[Cent #3] women invest, and they're damn good at it

welcome back to 25 cents on womanhood and money. We’re onto cent #3: women invest and they’re damn good at it.

Don’t believe me? Look at the stats.

In the U.S., women investors often outperform men. Based on a recent Fidelity study, women outperform men by 0.4%. This may sound marginal, but let’s look at the power of compound interest. Someone who invested a million bucks for 25 years at 7.4% would earn $530,657 more than an investor who netted returns of only 7%.

The lower performance is linked to two notable traits: overconfidence and overactivity. Based on data of 37k investor households from a large discount brokerage company, men traded their accounts 45% more than women. And single men traded 67% more than single women (source). Sheesh.

So women are less reactive and quite literally claim to be less knowledgable about stocks. Ever hear risk-averse as a negative attribute for women? Seems like it can actually serve us well in the world of investing.

let’s talk numbers

Here’s a graph tracking the annualized returns of S&P 500 index fund, a market index that tracks the stock performance of the 500 largest companies listed on U.S. stock exchanges. As seen above, markets can be volatile in the short-term, based on a multitude of factors. There have been huge economic downturns, like the dot-com bubble crash in 2000, the great financial crisis in 2008, and the COVID-19 crash in 2020.

However, let’s widen our aperture; markets are cyclic. Every time the market has suffered, the market always returns to its upward trend. Holding can be helpful while they stabilize. Aka you don’t lose money on an investment due to reacting to the market.

Investing in index funds have an annualized return of 6-9%, where the average return rate in a bank has historically been a lot lower. So: you don’t have to do much work, you don’t need extensive knowledge of the market to pick individual companies to invest in, and most importantly, you’re not trying to beat the market.

and of course, let’s talk psychology :)

OK great Sneha, thanks for the stats. Of course but it still begs the question of why only 36% of women are saying they’re investing vs. 63% of men?

Few reasons off the top of my head (they’re probably more):

1. Women aren’t encouraged to invest, but rather save and keep money in cash. The cost of saving vs. investing can mean missing out on hundreds of thousands of dollars, if not millions, over the course of our lives.

2. But then… women are shamed and blamed for their lack of investments… 🙃 

3. So of course, women must be bad with money. They’re shopaholics, gold diggers, stingy, etc. Common trait? Women will never be enough.

4. Women need to have “the perfect amount” of money to invest.

This creates a stigma for women to invest, let alone talk about money and investing. From anecdotal experience, I’ve heard women say: investing is boring; it requires a certain amount of money to get started, and it’s complicated and requires advanced finance knowledge. I mean yes, if I heard finance bro lingo like this:

• P/E Ratio

• DCF

• WACC

• Crunch the Numbers

• Bottom Line

I’d feel less incentivized to invest. And don’t get it twisted, the world of finance was certainly not built by a women, and definitely not for a woman. Women experience pay gaps, longer lifespans, and differing non-negotiables.

So first tell yourself: Not having invested doesn't make you any less of a woman.

Only in the past few years has investing become more democratized, through new companies disrupting the market for investing tools built for women by women (i.e. Ellevest, Female Invest) and social media influencers who are breaking the stigma around women talking about money (i.e. Tori Dunlap, Simran Kaur).

While investing may very well consist of “crunching the numbers” or “WACC” (I admit I don’t even know what the latter means, I just searched up “finance bro lingo” using Gemini), investing is a philosophy and hell of a lot broader the stock market and lingo. There’s nothing wrong with acronyms but using it as jargon only gate-keeps communities from an access card to this world: money.

You don’t need to day trade options to invest and grow your money. There’s so many options including:

• Index funds where you can buy shares or fractional shares

• Real estate

• High yield savings accounts

• Equity in a company (either your own or someone else’s!)

The list goes on. I know how terrifying it is to get started, especially when we’ve felt so much financial shame around investing. I’m lucky that my dad educated me about building holistic wealth since I was young. And sure, money doesn’t buy happiness, but it sure does buy one autonomy and more importantly, our ability to look past self-preservation. According to Ellevest, a third of Gen Z women (33%) and more than a quarter of millennial women (28%) say impact investing is important to them. The more wealth women build, the better for all: ​​Women invest 90% of their wealth back into their communities, and give a greater percentage of their wealth to non-profits compared to men. 

Interested in getting started with investing? Inspired but still feeling mixed emotions? Maybe some form of “this is cool but I’m in debt” or “this is neat but I’m not an investor”? All wonderful things, and the best part is we’re just getting started.

If you’re feeling [insert any emotion], let’s chat! If you feel more comfortable chatting with a loved one or a stranger, yay! As long as these conversations are happening. I know how deeply personal our relationships with money can be, and just providing investing advice can sometimes feel so bland and impersonal. While education around personal finance is so important, so is understanding what makes personal finance personal. I guarantee you there is a unique way for every single one of you to begin investing. Conversation is the first step to removing a lot of our internalized shame and guilt and can unblock us to actually begin healing our relationships with money.

So here’s the mantra to end for us to end on: Not having invested doesn't make me less of a woman. I can always make the choice today to invest in my future self despite the noise.

If you enjoyed reading this, please share this with your friends to stay 🙂 

Until the next 🐝 , and with 💛 ,

Sneha