5 Reasons Investing Really Is Different For Women, And 5 Tips For Getting Started

"All the women, who independent, throw your hands up at me..."

In 2001, the award-winning girl group Destiny’s Child released their iconic song "Independent Women, Pt. I."

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Who can forget the iconic music video featured as part of the Charlie’s Angels movie soundtrack? And lyrics such as:

“I depend on me 

All the women, who independent

Throw your hands up at me”

are probably still being chanted to this day, nearly 21 years later. I still remember singing along to it with friends and waiting for the music video to show up on MTV after school. 

As we use this month to reflect on how far women’s rights have come, it’s also crucial to turn our focus to financial independence for women as well.

While there’s nothing wrong with managing money with a partner, women need to know how finances work and important money moves to make in our own lives especially when it comes to investing. Investing is one of the key ways to build wealth and establish financial independence.

Due to the gender wage gap, the motherhood wage penalty, and inflation, women need to be investing now more than ever.

To start, here are five reasons why it's especially important for women to invest:

1. Less than half of American women invest in the stock market.

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Historically, women have invested less than men, and some not at all. According to a recent survey, 48% of women and 66% of men say they actively invest. Anxiety and confusion surrounding the stock market are more common emotions among women when they think about the stock market. 

The negative impact of fewer women investing is that we tend to be:

• Less confident about our financial future

• Not as prepared for retirement (and women tend to live longer) 

• Unable to ‘catch up’ to our male counterparts

• Missing opportunities to grow our money in the market

2. A savings account is not enough.

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Saving money is a great financial habit and it's necessary in order to build a solid foundation. However, it’s not enough if you truly want to grow your money. Savings accounts — even the high-yield ones at online banks — tend to have a very low interest rate. 

This means at best, you may be earning around 0.5% on your money. But according to a survey conducted by Bankrate, the average national savings rate is 0.06%. As the cost of living increases each year, it can and will easily outpace your savings rate return — meaning you’ll actually lose money if your primary way of holding it is in a savings or money market account with low interest.

Meanwhile, investing in stocks and bonds can yield a much better return. So why are more women comfortable with saving over investing? 

There are numerous studies that point out how women tend to be much more risk-averse than men, and how women are targeted with different money messages. One researcher from the University of Missouri stated that risk tolerance is one of the most important factors that contribute to wealth accumulation and retirement. A 2018 study comparing women's magazines to men's magazines also found that women get advice about saving and "frivolous spending" while men get advice about building wealth.

“Historically and culturally, gender plays a role in terms of risk and fear,” says Marissa Bronfman, Chief Brand Officer at  Kizmet Impact Capital, an impact investing platform. “Boys and girls are raised differently, have different toys, and girls are often encouraged to make decisions that are of low risk.

Bronfman went on to explain that boys are taught to invest and take risks for reward, while girls are often taught to play it safe, or safe for something specific when it comes to managing money. 

“In addition, we are taught to look toward others rather than to empower ourselves.”

3. Women tend to earn less than our male counterparts.

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It’s no secret that the gender wage gap has been present for many years now and impacts women’s finances in so many ways. According to Pew Research, women earn 84% to 93% of each dollar a man earns. Thus, it would take an extra 42 days (at minimum) for women to earn what men do in a year.

Things are worse for Black and Latinx women. Black women tend to earn 63% of each dollar a white man earns. Meanwhile, Latinx women are paid 43% less than white men and 28% less than white women. 

In fact, one of the reasons for women being more risk-averse could be driven by the fact that many are earning less than their male counterparts. And a study conducted by associate professor of personal financial planning, Rui Yao, found that women are also more likely to have uncertain incomes from year to year. 

Yao found that life events such as childbirth, child care, and caregiving contribute to a women’s career uncertainty. Thus, this can make us less willing to run the risk of losing money in the stock market. 

Some women’s fears are justified especially when we look at the motherhood penalty and/or the caregiver penalty. The Motherhood Penalty is a wage gap based on gender bias that exists when a woman enters parenthood. 

Employers, society, and others make harmful judgments that women are less competent, dedicated, willing, and able to work consistently once they become mothers. As a result, mothers in frontline occupations lost anywhere from $9,500 to $19,000 due to this wage gap back in 2019 according to the National Women’s Law Center.

4. The COVID pandemic has hit working women hard.

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The COVID-19 pandemic has had a lot of negative effects on everyone, but women in the workplace were hit especially hard. According to a 2020 McKinsey study, 40% of women admitted to feeling more burnt out, stressed, and pressured to work more compared to 30% of men.

More men also got to keep their jobs as more than 1 million women left the workforce during the pandemic due to childcare and family responsibilities. 

5. And inflation is inevitable.

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With a current inflation increase of more than 7% in the US, and more than 5% in Canada, everyone is feeling the pinch in their wallets these days. Inflation occurs when prices increase due to a rise in production costs and wages. One of the best ways to combat inflation is to invest.

"The traditional concept of saving to keep and grow your money is completely outdated and inflation is a perfect example of this," says Bronfman. "Savings account rates are very low which is not enough to override the effects of inflation."

Instead, Bronfman recommends women start investing because the money you put in a bank loses value as inflation and the cost of living increases. 

"This is one of the only ways to keep up with inflation or even break even and you can invest in a low-risk way and start small," adds Bronfman.

Given all these factors, the clear solution is that more women should consider investing in their futures. Marissa recommends 5 tips for getting started and feeling empowered about it too:

1. Do your research and get familiar with investing.

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Everyone has to start somewhere and most start by doing their research. Familiarize yourself with the new language of finance and common investing terms. Now more than ever, we have more access to resources such as websites, blogs, digital guides, books, podcasts, YouTube videos, and more (psst, here are some of BuzzFeed's faves).

Educate yourself on what the stock market is and how it works. Do your due diligence and research companies that excite you. Learn about risk and how to manage your expectations when investing. Some popular resources to help you get started include:

FINRA Investor Education Foundation

Investor.gov

Women’s Institute For Financial Education

2. Take a look at your entire financial picture.

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Level set by getting clear on where you stand when it comes to your finances. Assess your income and review your budget to see where your money is currently going. 

Also, consider your lifestyle. Are you responsible for others? Where does your money go after each paycheck? How much are your hobbies? What financial goals do you have for the future?

Bronfman recommends taking a look at your debt as well.

"When it comes to paying off debt vs. investing, this should be handled on a case-by-case basis," says Bronfman. "Generally, if you have high-interest debt, you may want to pay it off before you start investing."

3. Reflect on your values.

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Your values play a key role in how you manage your finances as well as how you invest. There are so many different companies to invest in and you can definitely lean toward the ones that share your values.

For example, if you are passionate about plant-based food companies and preserving the planet, you may not want to invest in oil and gas companies — and that's okay. 

"It's important that you feel passionate about where your money is going,"  says Bronfman. "Find an intersection between where your values meet high returns because we can totally invest in people and the planet while also building wealth for ourselves." 

4. Download an app that matches your goals.

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It's never been more affordable, or easier to invest. In the past, investing wasn't as accessible to certain people and it was more costly due to having to pay finance managers a fee to manage your portfolio. 

Now, you can start your investing journey with a robo advisor or a beginner-friendly app and open an account with very little money. A robo advisor is like an investment manager only it's a digital and automated system. You can set your desired level of risk and share some interests, and the robo advisor will invest and manage your portfolio on its own. It’s a low-fee option if you prefer to be less involved. 

Investing apps allow you to grow your money right from your cell phone or device and you will likely have more say in what you’re investing in as opposed to a robo advisor. Apps like Wealthsimple, Questrade, and Robinhood are all excellent apps to consider investing your money with. Grit Capital is another option and it’s founded by women.

Many investing apps also offer a ton of free resources and guides to help you start demystifying investing.

5. Finally, just start!

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It's super simple to say just start, but this is truly the best advice for women looking to invest. If you complete steps one through three on this list, you'll have a lot of knowledge and guidance to take that next step. 

Once you know your desired risk level, how many dollars you can afford to invest with, and what your values are, you should be confident in taking that next step and opening an investment account. 

Of course, there's always your 401(k), if your employer offers one (and these helpful tips if they don't). A 401(k) helps you invest pre-tax dollars each pay period before you even see your paycheck. In addition, you may want to open a traditional or Roth IRA which lets you save for retirement on your own, independent from an employer. 

From there, you can explore online brokerages or investment apps like the ones mentioned above.

“All the Women Who Independent, Throw Your Hands Up At Me” 🙌

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Kelly, Michelle, and Queen Bey truly said it best.

Living in a capitalistic society, being in control of your life means being in control of your finances. I speak to all my fellow ladies when I say we all deserve to be financially independent women. 

Whether you’re just getting started or picking things up, don’t feel bad about where you are in your journey, or what’s happened in the past. Today is a perfect day to gain control of your money and learn how to become a wise and strategic investor. 

Take a baby step by grabbing a book, following a credible resource on social media, or opening an account and following a get-started guide. As more women continue to invest with confidence in their own way, perhaps we can start to bridge the retirement and portfolio gap between men and women. 

To connect with Marissa Bronfman, you can reach out to her on her personal Instagram or the social media profile for Kizmet Impact.