This adds a LOT when compounded over time. But there’s a catch—
Women on average tend to invest LESS, even if their performance is better.
What explains this conundrum?
How men and women take financial risks differently
Women investors perform better because they’re more conservative with their investing style. Women…
- Buy and hold for the long term
- Pick less volatile investments
- Trade less frequently (this costs fees) and are less likely to time the market
For the same reasons that women tend to be conservative, they’re also less likely to invest at all in the first place. Example:
- Woman invests $5,000, gets 10.4% return: $5520
- Man invests $10,000, gets 10% return: $11,000
Being conservative about investing is different from being conservative in your investments.
What stops women from investing as much as men?
I believe there are 3 reasons:
Reason #1: Finance is a male-dominated industry
More men work in finance and gender biases are pervasive in the financial services industry. Finance careers are only a proxy, but it does show less interest – or more barriers – when it comes to opportunities for women to be engaged with finances.
Reason #2: Lower financial literacy amongst women
Reason #3: The economic challenges of womanhood
There’s a link between child rearing (which most often falls on females) and financial behaviors. Women with children or considering having children naturally act more conservatively with their money.
Relevance of the FIRE movement
The financial freedom formula is relatively simple: invest 25 times your annual expenses, and you can safely choose to not work for the next 30 years as you use up your portfolio.
(Obviously there are many other ways to achieve financial freedom, but that’s for another time)
Embedded in the financial independence movement are 2 assumptions:
- Stick to low-cost, broad stock market index funds. (Something women investors outperform men in)
- Invest aggressively to reach higher levels of financial independence (Something women investors are less prone to do than men)
The FI groups can help both men and women. But in the context of getting more women to invest, more women should consider joining local ChooseFI groups. The FIRE movement is so dominated by men that more diversity would be nice.
Takeaways for women who haven’t started investing
- Know that investing is for everyone, including you.
- Know that when you DO invest, you as a cohort tend to outperform men
- Consider if you’re carrying too much cash (conservative) and could invest more
- Consider joining the FIRE movement and ChooseFI local groups to find support.