Women are typically the chief financial officers of their households. They pay the monthly bills, cut the tuition checks and make sure groceries are in the cupboard. They even manage the mortgage, as I noted in my Next Avenue post about women and homeownership. The bottom line: Women make financial decisions every single day.
But for some reason, that money muscle doesn’t translate into mojo for boomer women when it comes to investing, according to a study just released by Prudential, Financial Experience & Behaviors Among Women.
“It baffles me — where is that lack of confidence coming from?” asked Deborah Owens, author of A Purse of Your Own, when she appeared on a Prudential panel discussing the study in New York City last week. “Women really do know about finances, but that doesn’t transfer over to the investing side.”
Some Surprsing Statistics About Investing
The study’s statistics about female boomers’ lack of investment confidence and their aversion to financial risk are startling and, frankly, a little depressing:
- Only 24 percent feel “very well prepared” to make financial decisions; 13 percent identify themselves as “financial beginners.”
- Less than half (47 percent) are willing to take some risk for the opportunity of a greater financial reward.
- When describing the types of investments they prefer, a striking 56 percent are only interested in “guaranteed” financial products.
- And 68 percent describe themselves as “more of a saver than an investor.”
What really upsets me is that I’ve been interviewing women and writing how-to books about women and personal finance for nearly two decades, but the song remains the same: When faced with investment decisions, most women in their 50s and 60s have a deer-in-the-headlight reaction.
The Problem With Being Financially Conservative
Of course, these days, investing is scary for everyone, male and female. Markets are volatile and the economy seems stuck in the mud. That’s no excuse for women to steer clear of stocks, however, or to avoid finding ways to become more confident investors.
Keeping your cash in guaranteed financial products is fine for your rainy-day emergency fund, but not for the retirement dollars that need to grow over time. (Returns from stocks generally outpace the interest you can earn on CDs and Treasury bonds over the long term.)
Being too conservative with your money has lasting repercussions. It can mean you won’t have enough to live on in retirement, especially when you consider that most women will be solely responsible for their own finances at some point in their lives, due to either divorce or the death of a spouse.
When I ask the money pros what gives, they say it comes down to financial illiteracy.
5 Ways to Become More Confident About Investing
Once women understand how the stock and bond markets work and learn the difference between investing for growth, income or a combination of the two, they invest just fine. Here are five ways to build your confidence:
1. Take small steps. “I think the most important thing women can do to gain confidence is to realize you don’t have to know everything to get started,” says MP Dunleavey, editor-in-chief at the DailyWorth website. “There’s an immense value in just beginning the investing process with, say, an S&P index fund” — investing in a broad variety of U.S. stocks — “or a target-date fund.” (For details, check out my Next Avenue post on target-date funds.)
Dunleavey recommends finding a buddy who also wants to become a more confident investor and discover ways to educate yourselves together gradually. “Remember that few investing decisions are irrevocable,” she says.
This advice is spot-on. One good way to start investing regularly is by putting $50 a month in an automatic investment plan, transferring the cash from your bank account to a mutual fund. Some no-load mutual funds will waive or lower their minimum initial investment requirement if you sign up for their automatic plans. I like investing this way with index funds (which let you diversify among stocks or bonds) from low-cost mutual fund firms like Vanguard, Fidelity and T.Rowe Price.
2. Ramp up your education. You can learn the basics by taking a personal finance course at a community college or by attending investment seminars sponsored by a nonpartisan group like the American Association of Individual Investors.
If you have a 401(k) at work, make at least one new investment decision with it this year. For example, if your entire 401(k) account is in a supersafe choice, like a stable value fund, move a little bit of the money into stocks. Or if your 401(k) stocks are all based in the U.S., put a small portion into international stocks.
Some companies bring in outside financial advisers to offer investment talks over lunch. Check with your employer — and sign up.
3. Learn online In her Next Avenue article, “How Women Who Have Never Invested Can Get Started,” Ann C. Logue noted some great sites to explore, including The National Endowment for Financial Education’s Smartaboutmoney.org, which has free guides that explain stocks, bonds and mutual funds. (Next Avenue has some helpful investing articles from the National Endowment for Financial Education as well.)
Another site I particularly like for women is called WISER, which is operated by the nonprofit Women’s Institute for a Secure Retirement (WISER). This site has an excellent, straightforward tutorial on the basics called Investment 101, as well as many articles for women looking for more sophisticated investing advice. The group also offers workshops across the country.
4. Join an investment club. The Prudential survey found that women like to collaborate and prefer to take their time understanding investments before purchasing them. So consider learning the ropes and having some fun simultaneously by joining an investment club, maybe with a group of co-workers or friends.
Investment clubs typically meet monthly at a member’s home, the office or the library, and require monthly investment contributions of $25 to $50. The National Association of Investors Corp. (NAIC) can help you start a club. Once you become a member of this group ($79 a year) and sign up for its Better Investing program, you’ll have access to the NAIC’s online classes and webinars, research reports on particular stocks and investment tools.
5. Find a trustworthy adviser to work with. I prefer fee-only financial planners who don’t make money from commissions on products that they sell. As a rule, I think you should look for one with the Certified Financial Planner designation, awarded by the nonprofit Certified Financial Planner Board of Standards.
Three national groups of financial planners offer searchable databases with contact information:The National Association of Personal Financial Advisors, The Financial Planning Association andThe Certified Financial Planner Board of Standards.
As I wrote in an earlier Next Avenue blog, “Women and Financial Advisers: A Rocky Relationship,” some money professionals don’t treat women very well. So tread carefully before hiring a pro.
To become a more confident investor, you’ll want to be sure that your expert has your best interests in mind.