I have just finished reading the book Invisible Women: Publish Data Bias in a World Designed for Men, By Caroline Criado Perez. The author reports a wide range of data, research, and empirical examples of the world built and designed by and for men. This ignores women’s needs and sometimes has disastrous consequences. There are many examples: phones that are too big for women’s hands, wrong drug prescriptions for women’s bodies, and women’s low participation in political life.
Investment is no exception. There are some unique considerations for women in investments that are often overlooked. Women make up about half of the world’s population and usually live longer than men. The average life expectancy (at birth) for all OECD (Organization for Economic Co-operation and Development) countries is 78.1 years for men and 83.4 years for women. Currently, single-person households make up 10% to 30% of all OECD households, depending on their age category. And that number continues to grow.
Wealth and pension gap
These trends have two main consequences. One is the gender wealth gap due to low average wages for women, which undermines financial independence. And pension disparities that can have serious consequences. Therefore, there is a demographic and economic need for women to work harder on their money and savings for future financial security.
Chart 1. Life Expectancy and Gender Pension Gap in OECD Countries
Women seem to hate money problems
Looking more closely at women in investing, there are some differences compared to men.according to Credit Suisse Report From woman to woman, Women hold most of their assets in cash and bonds and tend to avoid stocks and alternative assets. Nanette Heckler Fidehelve, Chief Investment Officer of Credit Suisse’s International Wealth Management and Global Head of Economics and Research, said: “According to a US Bank survey, the top three emotions associated with men’s financial planning are self-confidence, excitement, and happiness, while women list self-confidence, stress, and anxiety. In short, women hate money problems. is.”
Challenges for women
The challenge is that in the zero interest rate world we have landed since the global financial crisis, putting cash in savings accounts to build wealth no longer works.
Depositing money in a savings account puts women at risk of inflation. Investing in “safe” government bonds is not a viable alternative as interest rates are close to zero. Negative yields mean that if a woman holds these bonds until she matures, she will pay the opportunity to lend money to the government instead of earning a yield. In other words, women would have been convinced of only one thing: losing money at maturity.
Credit Suisse women of different generations in Switzerland, investing in a multi-asset strategy in 2009 and storing money in a savings account, to better understand the notable differences that investment makes. Calculated the trajectory of possible wealth. For example, consider a woman between the ages of 30 and 45 in 2009. CreditSuisse has a balanced payment strategy (50% stocks and 50% bonds, alternatives). She could have increased her capital to 147,000 francs by the end of 2020 (105,000 francs for savings accounts) and expected to be 205,000 francs instead of 130,000 francs for savings accounts by the end of 2025.
One way to overcome women’s investment-related difficulties is to develop a lifecycle financial plan. At various stages, specific goals are set that also depend on the type of occupational career and family situation. Some basic rules apply to everything.
- Don’t wait until you get a lot of money to start investing. Start with a small amount, even if it’s only $ 50 a month, and let the power of compound interest do the rest.
- Take a long-term approach rather than going in and out frequently to follow market trends. In this way, you reduce the cost and probability of high-priced entry and low-price exit.
- Avoid unfamiliar financial products.
- In case of unemployment or illness, we will prepare an emergency cash fund to cover the living expenses for 6 to 12 months.
Life cycle investment
According to Credit Suisse, women often have different life stages shaped by education, family, work, and aging. At each stage, women have clear needs and preferences and seek an investment approach to build wealth and ensure long-term financial independence.
- 20-30 years old: Women tend not to earn a stable income, but it is important to start thinking about retirement savings as this will help build wealth and ensure long-term financial independence.
- 30-45 years old: Women may need to reduce their income and pension contributions as they may take childbirth breaks to give birth and care for their children. This can lead to a future recession of wealth. Women need to reflect their reduced ability to take risks during this period in their plans to counteract some of these effects. For example, they can focus on their payment strategy.
- 45-60 years old: As the career progresses, women can become more sophisticated investors by looking at the stages in their lives where they can generate higher incomes and thereby saves.
- 60 years and over: Women’s risk tolerance is reduced because they rely directly on capital income and predictable cash streams to finance pre-retirement or retirement activities and living expenses.
Impact of COVID-19
It should be remembered that the above life cycle (and investment) is an ideal scenario and the reality is often different. For example, COVID-19 has a more serious impact on women’s work than men, as it affects more sectors, such as retail and restaurants. The International Labor Organization (ILO) estimates that 4.2% of women’s employment worldwide was destroyed between 2019 and 2020, compared to 3% of men’s employment. The decline in women’s employment has disrupted progress over the last 15 years. In addition to unemployment, women have also dropped out of the larger workforce.
Chart 2. Changes in Labor Market Participation (Q4 2019-Latest)
As a result, the investment-pension gap is widening and finding solutions to close it is even more urgent.
How women can reduce the gender investment gap
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