The gender pay gap is an unfair fact of life that causes too many women to miss out on earning the money they deserve throughout their careers. But even though they tend to start with smaller incomes, many young women might have powerful advantages in investing.
Research shows that women tend to be better investors than men — earning 0.40%-1% higher average annual returns.
We talked with Kristine Beese, an MBA in Finance, financial planning expert, and founder and CEO of Untangle Money, about how young women can build a brighter financial future.
How to fight the gender wealth gap: Investing
Recent statistics show that women experience not just a gender pay gap, but also a gender wealth gap, by struggling to build up enough money to save, invest, and amass household net worth. Some research has shown that women have just 32% of the wealth that men have.
Fortunately, Kristine Beese of Untangle Money says that women don’t have to feel like they are at a permanent disadvantage. But the gender pay gap makes it more urgent for women to invest starting at a younger age.
“Fear not — there are many reasons to hope that we can change these infuriating statistics,” Beese said. “For women, investing their money into a diversified portfolio of stocks and bonds will be a key driver for change, and is the best way for women to overcome the structural inequities they will face for the foreseeable future.”
The good news is: Investing is not a boys’ club or a man’s game. Approximately 60% of women invest in the stock market — and they’re great at it.
Why women are better at investing than men
The financial news headlines are often full of self-proclaimed stock market experts and hotshot investors who take big risks and make noisy boasts. But some of the best real-world results go to people who just keep saving, investing, and earning returns year after year. Many of these humble, quietly successful investors are women.
“Women are better at investing than men, on average,” said Beese. “Every study looking at the performance of men versus women, at both the professional level, and everyday-people-retail level, shows a consistent outperformance in investment returns by women on a risk-adjusted basis. So it is critically important that we do not try to make women more like men when it comes to investing, and instead, encourage men to behave more like women.”
Here are a few possible reasons identified by Beese for why women are better at investing.
Women have less free time for day trading
Women tend to have limited free time, especially if they’re balancing careers and caregiving responsibilities. “This makes women more likely to have a buy-and-hold strategy that doesn’t require as much maintenance and redistribution, and less likely to get dragged down by fees and taxes from a more active investment approach,” Beese explained.
Women don’t panic about stock market news
There’s always bad news in the world, and sometimes too much news-reading can cause people to make short-sighted investment decisions — like selling stocks too soon. Men tend to be more vulnerable to this fear-driven reaction than women.
“Another study from Warwick Business School in 2018 showed that men seem to be more sensitive to news about stock markets, and they trade on average 13 times a year compared to nine times a year for women, or 44% more often,” Beese said.
Women do more homework before investing
Have you noticed that most of the people promoting meme stocks and other high-risk, heavily-hyped, short-lived investment fads tend to be men? Extensive research shows that women are less likely to chase fads or take excessive risks when investing.
“There is research that suggests that men are more likely to suffer from overconfidence in investing, while women suffer from under-confidence,” Beese said. “But this overconfidence can lead to poor due diligence — not doing enough research and homework on the investment. Studies show that women do more homework before investing.”
Top three tips for young women in investing
Young women tend to have longer life expectancies than men. This makes it even more important to start investing early in your career, and invest for long-term growth to try to overcome lower income from the gender wage gap.
Here are three investing tips for young women from Kristine Beese.
1. Start investing now
The sooner you start investing, the more time you have for your money to grow with compound interest. “Time is our biggest ally when it comes to investing,” Beese said. “It’s more important to get started than to start perfectly. Time compensates for most mistakes.”
2. Invest for a long time horizon (20-plus years)
If you’re 25 years old today, you have 42 years until Social Security retirement age. That long time horizon means your retirement savings can be invested in a portfolio of mostly stocks — even 100% stocks, if you’re comfortable with that.
“When we have time, we can take more market risk,” Beese said. “And taking more risk over long investment horizons gives women more options.”
3. Build financial confidence
Men are often overconfident about investing, but women deserve to have more confidence in their skills. “Studies show the main barrier to women taking more risk is financial literacy and financial confidence,” Beese said. “Women should prioritize financial education and confidence early in their investing careers.”
Bottom line
Women are often better investors than men, because they do their homework, take their time, and don’t pursue risky, expensive trading strategies. Buying stocks in a diversified portfolio of low-cost index funds is often the best way to grow your IRA for retirement.