According to research by McKinsey, an unprecedented amount of assets will shift into the hands of U.S. women over the next three to five years. By 2030, American women are expected to control much of the $30 trillion in financial assets that baby boomers will possess — a potential wealth transfer of such magnitude that it approaches the annual GDP of the United States.
Women are taking center stage in the financial world — and with that comes a lot of responsibility to make our money work for us and our future. Since women tend to outlive men, most women at some point in their lives will find themselves solely responsible for their wealth preservation and generation.
Here are a few important points on how female investors can become more proactive in their investment journeys, and how they can encourage other women to do the same.
- Women tend to be natural collaborators and work well with a team
Regardless of whether their wealth was self-made, inherited or a combination of both, it is important for female investors to have a competent investment professional or an investment team whom they trust, have faith in and feel comfortable with. It is the responsibility and onus of your investment team to help you understand all investment-related concepts pertinent to your investment journey. It is important to work with your team to reach a point where you are clear on your financial goals and how your investment portfolio is helping you reach those goals.
- Know your unique strengths as it relates to investing
There are a growing number of reports and studies that explicitly state women have more qualities needed for success in investments. Women, versus men, tend to be more patient, less impulsive, more realistic, more prudent and less overconfident. Female investors also have the right approach to investments since they tend to view it as a means to an end of providing security for their family, rather than being more competitive or just achieving short-term returns. As the billionaire investor Warren Buffett rightly puts it, “The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.”
- Redefine risk and your relationship with it
It’s important to develop a more accepting relationship with risk — or better yet, to reframe our perception of what risk is. Yes, risk causes uncertainty, but if we take measured risk in a portfolio with adequate diversification, we can drastically improve the return profile of our long-term investments.
When we talk about risk tolerance, we often assume the risk we are tolerating is short-term market volatility. One way to tune out market noise is to keep your focus on the long term and pick your investments with that time frame in mind. The real risk is when longer-term investment objectives are not met.
According to a survey by S&P Global, just 26% of American women have money in the stock market. The average female investor keeps 68% of her portfolio in cash and cash equivalents, such as money market accounts, Treasury bills and certificates of deposit, according to BlackRock — compared to 59% of men.
- Know the risks/rewards with ESG/impact investing and alternative investments
Research shows more women and millennials are concerned about their investments being aligned with their social, religious and environmental values. Since ESG and impact investing is an evolving space, subject to quite a bit of change, it is good for female investors to consult their investment team or advisor, who can provide updates on the ongoing developments, regulatory risks and impact of various ways of ESG/SRI investing.
Moreover, we don’t see a lot of female investors in the alternative/private investments world, likely because women are still fairly risk averse in comparison with men. As more women start to reframe and reanalyze their perceptions and relationship with investment risk, it is advisable to gain more knowledge and talk to your investment team about the risks and benefits of nontraditional investments.
- Inspire your network of female investors
Whether you are a woman who is new to investments or has been investing for a while, it is important to talk about it in your circles so you can encourage other women to invest. Female investors are sitting on large amounts of wealth, but we need to make an effort to nurture more of us to invest. It can start with a conversation.
As women have become significant household earners and often key decision makers as well, it is imperative for all female investors, whichever stage of life they are in, to take the lead in their investment journey and inspire other women to do the same.