Why the Investing Gender Gap Works for Women

Gender gaps usually don't work in women's favor: In terms of pay, representation at the executive level, number of female founders and division of caregiving responsibilities, women are hurt financially.

How Men and Women Think Differently About Money

Let me introduce you to a gender gap we women can all get behind: the investing gender gap.

You might find this an odd assertion, considering the intense campaign that Sallie Krawcheck is pushing to stress how this gap hurts women. But while I agree that women face major problems in this area (primarily that the industry woefully under-serves us), I also think we have a lot to celebrate when it comes to investing.

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Women's Investing… Weaknesses?

The investing industry disagrees about whether women are better or worse suited for investing than men are. And it usually comes down to these issues.

Lack of Confidence

Without enough confidence, you're less likely to make changes in your financial life, including putting your money in the stock market. The research generally bears this out, as this study from Fidelity illustrates. However, the flip side, overconfidence, is an investing liability, causing you to invest in things you don't understand sufficiently.

Overly Conservative Investments

Women supposedly don't invest enough in stocks and therefore accumulate less money. Even if this is true (and Vanguard thinks it might not be), I think that investment conservatism is a rational response to the average woman's circumstances, in which her income stream is broken up due to caregiving responsibilities. If you have a volatile income stream, isn't it rational to pair it with a less volatile portfolio?

Lack of Time and Decision Fatigue

Especially if you're a caregiver in addition to working outside the home, you may have little time and even less mental energy to deal with investing decisions. I happen to think this can be a strength, not a liability. If you have no time and no energy left over to manage your investments, mightn't you put your money in a "set it and forget it" investment, such as a target-date fund? That is exactly what this Vanguard white paper shows. This approach is much more likely to succeed than frequently tweaking your portfolio.

Investing: A Tool or a Competition?

Generalization alert! Men tend to think of investing as a game to be won, and women often consider it a tool to help accomplish their goals. Women don't care about the nitty gritty as long as their investments are helping them retire or put a down payment on a home.

To be clear, understanding the basic whys and whats of your portfolio is always important. But when you are not emotionally invested in whether your investing is winning or losing, you can make more rational decisions. Don't chase hot stocks. Get rid of losing investments. Buy more stocks after the market declines.

I've personally seen this difference in the last few months. Earlier this year, I worked with a man employed by Google, whose net worth and investment portfolio were dominated by Google stock. (Not to mention the fact that his salary also depended on Google.) Risky stuff. But he resisted selling any Google stock. It had performed so well for him up until now, and it's such a great company, he protested.

I also worked with a woman whose portfolio was similarly dominated by a single employer stock. She contacted me specifically because she wanted to reduce that holding. She recognized the "all my eggs are in one basket" risk.

This dispassionate attitude is why I love working with women (or anyone with that mindset). And, happily, the investing universe tends to reward it.

Where Are Your Efforts Better Spent?

If you don't spend all your energy worrying about your portfolio, you can apply it to improving your investing habits and financial position in other ways:

Step 1

Learn the basics of investing by reading such classics as this short PDF and The Little Book of Common Sense Investing. I promise you it's not rocket science.

Step 2

Invest your money simply and inexpensively using, typically, an all-in-one fund (balanced fund or target-date fund) or a robo-advisor.

Neither of these solutions, admittedly, can do the hardest work for you: keeping your head when your investments lose money. For that, you need a trusted someone. Consider creating a personal finance group with some friends to help talk each other through the scary times.

Step 3

Once your investments are set, stop thinking about them.

Step 4

Evaluate how you manage your money. Have you named your goals specifically, and are you using your money effectively to get there? Planning requires sustained effort, and I'd hate to see it frittered away by endless dithering over investments.

Step 5

For women in particular, focus on advancing your career and negotiating better pay.

Step 6

For younger people, consider saving less (blasphemy!) and spending more on things that advance your career, such as a class or a career coach. This could permanently raise your income.

We have a finite amount of time and energy. Spend them wisely.

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Meg Bartelt, MSFP, is the President of Flow Financial Planning, LLC, a fee-only virtual firm that provides financial guidance to women in tech. She is a member of the XY Planning Network.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Meg Bartelt, CFP®, MSFP, is the president of Flow Financial Planning, LLC, a fee-only virtual firm that provides financial guidance to women in tech. She is a member of the XY Planning Network.