Money Month

You’ve Heard of the Wage Gap — But We Need to Start Talking About the Investment Gap, Too

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October is Money Month at Apartment Therapy! That means we’re sharing stories about saving money to buy a home, hacks to help you stick to your budget, and more all month. Head over here to see them all!

The idea of investing your hard-earned money can be scary. There’s the need to figure out the right training platform, and perhaps even learn what it means to max out your 401(k), and the overarching potential to lose it all. Trying to wrap your mind around jargon and varying concepts can make you not want to bother at all. But brushing up on your financial literacy and understanding how to invest can be crucial steps to achieving financial equality, especially if you’re a woman. 

You’ve likely heard about the wage gap: According to the National Women’s Law Center, white women make 82 cents for every dollar their white male peers make in the same position, while Black, Indigenous, and other women of color generally stand to make even less, comparatively. But there’s something else hindering women from reaching the same financial equity as their male counterparts: It’s the investment gap — and it’s not talked about enough.

It’s time to change the narrative and get that money that’s just sitting in your savings to do something more and take informed steps towards financial equity. While you should always talk to your financial advisor before making major moves with your money, these tips from money experts can help you feel confident in getting started, so you can finally stop losing out.

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What is the gender investment gap?

According to a survey by TransAmerica Center for Retirement, 68 percent of women are investing money for retirement outside of work, compared to 81 percent of men who do so. As a result, women could be missing out on thousands of dollars of income and interest, compared to their male counterparts by not investing, says Sallie Krawcheck, the CEO and co-founder of Ellevest, a digital financial advisor catered to women.

“Women today keep about 70 cents of every dollar they make in the bank, earning nothing and not doing much work for them at all,” she says. “Whereas men invest the majority of their money in the markets, so they earn the stock market return.” 

That coupled with the fact that, historically, women pay more for the debt they carry than men, tend to retire earlier than men, and live longer than men means that women typically are expected to make less money over a longer period of time, especially after retirement. 

Though investing certainly can be risky, it has its benefits — especially if you start early. Historically, the average stock market return is 10 percent a year, which may not feel like a lot, but can seriously add up over time. Plus, when women do invest, they tend to outperform men by 40 basis points or 0.4 percent, according to Fidelity’s 2021 Women and Investing Study

“It’s because [women] don’t trade as much, which can result in more fees,” Krawcheck says. “The more decisions you make, the more opportunities to have to be wrong. When one trades, one tends to trade based on emotion.”

What keeps women from investing?

Choosing to invest is a hard enough action in itself, but there are plenty of barriers inhibiting women, people of color, and those within these intersections from doing so. Aside from typically having less money to invest due to gender- and race-based pay gaps, they may also not have access to the same resources that can make investing less confusing or scary. 

“It’s not only the amount of money that you invest, it’s directly correlated to information, access, and also earnings,” ​​Michelle Jackson, the host of the Michelle Is Money Hungry Podcast, tells Apartment Therapy. “How can we invest at the same rate if it’s 10 percent of $45,000 versus 10 percent of $150,000? The fact [is] that not every job offers investment tools or education around that, and that’s just an important starting point in terms of access.”

Another factor contributing to the investment gap is the fact that the conversation around money and women. It wasn’t until 1974 that the Equal Credit Opportunity Act was signed into law; that law made it illegal for banks to refuse women a credit card without a male co-signer, even if she was unmarried. “Sadly most women blame themselves after a lifetime of being told essentially that they’re not good with money,” Krawcheck says.

Jackson agrees. “I think what a lot of people don’t quite get is how recent it is that women have access to their own money — the ‘70s weren’t that long ago,” she says. “That basic level of access is somewhat new for people in our lives now, and that trips me out to a level I can’t explain.”

Other common stereotypes about women and investing — such as that women are risk-averse, or aren’t “as good” at math or investing as men are — are both sexist, and patently false. What is true is how the gamification of trading stock is still commonly seen as an exclusionary boys’ club, and institutional knowledge is handed down between those that know, and the people they most commonly interact with. As a result, women can often feel like they aren’t welcomed into the fold. In fact, only four in 10 women are comfortable with their knowledge of investing, according to the Fidelity study.

“The investing industry has been dominated by men as long as it’s been around and they really built a product and service that they find appealing [and] that women don’t,” Krawcheck says.

Working to Close the Investment Gap

Before investing at all, Krawcheck recommends building up an emergency fund and paying off any debt that has an interest rate above seven percent. Otherwise, whatever returns you made on your investments would still be less than the interest on your debt, on average. (Having high-interest debt — be it credit cards or student loans — is another limitation preventing people from investing.) 

The next step in closing the gender investment gap is recognizing how much money you may be losing out on by not taking key steps to invest what money you can. 

“I love to use the analogy of, what if you had a purse that had a hole in it and you go out today and a hundred dollars falls out and then the next day another hundred dollars falls out, which is by the way about what the gender investment gap can cost women,” Krawcheck says. “So how long would it take you to fix your purse? A day.”

As for actually investing, looking into your 401(k) options, enlisting the help of a financial advisor, or signing up for a robo-advisor service that will assess your risks and goals and advise you accordingly can all be great next steps, depending on your financial situation. There are also tools and brokerage firms that are specifically created for women, such as Ellevest, and those created for people of color, such as Ariel Investments, the first black-owned mutual fund firm in America. Platforms like WhyFi Matters are also encouraging kids to get in on the conversation. Each of these options may come with its own benefits and limitations, and it’s important to read the fine-print for any fees, rates, and other costs that might be incurred before signing up. 

“Women are looking for something that is much more goal-based,” than the typical trading-as-sport model, Krawcheck says, citing Ellevest research, “which is ‘I want to invest, so I can buy a home in five years or start a business in three years.’” She also recommends making sure your investment portfolio is diversified, which means it is made up of a mix of index funds, bonds, and savings. She recommends doing this with recurring deposits over buying individual stocks, which Krawcheck calls “a complete loser’s game.” After all, the S&P 500 outperformed 97 percent and 94 percent of mutual fund managers, according to two 30-year studies.

When in doubt, Jackson recommends starting by building smart habits on a smaller scale, especially given that some money invested is better than no money invested. (Some investment services do have a minimum investment threshold, so check to see what’s possible before you make your decision.) “I wish more people within personal finance would say you can start small because if you start small, you can always accelerate your investments later,” she says. “The hardest thing is building the habit and that’s with anything. If you only have five dollars a week to invest, that’s fine. Build the habit and grow from there.”

Continuing the Conversation

Aside from talking about money and investments with other women when and where appropriate, it’s also a good idea to talk about investing and closing the wealth gap across all identity lines. 

For Jackson, working with and following the trajectory of Kevin L. Matthews II, the founder of the Building Bread platform, serves as an external reminder of the work she does. “It’s so exciting to watch what he’s doing because he’s really encouraging, inspiring, and is speaking with other young black men about the power of investing,” she says. “Representation helps a lot of people to see people who look like them investing.”

While the idea of investing may seem like a lot, at the end of the day, talking and asking questions about what you are doing to invest will help start the conversation — even if you’re just starting out yourself. Not knowing is what is holding many peers back, and it’s time to not be afraid and share tips, rather than leaving each other floundering in a search bar looking for answers.

“We’ve been socialized that money is tacky to talk about, it’s greedy to want money, it’s not ladylike,” Krawcheck says. “That’s the patriarchy giving us damaging messages. The reason this is so important is because investing is not just about money. It’s the power to live your life.”