Generally, women are the ones who control the purse strings within a typical household. Yet, when it comes to stepping out and investing, things are different. So how come women come across as confident when taking care of the family budget, but shudder in regards to investing?
Lack of confidence, having little investment knowledge, and need for security are some of the main reasons why women fear investing. Women generally tend to feel out of place when it comes to investing because finances are a traditionally male-dominated domain.
However, there has been a change taking place and more women are stepping up to the investment plate. Here, we’ll look at why women have previously shunned investing and what has led to the change of an increasing number of females looking for investment opportunities. Also, we’ll offer several ways in which the fear of investing can be overcome.
Why do Women Fear Investing?
An article from Business Insider considered what made women reluctant to invest. The females interviewed were successful and independent. Yet, they preferred to keep their money in the bank, where they were earning a small percentage in interest.
Some of the main reasons these women hesitated to put their money into more lucrative investment are as follows:
- Lack of Knowledge
- Protecting the Nest Egg
- Lack of Confidence
- Not Knowing Where to Start
Lack of knowledge
Many women admit that they have limited knowledge about investing. So, rather than taking steps to learn how to put their money to work in the market, they put their money into a savings account instead.
One reason for this is that the information on how to invest can be overwhelming. When faced with a plethora of unfamiliar financial terms and strategies, it’s often easier to put up a wall of defense to stem the flood. That wall is built on confusion and fear: which area gives me the best return? How do I know that I won’t lose my money? Is this investment safe? The fear of the unknown often keeps women from beginning their investing journeys.
Knowing that you are successful a career woman, yet an unsuccessful investor, can lead to feelings of embarrassment and shame. These emotions are powerful enough to keep many women in a cycle of inaction.
You know that playing things safe (i.e. putting your savings in the bank or your 401(k)) isn’t going to get you to the financial goal you have set yourself. Yet, the embarrassment of not knowing how to invest locks many in an emotional and financial bind.
Banks have always been considered a safe haven for your money. Financial security is one thing a lot of females seek.
Financial markets, by nature, can be volatile. They go up and then down. That rollercoaster ride can strike fear into the hearts of many. So, if women tend to feel they are under-qualified to successfully invest in stocks, bonds, and other financial instruments, then there is an inherent feeling of insecurity. Places traditionally seen as safe – like banks – are often turned to for a place to keep money instead.
Protecting your nest egg
The future can be fraught with uncertainty. We touched upon this in discussing insecurity issues. This breeds a sense of fear and the ensuing need to create a sense of protection.
Due to the lack of financial finesse some women claim to have, they don’t want to see their savings disappear. Therefore, placing your nest egg into a secure investment (that is, banks) mitigates the fear and gives a sense of reassurance. The fear with investing is that the volatility may be dangerous to that nest egg.
Lack of confidence
Though women feel comfortable running the family budget, they sense that making investment decisions is beyond their capabilities. There is a belief that investing is an area that the men need to take the lead. Typical family households have held this pattern, and many learn their money habits through their parent while young. If that’s the case, there is no inborn sense of confidence when it comes to investing, as it’s often been viewed as a role for someone else to play.
Not knowing where to start
Another reason women tend to avoid investing is they don’t know how to begin. This goes hand-in-hand with a lack of knowledge.
There can be a range of financial advisors to choose from, each with its areas of specialty. Which one is the best option? Also, each finance area has its own unique set of strategies (though the fundamentals may be the same).
All this adds up to a sense of bewilderment. So, psychologically, it’s easier to walk away and stick with something you are familiar with: those traditional savings streams.
Our upbringing and the values that have been instilled into us can also affect our beliefs around investing. If females have been raised in a family where the topic of money is seen to be avoided, then it’s not surprising that there is negativity associated with finance.
In a more male-dominated home environment, women can be made to believe that investing is something better left for men. When a woman departs from this kind of family setting and becomes independent, there can be the lingering idea that they shouldn’t be involved in investing.
More Women are Beginning to Invest
However, as times get increasingly uncertain, women have taken it upon themselves to step up to bat at the investment plate. Fidelity Investments’ 2021 Women and Investing Study shows a major shift in the number of women investing.
Women have historically built their safety nets out of their 401(k) or 403b plans, as well as traditional savings. However today, 67% of women are looking at alternative investment vehicles. This is an increase of 44% from 2018.
The main factor driving this interest in investing has been the COVID-19 pandemic. Government-mandated lockdowns have resulted in uncertainty as businesses faced closure and job security has eroded. Of the 1,200 females who participated in the 2021 survey, half said that they have grown interested in investing since the pandemic started.
20% of the women say that it’s the first time they have invested in alternative asset classes. The two most popular options were stocks/bonds, and mutual funds. Cryptocurrencies also appear as an attractive option for 23% of females.
Results from Fidelity’s survey show that 90% of the women respondents are set to take charge of their investment future. Yet, there is still a lack of confidence in their ability to do so. Only 33% of the women class themselves as investors.
Becoming a Female Investor
Touching again on Fidelity’s survey results, females are making steps into becoming more involved with investing:
- 62% seek to become more aware of financial planning and investing
- 52% are looking to establish short-term and long-term financial goals
- 44% intend to reach out for professional financial advice
- 42% have started to invest more of their savings
As we mentioned earlier, the main factor contributing to fear of investing is that women feel they lack knowledge and understanding in this area. Also, there is confusion around how and where to invest, topped with an insecurity that they will lose their investment.
There are several ways that women can tackle these issues that are holding them back. The US banking company, Merill, offers some pointers (which we will expand on) to help women who are wanting to start investing. Merill suggests women establish an investment strategy, create goals, balance their risk and reward, and seek advice.
Set your goals
This should be your first step. Sit down and work out what your financial goals are. Everybody is different, so set your goals around your own needs and desires.
Create short-term and long-term targets. The time frames of these are up to you. However, a major long-term goal is retirement.
Psychologically, setting a goal gives you a sense of taking charge. You are now in control of your destiny. Of course, there will be some ups and downs along the way, but you have something to shoot for. No longer are you at the whim of fate.
Talk to a financial planner
This is part of establishing a strategy. Financial planners can help you look at your goals. They can educate you about those areas you have no idea about.
Remember, you are the client and you don’t have to feel like you are obligated to accept all the advice a planner gives you. You still have the freedom to make the final decision about your financial future.
A financial planner is simply a guide and advisor.
Knowledge is power. Women have said they when it comes to investing, they feel overwhelmed by the finance world. The strategies and different investment options can come across as formidable.
However, you can take the first step in gaining knowledge by reading books on investing. There are courses you can take both online and offline that you can enroll in to help you understand the world of investments. Sites such as Investopedia are a great resource for novice and experienced investors alike.
Balance your risk
To overcome the fear that you will “lose everything”, which is something all investors want to avoid, take a sensible approach to investing. Diversify your investments. You can have some money in the bank, others in stocks and mutual funds (which provide a longer-term gain), foreign exchange, and cryptocurrencies.
Don’t feel like you need to put all your money into a dozen different investment options. Choose two or three that you feel comfortable with. You can always change the investments later if you wish.
Here is where a discussion with your financial planner will help. How much money are you willing to invest and how quickly do you want a return? More volatile asset classes provide a faster reward, but also have a greater chance of eating away at your investment.
Be sensible and make sure that your decision aligns with your goals.
Take small steps at first
When you begin to invest, start with an amount that you are comfortable with. You will be surprised at how little you need to put up front to get started. It can be anywhere between $20 to $100.
However, be consistent with investing your money. A small amount every month can pay off big dividends in the future. You could set aside a small percentage of your paycheck dedicated to being placed into your investment.
Discuss your options with your financial planner.
Find a group of peers
Mingling with like-minded people helps you grow in confidence. Look in your area to see if there is a group of female investors who meet regularly. If you can’t find one, contact the local Chamber of Commerce and ask if they know of anything similar.
Search online to find forums or online communities around women investing. One example is Fidelity’s Women Invest portal.
Also, you can head over to Female Invest. A site that is dedicated to helping and supporting women in their investment journey.
Change your mindset
Perhaps you have been taught that finance is a male thing. It’s a value that may still be ingrained in your thinking. However, you are beginning to question the validity of the concept.
Transforming a habitual way of thinking can be difficult. It takes work and dedication. Reframing has to occur in which you see the situation (and yourself) from a completely different angle. To do so, start reading accounts of women investors who have succeeded.
Talk to your female friends and colleagues who you know are investing. Ask them questions based around dismantling your previous mindset. Invite them to be your mentor if you so wish.
Then take the step and start your journey towards investing.
In the past, women have felt afraid to invest. This fear stems from not knowing how to start, a sense of being intimidated by the financial world, as well as thinking that it’s primarily a male domain.
Yet, women have an inherent ability to plan for their financial future. A skill that surpasses that of men. But, females lack confidence in their proficiency to invest.
However, the uncertainty that has arisen from the COVID-19 pandemic has stirred females. They are now more willing to take control of their financial destiny. Since 2018, there has been a 44% increase in the number of women who are starting to invest.
To overcome the fear, women can seek out help from financial planners as well as their peers. There are numerous resources available on the internet as well as locally that females can take advantage of.
Learning about how to invest and the different types of options that are available will allow for a sense of financial ownership, control and independence.
No longer be afraid to invest, but rather empower yourself.