Women & Investing

Despite this, “women are having a harder time than men in balancing everyday expenses with saving for retirement, and that lack of engagement in financial matters is translating into greater risk aversion – holding women back from realizing their retirement goals”, according to a recent study conducted by BlackRock on Canadian women.¹

There are a few reasons why so many women shy away from engaging more in finance and investing. The one cited most often is lack of confidence.  A number of factors are at the root of this problem.

Although the glass ceiling is starting to crack and the wage-gap is shrinking in certain areas of the workforce, women, on average, still face challenges when it comes to pay-equity.  The average personal income of the women in this study was 25% lower than the male participants, and their household savings and investment was 46% lower.  “Women respondents in the survey were significantly less likely to be working; and those who are working are much more likely than men to have part-time employment.”

Another significant factor was a lack of engagement on women’s part, contributing to a knowledge gap when it comes to retirement planning.  The unfortunate consequence of this is women’s greater pessimism about their futures.  Psychological and biological theories aside, this tends to lead to a more conservative investment style, emanating from a more profound fear of loss and therefore higher risk-aversion.  This goes against one of the most basic tenets of investing – in order to get any return, you must take some risk.

To be, or not to be…cautious

There are two main arguments for why women need to improve their money sense and be more aggressive in their investing habits: they typically have longer time horizons than men and their conservative investing nature inhibits potential opportunities from the risk/return trade-off.

Statistics from all over the globe come to the same conclusion: on average, women live longer than men.  It is very likely that at some point in her life, a woman will be left in charge of the family finances, and given the observations above, it is no surprise that she will be facing some strong headwinds in the management of her money.

For an investor with a long time horizon and whose objectives are to grow capital at a rate which exceeds inflation, his or her portfolio needs to be diversified beyond cash.  A retiree living off his or her investment portfolio must also cover lifestyle expenditures with those returns.  His or her portfolio should arguably have a bias towards equities, which offer a natural hedge against inflation, and (at least in this market environment with bond yields at historic lows) are the asset class more likely to provide positive returns in the future. Although stocks can be volatile, the risk of loss declines with time. “In the survey, women had consistently different attitudes and risk profiles than men when it came to their money. Most of the women in the survey – 62% – said that they are not prepared to take any risks with their money…and only 19% of women said they were comfortable investing directly in stocks.”  These risk-averse behaviours, such as holding more of their assets in cash versus their male counterparts, can choke off the potential of achieving returns necessary to live comfortably in retirement.

And finally, there is another – surprisingly rarely cited – reason that women need to improve their financial acumen. As primary caregivers, women are in an opportune position to pass on the fundamentals of money management to their children.  Readers may remember the October 2015 Nexus Notes article on teaching kids wealth management: “Parents do a disservice to children when they treat financial discussions as taboo, or send mixed signals if Mom and Dad are not on the same page of the money management textbook.”  It’s hard for Mom and Dad to be on the same page if Mom hasn’t yet read the textbook.

There is hope

All of this is not to say that women flat-out do it wrong. They do a lot of things right.  According to Jennifer Reynolds, President and CEO of Women in Capital Markets, women tend to take more time with their decisions, do more research and  have more conversations with their trusted advisors.  This all culminates in more informed decisions.

“The good news is that it’s a significantly different story for women who are more involved in their money: with clearer goals and a fuller knowledge of what they need, they are also more confident and optimistic about the future.”  The trick, then, is to bridge the knowledge gap.  On this, the article offers a few pointers:

• Become engaged with your money
• Make retirement a priority
• Diversify your investments
• Plan and seek advice

“…Even with lower incomes than men, women can achieve substantial financial health if they take a greater interest in their money,” and there is always time to gain knowledge.  Recognizing that you have a trusted resource to depend on – such as the financial counsellors and portfolio managers at Nexus – can make it easier to take that first step onto the path of learning.