Is This Holding You Back From Investing?

Maybe you think investing is risky. It’s scary and basically like gambling. Or its an elite game that finance Chads like to play. When friends bring up the topic, you feel a sense of unease in the pit of your stomach.

The weird truth is that the more you learn, the less risky it will seem!

If you’re starting to feel uncertain or unconfident about your investing abilities, then society probably has a lot to own up for this.

So stop and ask yourself this. Have you internalised any these beliefs about women, money and competency? What is holding you back from investing?

Key points

From birth to retirement, why is it harder for women to start investing? 

Women investing in the stock market have been in the minority throughout history. Why?

For one, they are financially disadvantaged throughout their whole lives. Let’s look at what a typical young woman’s financial journey through life looks like.

• From childhood, she faces a 20% pocket money gap and votes of no financial confidence. This report shows girls were more financially dependent on others, including where parents stewarded their money for them more so than for young boys.

• In the classroom, teachers give the boys more attention compared to her. This is particularly demotivating when it comes time for math tests, critical numeracy skills for finance. The unequal attention gap will probably cause her to underestimate her abilities.

• Growing up, her parents emphasize lessons in fiscal restraint instead of wealth creation. This sets the focus on saving and budgeting instead of understanding how credit scores and taxes work. 

• In high school, she scores worse in math and science than she is capable of, due to a lack of self-confidence.

• When choosing a career, this also deters her from high-paying jobs in engineering, finance and banking for example. Women comprise only 28% of the STEM workforce. When future generations look to the finance industry for female role models, she won’t be there.

• Now as a working woman, she earns 77c to a man’s dollar in her lower-paid occupation. Why, even 135 years from now, her granddaughters will still be experiencing this gender pay gap.

• When buying a home, she will also pay a higher interest rate on her mortgage than most men. 

• Once married, she takes on up to ten times more unpaid care work than her somewhat inconsiderate husband. Thankfully, she has wised up and now gets her hubby to negotiate rates with their mortgage broker, but she won’t catch a break yet. 

• When pondering how to manage her money, she nearly misses out on getting financial advice, because it’s a bit intimidating. All of the advisors seem to be older white men that make sexist comments about every 3 minutes. Also she is unsure whether she qualifies for such services, because she only has meager sums saved up. She can barely afford the fees. She’s missing $26k a year, remember?

• But when she does visit her financial advisor, she will likely be given conservative financial advice, like holding more cash and less international shares​​. She’ll also find it difficult to get attention from the advisor. Classroom deja vu, anyone? 

• By the time she retires, she will look forward to a retirement income that is 17% smaller than men and an average life expectancy of over 90 years. She prays she will not become one of the elderly homeless women who are the fastest-growing demographic of homeless people in Australia. 

Why should everyone want more women to start investing? Because this issue is related to female empowerment, climate change, poverty and economic growth for everybody.

Why you could be awesome at investing

Which of the following qualities do you think makes a great investor?

Women tend to save at higher rates than men

Studies show on average, women put away 7% to 16% more of their income than men. They are disciplined savers.

And while women are thought of as emotional creatures with no self-control when it comes to spending, research has shown men are just as likely to splurge. Screw Sex in the City, where are all the movies of guys buying loads of tech gadgets off Amazon, huh?

Actually, women tend to invest more rationally

Ironically, women’s lack of confidence and subsequent need for a high degree of certainty or knowledge before making an investment decision implies that they are more logical and less emotional compared to the way men invest. 

They tend to invest based on facts rather than sentiment. On the other side, it has been shown that men tend to be more prone to “overconfidence” and trading frequently. Do you think women are better investors because of this?

Does this give women a behavioral advantage in the stock market? The results speak for themselves.

Women have achieved superior investment returns

A recent Fidelity study found the accounts of female investors achieved positive returns and surpassed men by 0.4% between January 2011 to December 2020. So that’s including the first year of the pandemic too. 

If you invested $100,000 over 30 years, you can see just how meaningful this seemingly small 0.4% difference becomes.

If women are so good at it, why aren’t more women starting investing?

Ground zero: Toxic socialized beliefs about women, money and incompetency

We get conditioned to play according to society’s ‘rules’. These become self-limiting beliefs when we start to believe them ourselves. Especially for women to start investing.

Being aware of our internalized beliefs and unconscious biases is the first step to breaking the gender investing gap and to gaining confidence in our investing skills.

The three core destructive beliefs about women as I see it, relate to:

These then go on to trigger a host of very real, reinforcing economic barriers: the pay gap, the financial education gap and the investing gap. These make it harder for women to start investing.

But let’s take a look at these misguided beliefs and their impacts.

“Women are less competent than men. They are emotional and have no self-control.”

We start with the very traditional gendered division of labor since the age of cave-dwelling. 

Men earn, hunt, provide. Women nurture, protect, feed.

Even just appearing as confident and capable was surely critical to the male homosapien’s survival. Fast forward to today’s society, where we often mistake confidence for competency.

The mistaken belief that men are by default more competent than women has meant women have historically been shunned from power roles. These are high-paying roles that involve commanding resources – managerial roles in companies, leading nations, handling other people’s money, bringing home the dough.

And so we join the dots. Men have power. Power means money. Money is masculine.

“Women are risk averse“

According to the BNY Mellon study, only 9% of women stated that they have a high or very high risk tolerance for investing, while 49% have a moderate risk tolerance and 42% report having a low risk tolerance.

Blackrock also asked men and women how the idea of investing makes them feel. Men were more likely than women to say “hopeful” and “optimistic,” whereas women more commonly said “nervous” and “risky.”

For women to start investing in the stock market, they don’t need to be a bold risk-taker.

Allow me to rant. You should care less about what your attitude to risk is. 

“Being risk averse doesn’t automatically make you bad at investing. There are calculated risks and then there are stupid risks. I’m averse to stupid risks.”

– The FinanceFem

Because what actually makes a successful investor is the ability to take your emotions out of it – think rationally, be objective, and evaluate risks and opportunities from all angles.

Because women literally face greater risks

Yes, women tend to be risk averse. Not because they have vaginas, but because all-round women are generally in a more precarious financial position. 

In a given situation, are the risks facing men and women in fact the same? Well, no. 

When faced with the risk of losing $10,000 in the stock market, I’d bet a woman would likely feel the economic sting more than a man. Because statistics show that she probably earns only 77c to every dollar of his income, the loss is likely to constitute a larger portion of her take-home pay than it is his.

Also, the system is stacked against women when it comes to financial resilience. 

It is simply easier for a guy to bounce back from that $10,000 loss. Men generally have an easier time getting into higher paid jobs, cinching a promotion, asking and actually receiving a pay raise. 

Because society reproaches women for taking risks and it undermines their confidence

How much do you need to learn about investing in shares to feel comfortable and start putting your money into the market?

Women often say they want to know everything before they start investing. Feeling like you know everything before you start would be really comforting and make you feel more secure about the potential risks. But the reality is that this isn’t always practical. Sometimes, all you are really doing is procrastinating.

It’s the subtle pressure to be perfect. Why?

Women and girls are punished more harshly for making mistakes.

Somehow, we tend to be less forgiving of a woman when she makes mistakes. When a mother leaves a baby in a car on a hot day versus a father who did the same, who do you think would be more heavily judged by society for their care-taking crimes? Subconsciously, it’s easier to forgive guys, because “boys will be boys”, you know?

“Taking risks and making mistakes…if you think about it, they aren’t always the same thing.”

– The FinanceFem

Women are conditioned to be risk averse. And when women believe it too, it becomes a self-fulfilling prophecy.

So it’s no wonder that only 28% of women around the world say they feel confident about investing their money.

Because women are less financially literate

A 2011 study by the Columbia Business School showed risk is a function of individuals’ familiarity on a given topic. The more familiar you are with the topic, the less risk averse you become. Mind boggling, right?!

Feeling unqualified is a deterrent to women to start investing.

In a self-reinforcing cycle, women’s tendency to avoid risk means they are more likely to play it safe with conservative portfolios. They then miss out on greater economic spoils.

But aren’t there biological differences in risk tolerance between the genders?

Yes, apparently testosterone influences you to take on greater financial risks. 

But it’s also been shown that in one of the few matrilineal cultures on this planet (the Mosuo people in China), girls take more risks than boys in the same setting. The study essentially proved that risk preferences are malleable and are shaped by culture.

Look, investing will always involve risk.

The very act of investing is to make financial decisions in the face of uncertainty and incomplete information. But I think there is a difference between taking on smart, calculated risks compared to stupid risks (e.g. the drugs and cliff-jumping kind). 

Thanks to inflation, there is also the risk of doing nothing with your money. This means facing sad prospects of living in poverty when you’re old and wrinkly. But fret not. Since you’re reading this blog, you’re doing great already!

And isn’t investing in stocks a high risk business?

Investing inherently requires you to have a level of conviction about what is going to happen in the future. 

“Is there a difference between uncertainty and risk?“

– The FinanceFem

But first, you must understand that investment risk comes from three sources. The price of the investment, the nature of the investment, and yourself.

Women have less financial leeway to take on risk – but only when it comes to price risk (the first one). The other two risks? You can shrink those down to size through arming yourself with knowledge and skills. 

So, why should everyone (guys included) get more women to start investing? 

Why should more women start investing?

Compound interest can grow your wealth

Compound interest is growing money from money. Look, Einstein was a smart dude:

“Compound interest is the eighth wonder of the world.”

– Albert Einstein

Compound interest is how the richest investors in the world have gotten wealthy. And you can get some of this for yourself by getting in on the stock market.

But do you know what the real beauty of the stock market is?

Because the market does not discriminate, okay?

The invisible hand has no unconscious biases. It has no eyes, ears or mouth to judge you with.

Unlike the pay gap, stock markets won’t discriminate returns based on your gender, age, race or whatever. Voila!

And unlike the pay gap, your ability to learn about investing and how to grow your wealth is fully within your control. Yes, yes, yes!!

Because women invest in more prosocial causes 

That seriously stunning report by BNY Mellon shows young women are 13% more likely than older men to direct their investment funds into having a positive impact on climate change. 

Young women are also 10-12% more likely to say it is important to invest in companies that are racially and gender diverse.

In fact, I looked through all of the dropdown options on the interactive graph.

Young women outscored older men on every single aspect. Now that’s what I call purpose driven, compassionate and empathetic, wouldn’t you agree?

And you know the funny thing is, I’m sure this also partly explains their better investment track record. You see, there is a whole host of literature on the link between diversity and enhanced financial performance in organisations.

Now, tell me about you

Were you shocked by any of these? Did you have an “oh my holy” kind of moment, just like me?

You see, before writing this, I used to think that women naturally tended to be more risk averse than guys. Like our different hormonal balances could answer that.

Now, I think there is a lot more to be said on how learning about the risks of investing actually changes how you feel about them. Being risk averse shouldn’t deter women to start investing.

I’m sure you’d be able to tell me about other attitudes and beliefs you’ve noticed that I haven’t covered in this article.

How can we help each other?

I feel like a bystander every time I read about the gender pay gap. As a woman, it’s depressing as hell knowing there’s all that money up for grabs, but I’m not a hiring manager. There isn’t much I can do to change that, so oh well.

I’m trying to be more aware of my unconscious biases towards others. I want to help women to start investing by sharing my knowledge and support.

I think the first step is being aware of how our internalised beliefs and unconscious biases could be holding women back from financial success. That’s all of us.

The second step is breaking those vicious “Cycles of Doom” by spreading the word to the women around us about the phenomenal power of compound interest in investing. 

We can teach ourselves how to have a healthier money mindset in order to learn and invest with confidence. And we don’t have to do it alone. Let’s do this!