How To Build Wealth And Combat The Investing Gender Gap
Acknowledging that a massive investing and wealth gender gap exists is one thing. Deciding how to build wealth and take action is another. If you’re a 20- or 30-something-year-old woman who has never invested, you might be asking yourself: Now what?
Taking a step back from the broader structural issues, like the wage gap and Wall Street’s lackluster appeals to female investors, there are a few things women — or anyone, really — can do to start growing their money.
How To Build Wealth Step 1: Start Investing (Even A Little Helps)
“The most important thing, of course, is to get started,” said Jennifer Barrett, the editor-in-chief of Grow, a digital publication from micro-investing app Acorns. “A lot of times there’s this idea that you have to have a certain amount of wealth before you start investing outside of a 401(k), or there’s an idea that ‘Wow, I’m living paycheck to paycheck; I don’t have any money to save or invest.’ And I think it’s important to set aside just a little bit of money and get started, no matter what your situation is, because the most important factor you have on your side is time.”
Even for those who have dipped a toe in the water and put a bit of money into their retirement accounts, deciding to invest serious money into the stock market to build wealth can be intimidating.
“I do believe in (investing), I just need a fire lit under me,” said 30-year-old Caroline Rhoads, a marketing account director in Philadelphia. She has socked away around $1,000 in a Robinhood account and feels “pretty good” about her 401(k) and financial future.
“It’s on my rainy day to-do list,” she said.
But getting started is the hardest part, particularly if you’re concerned about risk and timing.
“‘Gosh, is the market too high? Did I miss the market? I’m worried that one tweet will send the market down,'” said Ellevest CEO Sallie Krawcheck of some people’s reservations about investing. “And of course, the right answer there is that none of us can time the market. Even Warren Buffett does not try to market-time.”
And not all stock investing involves trying to pick individual winners. “Passive” investing, or buying mutual funds or ETFs, allows you to buy slivers of tens or hundreds of stocks at time.
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How To Build Wealth Step 2: Respect Compound Interest
Millennials, in general, have “much better savings habits” than previous generations, according to Bankrate Chief Financial Analyst Greg McBride. But their investing habits raise an eyebrow.
Younger investors like cash and real estate best, he says. Even gold and precious metals, safe-haven assets that historically do not appreciate as quickly as stocks (but are also not as volatile), rank higher for millennials than stocks.
“If anything, it illustrates the level of risk aversion,” said McBride. “Gold and precious metals are often seen as a way to diversify a portfolio or hedge against disaster. And I think it’s the hedge against disaster that holds the appeal for millennials. They’ve witnessed the financial crisis, and for older millennials, they also saw the dot-com bust.”
But this generational fear of risk is “alarming,” he says, particularly since they will have a greater retirement savings burden than Gen Xers or Baby Boomers.
“The good news is there’s plenty of time to be able to correct that,” he said.
Of course, the double-edged sword of being decades away from retirement is that A) you feel like you have all the time in the world to build wealth, and B) you, in reality, do have many, many years to wield the power of compound interest — so long as you’re actually taking advantage of it.
“If you hunker down on those safe-haven assets for too long, it can have an outsized impact on your long-term wealth because you’ll miss out on those valuable years of compounding,” said McBride.
How To Build Wealth Step 3: Check Your 401(k)
Barrett says that this generation of women is likely more aware than previous generations of the need to invest and build wealth.
“(But) I don’t know that awareness has translated to action,” she said. “So you have more people in 401(k)s because that’s the default, but not because women think it’s important.”
Check your 401(k) to see what percentage of your income is being contributed. The default is typically 3%. Ask yourself if that will be enough to take you to the finish line (i.e. retirement) and if you’re able to contribute a higher percentage. The maximum dollar limit in 2018 is $18,500.
Regardless of how you start to build wealth and invest, there’s plenty of motivation to begin. When Ellevest researchers asked women what drove their confidence to reach their goals, the answer was surprising.
“It wasn’t how she’s doing at work. It wasn’t her relationship with her spouse. It wasn’t her relationship with her family. It wasn’t her level of education,” said Krawcheck. “It was how much, and if, she was saving and investing.”
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