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Women and Investing: Starting Early, Investing Confidently, and Closing the Gap

September 06, 2023

In today's rapidly evolving world, women continue to break barriers and challenge societal norms, yet we still face numerous uphill battles and systemic challenges, especially when it comes to investing. While significant progress has been made, it's essential to recognize the historical context and ongoing disparities that have shaped women's financial journeys.

Less than 50 years ago, women in the United States were granted the right to open a bank account on their own under the Equal Credit Opportunity Act. This pivotal moment marked the beginning of a journey towards financial independence, but the road ahead remained full of obstacles.

One of the most pressing realities that women continue to navigate is longevity risk – the potential to outlive their financial resources. On average, women live six years longer than men, and this life expectancy gap is continuing to widen. Over 70% of assisted living residents are women, highlighting the need for robust financial planning that accounts for these additional years.

Compounding this challenge is the persistent gender pay gap. Despite progress, in 2022, women in the United States typically earned 82 cents for each dollar earned by men. This disparity not only affects current income but also has long-term implications on retirement savings. Lower incomes can lead to decreased Social Security benefits, further amplifying the importance of proactive financial planning for women.

Another aspect that impacts women's financial journeys is their role as caretakers. Many women find themselves juggling responsibilities as caregivers for their children and aging parents. This dual role often necessitates career sacrifices, potentially hindering career growth and higher income opportunities. This interruption can have lasting effects on retirement planning, making early and informed investing even more critical.

Given these systemic hurdles, it is imperative for women to begin saving and investing as early as possible. The power of compounding, where earnings on investments generate additional earnings over time, can make a substantial difference in the long run. By starting early, women can build a more secure financial foundation.

While historical investment trends show that women tend to invest half as much as men, multiple studies have demonstrated that women investors often outperform men. These studies found differences in returns ranging from 0.4% to nearly 1%, with recent research from Wells Fargo revealing that women achieve better returns while taking on less risk. Despite this success, a confidence gap persists, with women still feeling less self-assured in investing compared to men, despite their superior performance.

Encouragingly, there's been a positive shift in recent years. The number of women investing outside of their retirement accounts increased from 44% in 2018 to 67% in 2021. This surge in women's engagement in investing signifies a growing awareness of the importance of financial empowerment and the desire to bridge the gender investment gap.

To continue this upward trajectory, women must embrace investing confidently and proactively. By equipping ourselves with knowledge, seeking advice from financial professionals, and leveraging resources available, we can position ourselves for a more secure financial future. Investing is not reserved for the elite or the well-versed; it's a tool that anyone can use.

While systemic challenges persist, progress is being made, and the future looks promising. By understanding and addressing the unique challenges women face, such as longevity risk, the gender pay gap, and caregiving responsibilities, we can take meaningful steps toward achieving financial parity.

As the landscape of investing evolves, it's crucial for women to seize the opportunities that lie ahead. By starting early, investing confidently, and fostering financial independence, we can contribute to closing the investment gap, achieving financial equality, and ensuring comfortable futures for ourselves and generations to come.

Remember, the power to initiate and accelerate this trend is within our grasp – let's embrace it!