging yourself right in. If you have spread your investment risk across different investment types, you are potentially buffering yourself not only from gut-wrenching plunges, but from inflation, which outpaces lower risk investments over time. No strategy assures success or protects against loss.
#5 Protect what you’ve built. What often causes women to be conservative investors is loss aversion–a strong desire to protect the assets they’ve built for themselves and their families. A life insurance policy can help provide for your family in the event that something happens to you, and the financial security you bring; while a long term care policy can help protect your estate from potentially ruinous care costs later in life.
Remember, there isn’t as much of an investing gap between men and women as there is a confidence gap. And over time, it can cost you even more than the more notorious gender pay gap. Unlike the latter, this one is totally in our hands, because boosting your confidence level requires nothing more than a bit of effort!