Closing the Gender Wealth & Investing Gap

It’s no surprise to hear that women make less money than men; but did you know that when women begin investing, they typically fare better than their male counterparts? The only problem is that women aren’t creating investments at the same rate as men, and that’s a danger for women’s financial wellbeing.

Even as women are becoming increasingly responsible for bringing in an equal (or greater) share of the household income, there’s lagging support in familiarizing women with investment strategies. And while a large number of Canadians are not truly financially literate, men often plunge ahead with investments and other financial strategies due to their statistically greater appetite for risk.

This is further evident in the different investing habits between men and women, and the gender investing gap this divide creates. In a 2021 article, Forbes magazine reported that since the beginning of COVID-19 there has been a 23% increase in male investors versus only a 10% increase in female investors.

Let’s look at a few of the reasons why the gender investing gap exists, and the actions we can take as women to not only ensure we are investing effectively, but to also take control of our financial health and growth.

What is the gender investing gap?

The gender investing gap is the difference between the average woman’s return on investment throughout their investing lifecycle, versus the return on investment a man receives.

What causes the gender investing gap?

The wage gap.

The gender wage gap and the investing gap are mutually dependent, meaning that because a woman earns less money over their careers, they have less available savings to put towards their investments. Due to the gender wage gap, women earn less and therefore need to save a larger portion of their income to put towards investments to earn the same return as their male counterparts.

Time away from career path.

Women are more likely to take time off to raise children and care for other family members, which diminishes a woman’s earning potential. These factors also increase expenses relating to childcare, groceries, medical, and other expenses. As such, women are forced to hold more of their available capital in cash to account for these expenses and have fewer savings to direct towards investments.

Longevity.

Women have longer life expectancies than men, which means that women will require more savings to meet their needs and expenses given that they are likely to live longer than men. As such, women tend to have longer-term saving goals, which can create a divide between investment returns and retirement savings.

Why do women need to invest?

Investing is your best tool to not only build wealth but to also take control of your financial health and well-being over the long term.

With a longer lifespan and lower earnings, the need to make your money work for you should be obvious. Interestingly, studies show that when women DO invest, they outperform or receive a better risk-return ratio than men. While women tend to invest more conservatively throughout their careers, their risk tolerance and pragmatism often serves women extremely well in making prudent investments and avoiding impulsive decisions during unpredictable markets.

What is IP Private Wealth?

IP Private Wealth is a Family Office—a team of wealth advisors that operates as a round-table board of advisors. Our 360° approach to examining your goals, wealth, and future needs is what makes us the first and only choice of family office for our clients. If you’ve been looking for a way to manage your wealth more effectively, reach out to us.

Where to start as a female investor?

Find your people.

The first step is to find the right advisors for your needs, because women notably face unique needs, concerns, and goals. It is important to find a trusted, qualified advisor who will prioritize those unique goals and concerns, and will be flexible when your priorities may not match those of their typical (male) clientele. Seek out an advisor that can match your circumstances with a prudent investment strategy that is aligned with your risk tolerance and time horizon for the investment.

Take it in steps.

When getting started with investing it is always wise to start small. Don’t wait until you have a large sum of money to invest all at once. Allow the power of compounding to help you get ahead; even $50 per month can make a difference in the long run. This strategy will also ensure your savings are staged into investments over the long term, taking the stress out of timing the market to optimize your savings.

Build in your safety net.

Studies show that women are naturally more risk-averse than men, and this can be a strength but it can really hinder discussions around investment strategy. Instead of fighting your instinct to play it safe, lean into it: start an emergency fund in a high-interest savings account that covers at least 6 months’ expenses. This way you can feel confident that you have a buffer in the case of illness or unemployment.

Key takeaway: don’t be afraid to start the process.

Research shows that while more people are investing, the investing gap between men and women is rising. While women have greater demands on their cash flows due to lower earnings, increased expenses related to child and family care, and longer life expectancies to account for, the power of investing cannot be understated. Putting your money in an investment account versus a savings account, of course, comes with inherent risk, but it also has the potential for greater earnings. Your investment portfolio could help bridge those financial setbacks that are, for now, inherent with being a woman in the work world.

Cassandra Rolph

Cassandra is a Financial Planning Associate with IP Private Wealth. Cassandra works in tandem with the senior advisor team to create an intensive, 360° plan for each client that takes into account all aspects of their wealth--while also taking into account their personal goals and challenges. Cassandra plays a key role in providing clients with our holistic financial plans, called the IP360°. These plans provide direction to a client’s entire advisor group. She works closely with the advisory team to gather and analyze technical and financial information relating to the development of tax, investment, estate, and wealth planning strategies for affluent clients.