August 26th, Women’s Equality Day, is important for women (and men and children) because our very lives, and our futures, depend upon increased opportunities for equality for women. You may be thinking, don’t women currently have equal rights? And the answer is, well, no.
Just look at the obvious gender pay gap. Still, in 2019, women make only $.79 for every dollar men make. Second, the systemic barriers that keep women from holding upper-level management positions also contribute to women’s economic losses. And third, even IF the gender pay gap evaporated and high-level/higher-paying jobs became available today, women have irrevocably lost the compounding on all those ”lost” dollars for decades, in most cases.
Sadly, however, I have seen women needing to work well past age 65, or retiring with much smaller portfolios than they deserve,
While I cannot solve these VERY significant aforenamed problems now, what I can do is encourage women to right at least PART of the overall inequality “wrong” and get their fair share of financial returns in their investment portfolios from today onward.
We understand “categories” in most all other areas of our lives. We understand that typically we wear our shorts and our sleeveless and short-sleeved wardrobe items in the warmer weather weeks and months. And we put away our sweaters, sweatshirts, sweatpants, boots and gloves for use in the cooler weeks and months.
While there seems to be a time and a place for our various wardrobe items categorically related to every season, so also with our investments, believe it or not! For goals that are longer than seven years into the future, it’s wise to look at the historical return of different asset classes relative to their short-term risk and take our lead from that research.
I am never going to hypothesize or dare to predict what the future return on any asset class will be. However, I am a student of the stock markets, and it interests me very much to discover what has driven stock market return over the past eighty years. Historically, stocks have outperformed bonds and other asset classes (or types), earning returns that generally supersede taxes and inflation, over long periods of time.
It is with that knowledge then, that I begin to shape an investment portfolio for the future, being careful to match investments with goals for each time horizon. In other words, as investors, we can well afford (in most all cases) to put a good chunk of our retirement savings, especially if we are under age 50, into the stock market–splitting it between large and small and/or domestic and foreign for example.
Sadly, however, too many women haven’t invested adequately in stocks, and need to work well past age 65, or face retiring with much smaller portfolios than they deserve, for myriad reasons.
I believe the reason that more women are getting an unequal (read lower) return in the financial markets, thus reflected in their portfolio valuations being lower than that of their male counterparts, is not because of any gender-checking at the financial markets’ front door. Rather it is because women have historically shied away from investing in stocks, principally because they’ve focused on the short-term price volatility—most particularly, the DOWNWARD price spirals, instead of the long-term potential returns.
Yet before I BLAME women for this short-term focus, it’s important to note that the financial pundits on TV or radio or the internet are QUICK to headline downward market cycles, often extolling, with neck veins popping, “the stock market is crashing!” That kind of emotion often triggers the emotions of anyone watching or listening to correspondingly feel scared. The emotion with which the financial pundits announce the stock markets’ decline often evoke the message, “then you need to DO something.”
Sadly, the action most inexperienced female investors take, in the face of such persuasion, is to sell! Get out. Now!
To avoid locking in these lower valuations then, don’t sell your assets in a market downturn, as difficult as that may seem to “do nothing” amidst such market noise and chaos.
My second guess of why women are getting an unequal (read lower) return in the financial markets is that women don’t understand that the stock markets have historically run in cycles.
Here again, it is best if we transfer our common sense in other areas of our lives to the stock market. We women definitely understand cycles, do we not? If we women investors remember that the stock market performs cyclically, we would resolve to NOT sell into lower prices/valuations, regardless of the media hype. We would instead await the upturn of the stock market cycle and then, in most cases, amass the desired amounts for our 7+ year goals.
It’s absolutely both incorrect and costly to not understand that stock investments are not advised for any goal that is less than seven years in duration. And when I say, not advised for any goal, my inference is that invested monies are earmarked for sale at the appropriate timeline of each goal, much like the Christmas Clubs of old. If you don’t remember these, your parents SURELY do. We saved X number of dollars each month, and then at the end of November, the bank would give us the lump sum of accumulated cash with which to go holiday shopping.
What I encounter when we onboard new clients is that investors too often get all juiced up about marketing material, or their former broker’s over-the-top enthusiasm, or just the dream of the potential for huge stock market returns, to the extent that they then over-commit funds into the stock market that otherwise are earmarked for more immediate, or short-term goals. They allow their excitement to override common sense regarding when they would need the cash from those investments.
In too many cases, you guessed it, 2-6 years into those investors’ stock market investments, they want to buy the boat or car, or pay the tuition, all of which requires them to convert their stock investments into cash; i.e., sell their stock market investments. AND, if the market is in a downward spiral, they will likely not reap the capital gain they were hoping for, and it is entirely possible they may not even recover their initial investment!
To be a savvy woman investor, identify your 7+ year goals and eagerly seek out corresponding stock investments that typically have a far greater potential for long-term capital appreciation than would their bond counterparts. Likewise, identify your 1-7 year goals and invest in cash, bonds or short-term fixed income instruments, whose expected duration would adequately correspond.
In order to better understand our investments, we women need to focus on two components—price and number of shares. I fear too many investors have focused singularly upon price. Ultimately, however, the far more important component of our wealth than any one particular day’s price is the number of shares we own. So long as we continue to add to the number of shares we own, our net worth will blossom.
To best ensure success, and reap our EQUAL returns in the markets, strategically steel yourself from any news—TV, Radio, Internet, etc.—when the stock market corrects or “crashes”, except in the case when you may have extra funds during those weeks and months, in which case, double up on your investments to take advantage of those “sale prices” and amass more shares. In other words, when the market is selling at a discount, the share price is lower, so by investing the same amount each month, buy additional shares, and each of those shares has the potential to produce either income or capital gains, or perhaps both over the ensuing years.
Here’s an example:
If you were saving $1000/month into a mutual fund or stock that today sells for $10/ per share, you would purchase 100 shares. ($1,000 divided by $10/share=100 shares). IF that same mutual fund or stock were to suffer in a stock market “correction” and now be selling at $8/share, you would buy 125 shares ($1,000 divided by $8.= 125 shares). See how you can grow your nest egg of SHARES much faster in a down market, so long as you continue investing?
IF we don’t sell into a downturn, we still have the same number of shares of each of our investments such that when the market recovers, those shares’ higher prices will be multiplied times the number of shares that we have amassed and, voila, we have a larger total value!
We understand ”sale prices” when Macy’s or our favorite retailer, or even Amazon’s Annual Prime Day sale is advertised. Few of us would enter a store and pay full price on any item knowing that the store contents are on a 20% sale tomorrow. Rather, we wait that extra day and make the bulk of our purchases THEN, saving the difference for either another goal or to simply enjoy spending.
That same idea of buying a retail item when the price goes down or when the item is on sale does not often compute for women investors. Why? The stock market, unlike retailers, doesn’t announce in advance the exact day it will be on sale. That is not only sad, but it also contributes very much to women receiving UNEQUAL returns!
Suffice it to say, the rewards are WELL worth maintaining our discipline over 1) not selling, and 2) buying MORE when the prices are falling. Repeat after me, please, “I will NEVER stop my systematic saving program during a market correction!”
Let’s face it, women are givers, and we like to take care of those we love, sometimes spending instead of saving. However, we must invest now to send monies ahead so we can buy the goods and services we will want to enjoy in the future, and certainly in retirement. In short, we have to be at least as smart as squirrels. Squirrels put away nuts for the upcoming winter. They don’t get swayed from this task. They dutifully work during the summer and fall to ensure they won’t starve in the winter.
We, too, need to refrain from spending every nickel we earn on ourselves or others. Instead, we need to save at least 10% of what we are earning. That’s right, we must trim our spending so that it is not in excess of 90% of our pay.
So now I’ve set out a goal: allocate 10% of your pay to savings—preferably pre-tax savings like a 401(k) or a 403(b) or perhaps a Traditional IRA. Or if you are not in a high-income tax bracket, consider a Roth IRA. If you cannot save 10% now, begin by itemizing your expenses and weeding out some extraneous expenditures now, in favor of enjoying a robust retirement, chock full of rich experiences—most of which cost money.
Now that I have closed some information gaps for you and suggested ways to parse out your investment deposits, let’s grab our equal share of the market returns. Adopt a strategic methodology of choosing particular financial investments. Then apportion each category of your savings into the most appropriate financial investment whose duration matches each of your goals.
Ultimately, each of us will probably have four or five, maybe six, different investment categories that can be utilized to fund goals with different time periods, all with different expected returns, carrying varying degrees of short-term price volatility.
If you can’t tell, I’m passionate about educating and empowering women to invest smart, to reap our EQUAL share of stock market returns. We Can Do It Women!™
How are you investing smartly? Let me know in the comments!