Confronting the gender wealth gap – what women can do today
Strategies to help reduce your wealth gap by retirement.
By Lindsay Sparrow 21 January 2020 3 min read
The concept of a Gender Wealth Gap is gaining traction, with more people talking about its long term impacts, specifically for women. What seems to be missing from the conversation is what can be done about it. A wealth gap can impact anyone, regardless of sex or gender identity. Studies show that a discrepancy in wages, known as the Gender Pay Gap, can reduce other financial benefits earned throughout one’s career, such as pensions, bonuses and stock options. When you compound these benefits, it can significantly affect your quality of retirement.
The wealth gap has primarily impacted women and is a critical topic that women should strive to understand and discuss. The article "Will You Have A Gender Wealth Gap At Retirement?" sheds light on defining the Gender Wealth Gap, and this article aims to provide women with strategies on how they can reduce or hopefully eliminate their wealth gap.
What can women do?
Remember, the Gender Wealth Gap sneaks up on most women over time, creating an issue at retirement. Making important decisions as early as possible about how to save and invest will prove to be critical. Here are some tips to consider:
Keep less in cash
Women keep more of their investable assets in cash than men. In fact, women keep upwards of 70% of their money in cash. In 2018, millennial women invested 40% less than men, which is quite alarming considering women live an average of 6 years longer1 than men. Although keeping money in cash may feel safe, the opposite is true. Rising inflation makes sitting in cash a detrimental activity over time.
Know when to be conservative
Women tend to be more conservative than men when it comes to investing. While being conservative at certain times is helpful, it is a disservice over the long term. In fact, if women keep more in cash and invest more conservatively with their portfolio than a man, the differences in overall wealth accumulation can be staggering over time.
For example, if you invest $300,000 at age 40 into a conservative portfolio averaging 4% compared to a growth portfolio averaging 7% to age 60, the difference is $660,000 vs $1,160,000. While past performance does not predict future performance, this example illustrates the potential missed opportunity for a woman to reduce her wealth gap by half.
Know when to take calculated risks within your comfort zone
Money that aligns with long term goals such as retirement should be invested to reflect a longer time horizon. Keeping money that is needed years from now in cash or a conservative portfolio consisting primarily of bonds or fixed income is counter-productive.
Only 52% of women say they feel strongly about their investment abilities, while more than two-thirds of men (68%) felt strongly about their investment abilities2. Once women are educated around investment risk, they tend to feel confident to take on calculated risks, which can increase the long-term performance of their investments and decrease their wealth gap.
Invest like a woman
While many studies show women lacking confidence in investing compared to men, women’s investments are outperforming men by a significant margin. A recent Forbes article highlighted a study that found women on average outperform men by 0.98 per cent per year. There are a number of reasons for this difference: Men can be overconfident and on average, they trade 45% more than women. Women have greater tendencies to react less to market fluctuations, staying invested during volatility, avoiding the negative impact that “selling low” can have to their long-term portfolio performance average.
Work with a financial advisor
Your financial advisor should inspire you to invest more cash and provide you with advice on when to be conservative and when it makes sense to take a growth investing approach to achieve your long-term goals. Finding and selecting an advisor can be tricky. Choose to work with a financial advisor who appreciates the potential effects of your potential wealth gap and will customize a retirement and investment plan for you. Strategic planning can reduce or eliminate your wealth gap, allowing you to experience the retirement everyone deserves regardless of sex or gender identity.
ATB Wealth consists of a range of financial services provided by ATB Financial and certain of its subsidiaries. ATB Investment Management Inc., ATB Securities Inc., and ATB Insurance Advisors Inc. are individually licensed users of the registered trade name ATB Wealth. ATB Securities Inc. is a member of the Canadian Investor Protection Fund and Investment Industry Regulatory Organization of Canada.