5 Investment Mistakes Women Make (and How to Fix Them)
In a world where gender norms have long dictated financial narratives, it's time for women to rewrite their stories. The financial landscape is rife with pitfalls that can derail even the most well-intentioned plans, leaving many women feeling trapped in a cycle of uncertainty and missed opportunities.
Women encounter unique challenges that can impede their wealth-building and financial stability. Addressing these challenges involves overcoming societal pressures, gender norms, and systemic inequalities. While these hurdles may not be eliminated entirely, empowering women financially through education, confidence-building, and access to resources can pave the way for greater autonomy and influence. My company, Tonn, meaning "wave" in Irish, aims to initiate a ripple effect, gradually eroding the societal norms hindering women's financial empowerment and authentic living.
Let's delve into the prevalent pitfalls women face on their financial journey and explore actionable strategies to navigate these obstacles, ensuring a pathway to enduring financial success.
1. Not Investing or Delaying Investing:
One of the biggest mistakes is simply not investing at all or delaying getting started. Whether it's a lack of confidence, thinking you don't have enough money, or just not prioritizing it, this allows prime wealth-building years to slip away.
According to Sallie Krawcheck, CEO at Ellevest, we tend to leave more than 70% of our wealth in cash as opposed to investing it. For the typical professional woman, that can cost her hundreds of thousands — for some women, millions — of dollars over the course of their lives.
How to Fix it:
Start investing today, even if it is just in small amounts
Set up automatic contributions so you don’t have to think about it too much.
Remember the power of compound growth.
2. Lacking Confidence :
Another major issue is that women tend to underestimate their investing abilities before they even start. They assume investing requires advanced math skills or is just something they won't be good at. A lack of proactive pursuit of financial education leaves many women vulnerable to missed opportunities for wealth accumulation and long-term financial security. Concepts such as budgeting and investing remain elusive, leading to suboptimal financial decisions. For instance, imagine a woman who fails to grasp the significance of diversifying her investment portfolio, consequently funneling all her funds into a single asset class.
How to Fix It:
Educate yourself on the basics
Start small to build experience
Recognize investing is a learnable skill
3. Being Too Risk Averse
Research shows women are more risk-averse investors compared to men. While it is important to include conservative investments to avoid too much volatility in your portfolio, taking on reasonable, calculated risks is important for growth.
How to Fix It:
Diversify across asset classes
Don't be too conservative, especially early on
Understand and work within your risk tolerance
4. Not Prioritizing Retirement:
Despite their longer life expectancy, women often fall short in adequately preparing for retirement. This shortfall is exacerbated by a tendency to prioritize short-term financial objectives or rely solely on their partner's retirement planning. Consider the case of a woman who neglects to contribute to her employer's retirement plan, assuming her partner's savings will suffice for both of them in retirement. A Fidelity study found over 25% of women don't invest for retirement because they feel they don't earn enough. This can lead to a major retirement savings shortfall.
How to Fix It:
Calculate how much you'll need
Take advantage of 401(k) and IRA accounts
Make it an intentional priority
5. Not diversifying once invested.
Investing all your money in a single stock or sector increases your risk. This holds true whether you're fully invested in stocks or have everything in cash. While all investments carry inherent risk, diversifying can help your portfolio withstand market fluctuations. A balanced and diversified portfolio is crucial.
How to Fix It:
Invest in index funds, mutual funds, and ETFs
Have a mix of asset classes
Align investments with your goals
Since women live longer than men, it is even more imperative that they invest. Although I can’t fight every inequality, my hope is to empower women from a financial standpoint. By educating and equipping women with the knowledge, confidence, and tools to invest and create wealth on their own terms, we can start to shift the paradigms that have historically held them back.