The Independent Investor: Woman Need to Invest More

We all know women generally make less than men. On average, female workers make 77 cents for every dollar a man earns doing the same job. If you are a woman of color, or work in some lower paid industries, the gap could be even wider. It is one of the reasons women need to invest and save more, not less.

That may sound counter-intuitive. After all, if you are making less, you have less to save and invest. You are absolutely right, but there are important reasons that you still need to save more. One of the main reasons is that the chances are you will live longer than your male counterparts by about five years.

That means if you are living on $50,000 a year, you will need $250,000 (five years times $50,000) in additional income and assets simply to stay afloat until you die. And guess how much the gender wage cap will cost you over your career? The Women's Institute for a Secure Retirement figures that over your lifetime the wage gap will cost you $300,000. Do you see where I'm going here?

The numbers don't add up. Over 150 psychological studies have shown that most women are great at saving, but saving alone won't save you. The only way I believe women can overcome the wage gap penalty, while living longer, is through investing. But unfortunately, the same studies reveal that women are generally more risk-adverse than men when it comes to investing.

There are several reasons for that: everything from lack of confidence to the fear of becoming a homeless bag lady in their old age. The net result of this aversion to risk is less reward. And therefore less money to live on when you retire, get divorced, or experience the death of your husband.

And yet, study after study reveals that when women do invest, they do it well and, in most cases, outperform their male counterparts by almost 1 percent per year. I can attest to that since well over half of my clients are women.  One of the main reasons is that my female clients trade less than male clients. Frequent trading usually ends up with less, not greater, rewards over time.

For the most part, my female clients contribute to their tax-deferred savings plans on a far more regular basis than males. They also refrain from second-guessing their advisors as well. Given that they are usually paying a fee to have their investments managed, their "hands-off" attitude allows the professional to do their jobs. Many men, on the other hand, are like back-seat drivers, always tinkering with their portfolios usually at the wrong time and with the wrong investment.

Probably, their best investment trait is the ability and willingness to ask for help. And when they get advice that makes sense to them, they stay the course, despite the ups and downs which are always present in financial markets. When you combine all of the above, it is not difficult to understand why women investors outperform men.

The bottom line for women is that despite the wage, age and gender gap, you owe it to yourself to start investing and do it now. The longer you wait, the more difficult it will become to avoid that bag lady fate that haunts your dreams.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.