Is Your Mother, Sister, Daughter Investing? Are You?

Key takeaways

  • In spite of significant gains in education, employment and public office, women still aren't investing in a way that could help provide financial independence and security.

  • Because women earn less than men—and statistically live longer—we need to make our money work even harder.

  • The solution is to get women not only to invest, but also to save and invest more aggressively when appropriate.

Dear Readers,

Women's Equality Day is celebrated on August 26th and this year it has a special meaning. It marks the 100th anniversary of the ratification of the 19th Amendment, which gave women in the U.S. the right to vote. This important achievement opened the door to other opportunities, and we’re now outpacing men in college and advanced degrees, we comprise 47 percent of the workforce, we’re entering previously male-dominated fields and we’re getting elected to public office at unprecedented rates.

But in spite of all this improvement, there's at least one area where we still lag behind meninvesting. And to me, this is a lost opportunity with long-term consequences.

How women are still financially behind

A 2018 Schwab financial literacy survey of the money attitudes of young adults demonstrated that young women were half as likely as young men to have an investment account. That's not to say the women weren't interested in finances. They worked several jobs, saved, paid off debt and saw the importance of a financial plan. They just didn't invest. So why is this?

A famous study conducted in the late 90s by Brad M. Barber and Terrance Odean concluded that, even though women had many traits that would make them good investors, they were far less confident than men in their investing ability. Data from several studies over the years show that even when women have investment accounts, they hold the majority of their money in more conservative holdings like bonds and cash.

Is this just a crisis of confidence or is something else working here?

Why women need to start investing now

There are lots of statistics about the gender pay gap worldwide. And in the U.S., women still only earn 82 cents to a man's dollar. Plus, it's well acknowledged that women, on average, outlive men. So the importance of saving and investing to help make up for this deficit is obvious.

Earning fewer dollars means women need to save and invest even more. Living longer requires even more retirement savings to not outlive your money. To me, the solution is to get women not only to invest—but also to invest more aggressively when appropriate. The question is how?

What we can do about it—together and individually

Like so many things, I believe it comes down to taking the mystery out of investing. Often the more we know about something, the less intimidating it is. So for those of us in positions to support financial education—financial planners, educators, employers and parents—the first line of offense is to get the information out there.

Start by helping women and girls understand the basics. Encourage them to think about their goals and put market risk in the context of long-term market opportunity. If appropriate, you might even help someone open an account and choose initial investments.                

And everyone can help themselves by taking these crucial steps:

  1. Begin with an emergency fund. The first step to financial security is having enough cash in a savings account to cover at least three to six months’ worth of unexpected expenses. This fund will not only help you in case of an emergency, but can also give you the confidence to start investing and help weather a market downturn
  2. Look to retirement. Whether you're in your 20s or your 40s, you can't afford to wait to start saving for retirement. And even though women are known to put others’ needs first, when it comes to retirement, you have to think of yourself. Take full advantage of a company retirement plan like a 401(k). In fact, this is a great way to begin investing. Contribute at least up to the company match, more if possible. Don't have a company plan? Consider an IRA. The point is to save as much as you can as soon as you can. Living to 90-plus is becoming more common. You need to be prepared.
  3. Invest in stocks. Your first thought may be that you don't want to take the risk. Market downturns definitely happen as we've recently seen, but being too cautious can also put you at a disadvantage. Stocks are an important part of any portfolio because of their long term potential for growth and higher potential returns versus other investments like cash or bonds. Here's a statistic I mentioned in a previous column: from 1926 to 2019, a dollar kept in cash investments would only be worth $22 today; that same dollar invested in small-cap stocks would be worth $25,688 today.1 So where to begin? Many broad-based mutual funds and exchange-traded funds make it easy to invest in a cross-section of stocks. An index fund or target-date fund can make it even easier. Using a robo advisor can also be a good way to begin. You don't have to know a lot to start; you just need to know where to start.
  4. Plan for other financial goals. What are your other goals—a down payment on a home, a child's education or a vacation? Investing a portion of your savings in stocks may help you reach those goals faster with the caveat that money you think you'll need in three to five years should be in less risky investments. Stock investing should ideally be long-term, understanding how much risk you can stomach, and how much risk you can afford to take.
  5. Ask for help and advice. When you have questions, ask your benefits administrator, your broker, even a knowledgeable friend or family member—but ask. There are also lots of online investing resources to explore. Need more? Consider working with a financial advisor. A financial advisor is sort of like a personal trainer, someone to guide you and keep you going when you might otherwise be tempted to call it quits. He or she should understand your feelings, situation, and goals. Never hesitate to ask questions, including how your advisor is paid.

No time like the present

Time is a crucial factor in investing. If you have many years ahead of you to invest—and you commit to keeping your money invested—time will likely help you weather the inevitable market ups and downs. That's not to say you can't start investing later in life. But, again, I want to stress that money you'll need in the short-term shouldn't be in the stock market.

That said, I encourage everyone—not just women—to make the most of their hard-earned savings and build financial independence through investing. It doesn't take a lot of money; it just takes getting started. And there's no time like the present.

[1] Source: Schwab Center for Financial Research. The data points above illustrate the growth in value of $1.00 invested in various financial instruments on 12/31/1925 through 12/31/2019. Results assume reinvestment of dividends and capital gains; and no taxes or transaction costs. Source for return information: Morningstar, Inc. Based on the copyrighted works of Ibbotson and Sinquefield. All rights reserved. Used with permission. The indices representing each asset class are CRSP 6-8 Index (small-cap stocks) through 1978, Russell 2000 thereafter; and Ibbotson U.S. 30-day Treasury bills (cash investments). Past performance is no guarantee of future results.

Have a personal finance question? Email us at Carrie cannot respond to questions directly, but your topic may be considered for a future article. For Schwab account questions and general inquiries, contact Schwab.

About the author

Carrie Schwab-Pomerantz

CFP®, President, Charles Schwab Foundation; Managing Director, Schwab Community Services; Board Chair, Schwab Charitable