Women and Money: 5 Rules To Help Close The Gender Investing Gap
I bet you’ve heard about the gender equality gap a million times. Likely the gender pay gap —where women make $0.77 cents to a man's dollar.
But did you know that there’s an even larger gap that can cost us women even more over our lifetime?
Meet The Gender Investing Gap
The simple truth is that the gender investing gap can cost you hundreds of thousands of dollars (for some even million) — if you’re a woman.
Put another way:
Say you’re making $85K a year and putting 20% of your income in the bank, instead of investing it. Wait five years to invest and that just cost you more than $170,000 when it’s time to retire. Wait ten years, and you’re down more than $337,00. Annoying, isn’t it? Head on over to the Mind The Gap Guide to read the full report.
The Gap Women Can Start Closing
The report of the Ellevest 2018 Money Census unsurprisingly found that the #1 thing that makes women feel in charge of their futures is “putting away money for financial goals,” followed by how much we save (#2) and how much we invest (#3). So clearly there is a huge number of women out there who are aware of the power their money could be having.
What happens too often is that either we don’t feel like we know enough, or just don’t know how to start —and so we don’t invest.
I get that investing can seem intimidating and overwhelming —especially when you’re very new to it. You don’t want to do it wrong for fear of losing your hard-earned money. (I feel you!) I went through the exact same thing about a year ago. It was incredibly frustrating *wanting* to invest and not having a clear roadmap on how to go about it.
But the good news is that the gender investing gap can be the easiest one to close.
So now that you see that nothing has to hold you back from investing, I’ll walk you through the 5 simple investing rules you need to follow.
Here we go.
The 5 Simple Investing Rules You Need To Follow
1. Make it a habit
Investing should be a habit.
Habits don’t require a lot of motivation. Instead, the right habits put discipline in your life. The best way to invest is a little from each paycheck.
That said, you have to nail the basics before investing:
Start with an emergency fund that you keep in cash. It’s the first step toward building wealth and achieving financial security. Experts recommend that you save up to three to six months of take-home pay in your emergency fund.
Open a retirement account. If your company offers a 401(k) match, meet the threshold to get that.
Next, you need to consider diversifying your portfolio.
2. Get the right balance
While all investing involves risk, you can reduce it with a “diversified portfolio”.
A diversified portfolio basically means that you invest in many different assets (such as U.S. and international stocks, global bonds, and real estate) in order to be diversified and spreading out the risk.
Why? Because any sector of the market can crash at any time. If one sector crashes, you don’t want your whole portfolio to crash with it. Asset allocation prevents that from happening.
Now, one thing you don’t want to do is figure out how to distribute across these asset classes yourself. That’s why you should consider investing in funds that comprise stocks, bonds, and alternatives — and it’s why it’s a good idea to get professional advice.
3. Keep costs low
Okay, so you know you can’t control the markets, but you can control how much you pay your advisor.
The management fees charged by traditional advisors typically range from 1%-2%, but many digital investment services charge less.
But note: If a broker-dealer (a human one or online) says their service is free, know they’re still getting paid somehow. This is usually in the form of sales commissions.
Be sure to ask your potential advisor about hidden fees. These little things can end up shaving off your earnings without you knowing it!
4. Ask: Are You a Fiduciary?
A fiduciary is a legal designation that requires investment advisors to put the client's’ interests ahead of their own.
Not all financial advisors are fiduciaries and legally obligated to tell you when they have a conflict of interest like getting paid for the investment product they are selling you.
Check out these set of questions from The New York Times to make sure you understand what service you are buying.
5. Balance risk and time
Meaning: less time = less risk.
If you’re a young woman, you may be able to be more “aggressive” with your retirement portfolio in pursuit of higher returns - and that’s totally okay. Because if something goes wrong with the markets, you still have time to make up for losses before you retire and actually need that money.
By contrast, if your investment timeline is short, you’ll want to take on less risk in case the stock market goes down. It makes sense, doesn’t it?
Bottom line is to get more conservative as you go.
Bringing It All Together
If you’re still not sure if right now is the right time to start investing… It is.
You don’t have to have a lot of money to start investing. It’s come a long way over the years and platforms like Ellevest are user-friendly, intuitive and include helpful resources to guide you through it.
The sooner you start saving and investing for your future, the better off you’ll be. The choice is yours.