With all the focus on women's rights in the election just passed, it’s interesting to note how much progress women have made on the financial front in recent decades.
Most people don’t know that there were major financial restrictions on women in the United States until the Equal Credit Opportunity Act of 1974 was passed.
Before 1974, banks could deny women the right to open bank accounts or lines of credit. Many banks required women to have a husband's signature in order for the “little woman” to open an account (to use the facetious term, of course).
In addition, before 1974, banks would often deny credit cards to single women and require married women to have their husband's signature on applications. Women who were divorced or widowed also had to have a man cosign. Some banks also discounted the wages of women by as much as 50% when calculating their credit card limits.
Fast forward to 1988, and that was when President Reagan signed the Women's Business Ownership Act, which eliminated the requirement for male co-signers on loans for female entrepreneurs.
Women Investors
Women have come a long way, financially, since then. More and more women are taking control of their finances and investing than ever before, according to new research from Fidelity Investments.
Fidelity’s 2024 Women & Investing Study found that 7-in-10 women own investments in the stock market, an 18% increase compared to 2023. While younger generations continue to invest in higher numbers, the percentage of Gen X and Boomer women who invest in the stock market jumped the most year-over-year, increasing 18% and 23%, respectively.
Another important point from the study is that 71% of women agree that investing is a good way to build generational wealth. So it’s no surprise the leading factors motivating women to invest include ensuring a certain quality of life for their children, making as much money as possible, and being able to afford goals like retirement and large purchases.
The focus on building generational wealth is the top motivator for Millennial women, whereas older generations are more motivated by being able to afford future goals.
As in previous years, Fidelity’s research shows Gen Z women lead the way in investing and taking control of their finances. An impressive 77% of Gen Z women own investments in the stock market today, up six percentage points compared to 2023. And 38% of Gen Z women invest outside of retirement (compared to 28% of women overall). They also lead the way in the rate at which they invest, and also in how much, allocating an average of 10.4% of their paycheck to those investments, compared to 9.5% among women investing outside of retirement overall.
Finally, a lot of wealth will be in womens’ hands soon. According to the consultants at McKinsey, by 2030, women in America will control much of the $30 trillion in financial assets that baby boomers possess today.
Patience is a Virtue in Investing
Yet, despite the considerable progress women have made in taking control of their finances, Fidelity’s research suggests that a financial confidence gap persists.
In fact, women are nearly two times more likely than men to describe their level of investing knowledge as “non-existent.” Women are also more likely than men to indicate they're overwhelmed and intimidated by investing.
I found this to be true when I was an advisor. But, in a way, that was a good thing. When I would speak to my female clients, they would listen to what I had to say before asking questions, or disagreeing, or whatever.
Most of the men, in contrast, were vastly overconfident. Sometimes, I would barely begin an explanation before I was interrupted and told I was wrong.
There was a study by the University of California-Berkeley that found that men traded 45% more than women did. More trading leads to underperformance. A 2021 analysis by Fidelity of over 5 million customer accounts showed that women outperform men by an average of 40 basis points annually, or 0.4%, from 2011-2020.
That outperformance, I believe, is due to women's greater patience - 51% of women who invest in the stock market said they wait it out and stay the course during times of market volatility, compared with 43% of men, according to Fidelity’s 2023 report.
One of my favorite Warren Buffett quotes is: “The stock market is a device for transferring money from the impatient to the patient.”
Female investors seemed to have learned that lesson. They are less likely to jump in and out of the market, or to panic when there's a correction, locking in losses. In other words, many women possess the qualities that lead to long-term investment success.
Patience is an especially important trait when you consider that studies show women live nearly six years longer than men. So substantial retirement savings are a must. Early and consistent investing helps women build a retirement fund to support themselves later in life.
Also, with 44% of women acting as caregivers to children, family members, spouses and/or parents, investing alleviates future caregiving expenses, and allows money to grow during periods of leave to care for their loved ones.
Investing for Women at Every Age
There’s a myth that women are overly conservative investors. Actually, women are simply more aware of the risks they're taking on. Research indicates that women take a longer view in calculating risk. Women will look at their family situation and their personal goals, and they'll think about how taking this specific risk at this particular time will impact those goals.
I found that, while discussing with couples the risks and rewards of certain investments, men tended to focus more on the upside potential - they saw those big dollar signs. The women were more concerned about the downside risk. My task was to find the right balance of risk and reward to make both partners happy.
If I were still a financial advisor, here’s a few things I would tell women to keep in mind… at every stage of your life, there are steps that you can take to gain more confidence investing and taking control of your investments.
When you're in your 20s and 30s, the most important thing is to just get started - no matter how small your investment is. If your employer offers a retirement plan, learn about the investment options available, and then start building your portfolio. This will give you a feel for how markets work. Time is your ally, so don't worry about what you may not know. You will learn as you go - just keep putting money aside.
Women in their 40s and 50s should be front and center in managing their family's finances. Educate yourself on what the family asset levels are, as well as where the money is invested to see if it is aligned with your family’s investment goals. And once again, given that women tend to live longer than men, you need to ensure that your assets will cover your full life span.
Because of their longer life expectancy, many women will eventually be widows and responsible for managing their own or their family's finances. So perhaps meet with a financial advisor, or seek advice from women who have more investing experience than you. Of course, nowadays it is easy to do everything on your own, with so much information at your fingertips.
Portfolio-wise, my advice would be similar for both sexes. If you’re in your 20s and 30s, be aggressively invested in stocks. Time is definitely on your side.
In your 40s, 50s, and early 60s, become a bit less aggressive - especially when you’re nearing the time you plan to retire. But once you’re in retirement for a year or so, become aggressive again toward stocks - women have that long lifespan that they need to be ready for.
Finally - you don’t need to be a stock market expert. You just need a good financial plan, and you need to stick to it.
On the date of publication, Tony Daltorio did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
