Some financial planners argue that investment advice has historically been focused on men, and they want to change that. Women live longer than men, and they often have different salaries and career paths. Do these realities mean that women should be investing differently than men?
In planning for their financial futures, women should incorporate their unique needs and personalize their investment strategies to optimize their financial futures. This might include taking into account longer life spans and higher average medical costs. At the same time, women can also leverage many standard investing principles, like holding a diversified portfolio, accounting for age, and understanding their own risk preferences.
Women Should Plan For Higher Healthcare Costs
Throughout their adult lives, women have higher healthcare costs. Per capita, healthcare spending on working-age females was 26% higher than per capita spending on males as of 2014.
A combination of factors might contribute to this discrepancy. Working-age women might also be giving birth to children, which comes with hefty bills for prenatal care and childbirth. Elderly women live longer, which means they’ll likely have higher medical costs over time.
Women can plan for these realities in a few ways. First, women should carefully consider their health insurance options to make sure they are covered adequately. Women can also consider disability insurance for periods during which they might be unable to work. Planning ahead for these potential health care costs could help women stay afloat financially not only during their childbearing years but in their retirement years as well.
Additionally, women should always have an emergency fund to cover unexpected medical costs. Even with insurance, surprise costs can sink a tight budget. Having a safety net will help women absorb surprise medical bills.
Women Should Plan For Longer Life Expectancies
As mentioned, women tend to live longer, on average, than men. The current life expectancy for women is 81, whereas men have a life expectancy of 76 years. That means women need to plan for at least an extra 5 years of retirement savings. “Life expectancy is a serious factor to consider when determining anyone’s investment approach,” said R.J. Weiss, a Certified Financial Planner and writer at TheWaystoWealth. He went on to say that because “women on average live five years longer than men, this is something that should be factored into a financial plan.”
For each year of retirement, women will incur expenses like housing, healthcare, and transportation costs. Healthcare expenses will likely increase as women get older as well. All of these factors should be taken into account when women are planning for their retirement.
Women Should Start Investing Today
Working-age women often have competing priorities. They’re caring for children, building careers, and focusing on day to day activities. As such, it’s sometimes hard for busy women to find the time to focus on investing.
If putting money in a basic savings account sounds easier because the stock market is intimidating, consider that over time, due to inflation, cash savings will actually lose value. Since the average inflation rate is around 2% per year, people need to earn an average of 2% simply to maintain their money’s value.
There are plenty of good options for women who want to invest. You can beat inflation without much risk by putting your money into a high-yield savings account. Many online high-yield accounts return around 2.5% a year, which should exceed inflation.
If you’re interested in buying stocks but feel uninformed, you can also turn to technology. There are plenty of automated investment apps to help busy people automate their portfolios. Robo-advisors like Betterment and Wealthfront offer automated investment management for a nominal fee. Ellevest is a robo-advisor that tailors its strategies to women. If you want to start investing, but don’t have a lot of time, an investing app is a great place to start.
The magic of compound interest means that the best time to start investing is now – even if it’s just a small amount. If you’re a woman with a family, try setting aside even $100 a month for your retirement or enrolling in your employer’s retirement plan (especially if they offer a match.)
Women Should Collaborate With Their Partners on Investing
Women can be a good influence on their partners when it comes to investing because women are more likely to be patient investors, and this can be a great advantage in the stock market. The average stock turnover rate for men is nearly one and a half times the turnover rate of women, according to research from UC-Davis. Trading stocks reduces net returns overall. Men lose nearly a percentage point more per year from stock trading than women do, on average.
Because women are more likely to buy and hold stocks, they can ride out market fluctuations. Investors who hang on to their stocks for the long term also pay lower taxes and fewer transaction fees.
Riley Adams, a CPA, Senior Financial Analyst, and writer at Young and the Invested, notes that he and his wife bring different financial perspectives to their investment planning. “For me, I prioritize socking away as much as possible in all of our tax-advantaged accounts for long-term capital appreciation and letting compounding shoulder the majority of the investing work.” He says his wife, on the other hand, “chooses to save for the long-term only in her retirement accounts and place the balance in short-term investments.”
Whatever your investing opinions are, don’t be afraid to bring them to your family financial planning. As Adams says, “I get the sense I’m more comfortable accepting a financial goal far in the future and tolerating risk whereas my wife prefers more tangible secure investments. Together, our financial portfolio remains optimized to accomplish both these feats and works well for us.”
Women Should Focus on Their Individual Financial Goals
Although women face different financial realities than men do, with longer life expectancies, higher healthcare costs and lower wages, they ultimately should focus on their individual goals. “I think investing, done properly, is about process, not gender. To whatever extent females ought to invest differently, it should be because of their unique life circumstances, but not a direct result of having an additional X chromosome,” says Sean Gillespie, a financial advisor at Redeployment Wealth.
Logan Allec, a CPA and writer at Money Done Right, echoes this sentiment. He says, “The recipe for investing success is the same for both men and women: live below your means, determine the proper asset allocation for your age and risk tolerance, and invest as much as you can accordingly.” He went on to add, “At the end of the day, individual men and women are so different that generalizations have little to no practical effect in their individual lives.”
Every Woman Has a Unique Financial Situation
The reality is that women have unique planning needs. Women will, statistically, live longer and pay more for healthcare. They should incorporate these facts into their financial plan. Couples can also benefit from both partners contributing to investment decisions.
Ultimately, women should focus on sound financial planning principles, and they shouldn’t be afraid to take control of their own financial lives. They shouldn’t invest differently just because they’re women. Rather, they should participate in their own financial planning process, take the time to understand how much they’ll need to invest for their futures, and make a plan specific to their unique goals.