The data is clear, women aren’t investing nearly as much as men are. Even when we earn the same or even more than our partners, we aren’t investing and it’s costing us.
According to NZZ, less than 20% of European women are investing their money in the stock market. With an estimated shared wealth of 200 billion euros in savings and negative interest rates in Europe, this is literally losing us money.
There is already a gender wage gap. Women spend more on clothes, hair, and makeup, we can’t afford to be losing more money.
Even when we work in finance we don’t seem to have the confidence to invest our money. A UBS study in 2018 found that 74% of the female bankers rated their financial knowledge as below satisfactory.
Here are five reasons why this needs to change and why you should start investing today.
1. We already earn less and not investing means our money earns less too!
The gender pay gap statistic of women earning 80 cents less to every dollar that a man earns is well-known and commonly cited, however, the issue goes beyond the wage gap.
Due to family commitments women often have to take career breaks. This results in wage losses. But the true cost of a career break is much higher than just the lost salary. Sallie Krawcheck, the former head of Merrill Lynch, summarises the issue here:
“You’re making $85,000 a year; you’re a woman; you take a career break. You think, “How much does that cost?” So I can do the math; it’s$170,000.” The correct answer is: It costs you more than $1 million! And the reason it costs you more than $1 million is because we’ve done the research into the salary cuts that women get when they come back after that kind of career break.”
Sallie Krawcheck
A career break costs women financially by losing the income from their salary and then again when they re-enter the job market and have to work their way back up the career ladder. Moreover, many women are unable to return to 100% employment, rather choosing to work part-time instead.
Therefore, often even if we start our careers earning the same or even more than our partners, by our mid-30s the picture looks remarkably different, with men earning significantly more.
By earning less it means we are missing out twice! First from the lower income and second from loss of the capital gains on that income.
2. We live longer but have less in our pension account
On average, women retire with two thirds the money of men. But we live four to five years longer than men. That means we have to live on less money for longer.
All this leads to fewer pension contributions and thus to losses in the pension amount. Compounding this problem is the issue that many women don’t regularly pay into their 3a pension.
Pillar 3a contributions can be paid into an investment account and they are tax deductible. That means you can increase your pension savings while saving on taxes. Moreover, there are special cases, such as starting a business or buying a house where you can withdraw the money early.
Investing can help secure your future now.
3. We need to have financial Security
Despite the progress of the last 50 years, many social gender roles for married couples remain and this extends to the division of labour. NZZ reports that even among young women, 60% of them leave the investing to their partner or husband.
The division of responsibilities within a relationship is useful and hard to avoid but delegating the majority of the financial responsibility to their partner leaves women at a significant financial disadvantage, especially in the case of the worst happening.
Navigating, divorce or the death of a spouse is hard enough. Leaving the money management to just one party leads to serious regret when the worst happens and you are left alone to figure things out.
Therefore, set yourself up for the future and make sure you are knowledgeable enough about your finances so that you could manage them on your own if need be.
At the very least you need to know what your debts are, what your sources of income are, and any assets that you have.
Even better is if you take control of your financial life and build healthy money habits from the beginning.
4. Its worth it and we are losing out, majorly!
Even though women are good savers, this is not enough. All the hard work that went into saving the money that is sitting in your bank account is being eaten by inflation and 0% interest rates.
Even in normal times, leaving large amounts in a savings account means you could lose out in the long term.
Having savings is smart. But low interest rates and inflation will eat into your savings. Therefore, keep enough money in your savings account to coverage your expenses for 3-6 months and have an emergency fund to cover unexpected medical costs or other events.
Any savings beyond this amount should be invested if you want to see your wealth grow. Savings in your bank account won’t generate enough of a return in the era of low- to zero interest rates and may even lose you money.
Since 1926, an analysis by moneyland.ch shows that Swiss stocks have generated an inflation-adjusted return of 6% per year. It would be close to impossible to get a similar interest rate with your bank savings account.
To illustrate the huge difference that investing versus saving can have, imagine you invested 1,000 CHF in the Swiss stock market in 2000. With an average performance per year of just under 4%, that 1,000 CHF would be 2,180 CHF in 2019. If that 1,000 had instead been left on a savings account, with an average per year interest rate of 0.05%, you would now have 1,010 CHF. Investing would have doubled your money while saving would have earned you just 10 CHF.
If you perform this calculation with a higher initial capital, for example, 10,000 CHF, the difference between investing and savings becomes even starker.
Naturally, investing isn’t risk free, but it is worth it to see if you can allocate a portion of your capital to an investment account.
5. We are actually better at it!
Women are thought to be more risk adverse and less confident about investing than men. But this doesn’t necessarily result in lesser returns.
ING Germany conducted an analysis and found that female investors had a return of 24.1% while male investors had a slightly smaller return of 23.5%. Researchers at Berkeley came to a similar result, finding in their study of over 35,000 households that women outperformed men by 0.94% per year. And these are just a few examples.
There are behavioural differences in how men and women invest. These differences also have an impact on the average return that they generate. Men are known to tend to invest more in single stocks and they intervene more often, buying and selling stocks as the market moves. While women tend to invest more in investment funds and intervene less often. They also hold their investments for longer. These characteristics lead to a better average performance than relying on a stock picking strategy and trading frequently as men tend to do.
For all these reasons, it is key to start thinking about investing as part of your financial strategy. Women who invest, invest in their future by moving towards reaching financial security and building their long term wealth.
Therefore, with the above reasons in mind, if you have the capital, women start investing today!
Stay tuned for my upcoming guide on how to easily start investing.
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