Signon to Passport
April 2007
A Chicago woman—let’s call her Lynn—loses her husband at the age of 82. Having never managed her own money, she’s overwhelmed by the prospect. One day, she calls her banker to ask whether she can afford a new blouse. The banker assures her that she can, as she has millions of dollars in assets.
Another Chicago woman—let’s call her Ann—inherits a business in the male-dominated metals industry. Six years after taking the business over from her father, she’s doubled the company’s annual sales from $20 million to $40 million.
“Obviously, there’s no one model for women and wealth,” says Allegra Biery, senior vice president with Northern Trust’s personal financial services group. “That said, women as a group have more money and are more involved in financial decisions than ever before. And, in general, women have an investing style that gives them some serious advantages in managing their money.”
That’s good news—because women are well on their way to controlling the bulk of our nation’s wealth.
Nearly four out of 10 “high-net-worth” adults—that’s people with investable assets of $675,000 or more—are women. By 2019, that number is expected to grow to two out of three. Then women will control the majority of wealth in the United States.
“This isn’t just a U.S. phenomenon,” Biery says. “Women control a significant portion of the world’s wealth as well. As their assets continue to grow, we’ll see women taking on more and more of the world’s financial decision making.”
What’s a woman to do?
So how can women manage their mounting wealth? Biery makes these six recommendations:
- Start with a plan. You wouldn’t cruise to the Caymans without consulting your nautical charts. You wouldn’t build your beach house without a blueprint. You wouldn’t even host a party without mapping out your ideas to the caterer.
So why would you manage your money without a plan?
Most women wouldn’t. In fact, more than three-fourths of women have a financial plan; fewer than two-thirds of men do.
Women also invest for the long haul. Men trade 45 percent more often than women. And fewer women than men say they’re trying to beat the market—a sign of long-term planning vs. short-term reaction.
Plus, women are likely to get professional expertise in developing that plan. Some 70 percent of women use a financial advisor; only about half of men do.
“Women’s instinct toward planning pays off—literally—in their portfolios,” Biery says.
- Educate yourself. “The more investors—men or women—know about finance and investing, the better investors they’ll be,” Biery says.
Women actively seek this knowledge. In surveys, women say they’re more likely to educate themselves about their financial decisions; men are more interested in taking action.
Women use that education to invest wisely. For instance, only about a third of women have purchased stock on a tip from a friend; more than half of men have.
And one reason women rely so heavily on financial advisors is that those experts help provide a financial education.
- Be ready to fund a long retirement. Statistically, women outlive men. The average 45-year-old woman today is likely to live to the age of 82, for instance. But the average 45-year-old man’s life expectancy is less than 78 years.
“That means women need to fund a longer retirement than men,” Biery says. “That takes more money.”
But, as a group, women haven’t saved more. Only 14 percent of women—compared to 21 percent of men—have saved $100,000 or more for retirement, according to the Employee Benefit Research Institute’s annual Retirement Confidence Survey.
Frankly, that’s not enough for either gender to retire on.
The solution: Invest early, often and for growth.
- Invest regularly and consistently. Sign up for your employers’ retirement plans, stock purchase plans and automatic savings plans. If you take time off work to stay home with the kids, you can continue to save up to $4,000 a year, tax deferred, through a spousal IRA.
“Don’t temporarily stop saving just because you temporarily stop earning,” Biery advises.
- Diversify your portfolio. Women have a reputation for investing too conservatively. It’s a characterization Biery thinks is unwarranted.
“As women become more confident with their investing, they’re venturing into more stereotypically male invest-ments,” she says.
She points to popular new venture capital firms targeted toward women with high net worth, for instance.
But in case you are a conservative investor, remember: Over the long haul, it’s equities that will help your portfolio grow. The longer your time horizon—and women’s longevity extends theirs—the more of your assets should be invested in stocks.
- Prioritize your investment needs. After putting away three to six months worth of expenses for an emergency, focus on your retirement. If you have to choose between funding your retirement account and your child’s college education, pay yourself first.
“Retirement comes sooner than you can believe,” Biery says. “You can get scholarships and loans to cover the education. There are no scholarships and loans to pay for retirement.”
Women’s intuition
Finally, Biery advises, women should trust their instincts.
“Female investors are more likely to conduct research, invest consistently and be patient investors than men,” Biery says. “They’re also more likely to get profes-sional help from expert financial advisors.”
Those characteristics may give women better long-term investing success than men.
Biery cites one famous study where all-female investment clubs earned 10 percent higher returns than all-male groups.
Another study found that female equity investors earned higher returns than men between 1991 and 1997.
The reason? Most women didn’t try to capitalize on short-term market gains. Men did.
“Women,” Biery says, “seem to be naturally good investors.”
Sources: Corporate Executive Board, “Understanding the HNW Female Investor,” The VIP Forum, October 2006; Corporate Executive Board, “Serving Female HNW Clients,” The VIP Forum, June 2003; Spectrem Group, “Affluent Women: Attitudes, Practices and Behavior,” April 11, 2006
