It’s true. We are aware of the first challenge – that women on average earn only 78% – 80% of what men earn. The next challenge is that even with the earnings women make, we are investing our money at a lower rate than men. So let’s discuss, what is it costing us? The goal of this blog post – ladies, let’s start investing.
First of all, “investing” may sound a bit self-focused, perhaps even greedy, and not aligned with the primary focuses of many women. Merrill Lynch surveyed women and found that women view money in terms of what it allows you to do:
Creating wealth and financial independence is actually the BEST thing you can do for the people you love the most. Let’s take it from that viewpoint, that you need to create wealth to have well being, and women need to be investing to grow wealth – especially since we earn less than men.
Sallie Krawcheck, whose company Ellevest is dedicated to women investing, wrote a piece in Money magazine that extrapolated some data, showing the wealth gap between men and women over a lifetime. I love seeing the info in a picture! Makes it clear what we have to lose.
This graph combines the two factors that (1) women earn less than men, and (2) women don’t invest as often. Take two 30-year-olds, a man earning $133.9K, and a woman earning $103K (77% of what the man earns – the wage gap). Both are earning a REALLY healthy income, yet by the time they are 65, the man will have grown his investments to $2.8M. The woman will only be at $1.74M, a difference of OVER $1M!!! The wealth gap. You can also see two other scenarios starting at lower earnings, but same ratios assumed for wage gap, lifetime investment allocation and market performance.
OK, so focusing just on the investments, for the money that women DO save, 71% keep it in cash vs 60% for men. “Cash” means keeping your money in a savings account or money market account, where the best interest rate you’ll get over time is about 2.2%. Yet if that money was invested in the stock market, the average market return is about 10% per year! It is key to note money you invest should be money you don’t need for at least 5 years, as the stock market goes up and down often (more volatility) – but over time, it historically provides a great return. What does that mean?
Here’s another picture! Assume savings is 2.2%….and the stock market is 10%…that means over 10 years, as the earnings compound and grow on top of earlier earnings, the stock market returns $271 vs $125!! If you’d invested $10,000 (I know that’s a lot!!), returns would be $27,100 in the market!! Vs only $12,500. Such a big difference over time!!
That’s a lot of data in one blog, so I’ll stop with that, and get to doing. We talked in an earlier blog about targeting 20% of what you earn to go into savings & investing. So let’s recap the investing priority path:
- First pay off any high-interest debt, like credit cards. Debt less than 4-5%, like student loans or a mortgage are “good debt”, but pay off anything else.
- Then make sure you have your emergency fund, which is 6-9 months of your expenses in a savings account in case your job goes away, or something happens that you can’t work.
- THEN start saving and investing!! Start with a 401k/403b if your company has one, then an IRA (individual retirement account), as those both have tax benefits because they’re for retirement. But in those accounts, you’re investing!
- After retirement accounts, take your 20%, start an investment account!
You can start with just $500, it gets you into the game. I mentioned Sallie Krawcheck above, and I enjoy her advice (I follow her on Instagram and LinkedIn). She’s the CEO and founder of ellevest.com, which is an online investing site SPECIFICALLY designed to help women achieve their financial goals.
Ellevest is a “robo” investment option, that’s a great way to start in the market, where algorithms determine the best investments based on who you are. Another great robo-investor is Wealthfront, and here’s a great link that lists MANY great options to start investing with $500. Start somewhere, let’s get there ladies!
In departing inspiration, I will just say Oprah. Synonymous with garnering wealth. Money magazine did this story about how Oprah got her money, who doesn’t love knowing more about that?? My two favorite things in that article? Multiple income streams, and real estate. I’m inspired.