Women and investing: How psychology plays a role

Although investing is a powerful way for women to increase their wealth and accomplish their financial goals, some hesitate to dive in.

Perhaps the biggest challenge women face when it comes to investing is a lack of confidence that they will make sound investing decisions. “Women tend to be self-deprecating, believing themselves to be less experienced, not necessarily well educated in investing and not as good at investing as men,” says Karen McNeill, director of family history at Ascent Private Capital Management, a division of U.S. Bank Wealth Management Group.

That self-doubt, combined with lower earnings and family responsibilities, means women often delay getting started with investing. “But once they start, studies show women outperform men,”1 adds McNeill.

Why women thrive when investing.

When selecting investments, both men and women evaluate the financial return, but women typically expand their evaluation criteria to consider their personal values as well as the investment’s impact on the environment, children and communities.

In fact, McNeill sees women’s frequent success with philanthropy as another way they can increase their confidence in their investing abilities. She notes women have long been drivers and influencers in philanthropy, making big decisions about giving, and doing so in a way that’s tied to their goals and values. These are the same skills crucial to successful investing.

Women have an important reason to build long-term wealth for themselves: American women can expect to live five more years than men.2 The good news is women tend to hold their investments for longer periods than men, which can help reduce transaction costs and grow wealth over time.1 Women also show a tendency to invest in stocks with better, more consistent track records than men,1 who often take chances on riskier investments.

But because women tend to start investing later than men, they can miss out on significant amounts of compound interest.

Women often delay getting started with investing. But once they start, studies show women outperform men.

Grow your investing confidence

Here are five ways you can become more confident in your investing approach.

1. Explore past financial decisions. “We make decisions around money all the time,” says McNeill. “So, you can start with the basics, such as, ‘What decisions around money have I made in the past? What money decisions are easy for me? Which ones are difficult for me? Why am I comfortable with some decisions over others?’” Note any patterns and determine why those patterns exist. For example, do you prioritize saving for travel over saving for retirement?

2. Look back at family history. Consider how female relatives have made decisions about money and what lessons those decisions might offer. Positive role models from the past can increase your confidence in making investing decisions. In a similar way, you can also learn from the mistakes of older generations to inform your investing strategy. If your family didn’t talk about money, consider seeking insights from your professional or personal network.

3. Take assessments. Whether from financial professionals or another source, such as a financial advisor or a website, evaluations can provide insights into your approach to money. Assessments can help you understand things like your investment risk tolerance and if you’d prefer to be hands-on or hands-off with your investing.

4. Contribute as much as you can to your investment account can early on. The answer to when to invest is usually now. When it comes to how much, aim for as much as possible, especially early on to take advantage of compound interest and time in the market. Maximizing 401(k) contributions is a good way to make investing essentially automatic.

5. Seek out a financial professional. Financial professionals can help you better understand your approach to investing as well as your options. McNeill suggests, when looking for a financial professional or wealth manager, choose one you feel comfortable talking to about any financial issue. “That should be a safe space to have conversations and make decisions about investments,” she says. Be clear when discussing what you want for your future. The more candidly you lay out your goals, future healthcare needs and desired lifestyle, the easier it will be for a professional to help you choose the best investments to generate the financial return you will need.

Investing in a way that reflects your values and goals may be easier said than done. The good news is that building your wealth is a process. Create a plan for your investment strategy that takes it one step at a time.

Article Information

¹ Are Women Better Investors Than Men? Here’s What The Studies Say. Investor’s Business Daily, 7/16/2018.
² Life Expectancy at Birth (in years), by Gender. Henry J. Kaiser Family Foundation.