Women are paid less than men and are more likely to leave the workforce to care for loved ones, which has a negative impact on the amount of money they need to save and invest over their lifetimes. . Despite this, only half of Americans (50%) think women are at a disadvantage compared to men when it comes to long-term investing, according to one. new NerdWallet survey.
The survey was conducted in July 2021 – in the midst of the pandemic that has only exacerbated the systemic and socialized disadvantages of women. However, the fact remains that in order to invest and create wealth for the future, women must overcome these obstacles. Below are tips on how to tackle five investment disadvantages that disproportionately impact women.
1. Assess your risk tolerance
According to the NerdWallet survey, about 1 in 6 Americans (16%) think women are more risk averse than men. It is important to consider and recognize your personal risk tolerance when choosing investments. But if you’re so risk averse that you’re unlikely to hit your financial goals or avoid the stock market altogether, it’s probably time to reassess your strategy. Diversification is an effective way to reduce your risk while growing your portfolio.
You can diversify your portfolio not only by asset class – for example, stocks and bonds – but also within asset classes. This could mean investing in companies of different industries and of different sizes. If a particular company or industry is underperforming, the rest of your portfolio can balance it.
Diversification doesn’t have to be complicated. Funds, like exchange traded funds or mutual funds, are made up of a mixture of investments, so you are diversified within a single asset. Try to find a balance between your tolerance for risk and your goals, and use diversification to make yourself more comfortable investing for your future.
2. Increase your savings as much as you can
The survey shows that nearly a quarter of Americans (23%) believe that women who earn less than men are a long-term disadvantage when it comes to investing because they have less money to invest. In 2018, women earned an average of 82 cents for every dollar men earned. And this gap is significantly wider for many women of color. Income inequality 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 increments like 1% every year. You can also choose to increase your contributions as you get increases if you can continue to live comfortably on your old take-home pay.
But because part of the pay gap is due to the difference in jobs held – often gender norms and expectations tend to encourage men and women to go into different industries – some women may not. not having enough income or not earning the necessary increases to follow this advice. In this case, your best option may be to seek out new job opportunities or new areas. And if you have a partner that you share the expenses with, discuss a household contribution proportional to your income if that would give you more money to set aside.
3. Continue to invest during career breaks, if possible
According to the survey, more than one in five Americans (21%) believe that career breaks associated with caregiving responsibilities are a long-term investment disadvantage that women have compared to men. These interruptions have been magnified by the pandemic, as millions of women have left the workforce, many due to lack of child care or in-person schooling. But if family finances still allow it, those with a spouse with an income from work do not have to stop investing.
A spousal IRA allows a spouse who is not earning income to contribute up to $ 6,000 per year (or $ 7,000 for those aged 50 and over), provided the couple files their taxes jointly. If it is not reasonable for you and your spouse to maximize your two IRAs, you can split the money you would put in the IRAs and contribute to each equally.
You can also use household income to contribute to a taxable brokerage account in your name. You won’t have the tax benefits of a retirement account, but there is no limit to the amount of contribution or income, and you can withdraw your money whenever you want.
4. Find resources
About 1 in 8 Americans (13%) think that women’s lack of investment knowledge is a downside compared to men, according to a survey. Discovery free or cheap financial advice and resources is easier than ever, although it’s important to check your sources to make sure they’re legitimate. Your bank or broker likely has financial tools and educational content, and you can also search for additional financial resources online or in a book in your local library. Check out the resources that are new to you and be skeptical of any source that promises you some return on your investment if you follow their advice.
Also understand that you don’t need to know everything about investing before you start. The best thing you can give your investments time to grow, so try to learn the basics and take the plunge. An inexpensive way to start investing is with a robo-advisor, who uses algorithms to manage your investments based on your goals, risk tolerance, and time horizon. As you learn more about investing, you can choose to take a more active role in managing your portfolio if you wish.
5. Encourage other women to talk about it and start investing
Finally, the NerdWallet survey found that 18% of Americans believe that women are at a disadvantage when it comes to long-term investing due to the lack of encouragement to invest from others, compared to men. From childhood, girls can learn to manage their money from a budgeting perspective, while boys can learn to manage their money from a wealth creation or investment perspective. By being willing to discuss financial matters with friends, colleagues and loved ones, women can encourage each other to invest in their future.
Money is still taboo in some circles, but it is not necessary. Ask women you trust how they are building wealth for the future, or even if they have started to think about investing. By opening the conversation, you allow the women around you to discuss their investment concerns and uncertainties, but also strategies and successes with you and, ideally, with other women as well.