By Jessica Kmetty
Are female investors all that different from their male counterparts? When it comes to setting goals and making decisions, the differences might not be obvious. A recent study showed the top three financial goals for both women and men were a comfortable retirement, maintaining their current lifestyle and covering healthcare costs. It also showed a high majority of both women and men feel confident in their ability to make successful investment decisions. So why is there so much emphasis placed on the habits of female investors? Let’s explore some reasons:
Common Financial Challenges for Women
The chance of a woman being in charge of their households’ finances at some point in their life is high. Not only do one-third of U.S. households have a woman as the sole head, but women also have a longer life expectancy than men. This means that if they’re not the sole head of their household currently, they probably will be later in life. Though income gaps are narrowing, women still make less compared to men and may also experience larger gaps in employment to raise a family or care for an elder. These factors leave women with lower savings and retirement account balances than men. Many women also defer the financial management to their husbands during their married years - 65% of men say they make the financial decisions without their wife’s input. All of these challenges mean women may find themselves in critical financial situations they are unprepared to handle.
The Financial Impact of Divorce and Widowhood
A study by the U.S. Government Accountability Office found that women are disproportionately impacted by both divorce and widowhood compared to men. A woman’s household income falls by 41% after divorce, which is about double the impact on men. Upon widowhood, household income falls by 37% as compared to a man’s 22% drop. If women are faced with re-joining the workforce after an employment gap, they may find it harder to find a job or keep pace in earnings. It may also cost more to run a household as the sole head vs. running a household as a couple.
Risk Tolerance May Hinder Goals
To accomplish their financial goals, women must have a financial strategy that helps them along the way. However, women are more conservative when it comes to risk in their investment portfolio. While a conservative risk posture makes sense for those nearing the end of their goals’ investment horizon or for those who are not comfortable with added exposure, a balance must be struck so that goals have a chance of being attained. Nearly half of women investors report being at least somewhat conservative in their household’s risk tolerance. Because women face longer life spans and increased healthcare costs in retirement, an investment strategy that will provide for these needs is critical.
Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this content, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for you or your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter (article) serves as the receipt of, or as a substitute for, personalized investment advice from Searcy Financial Services, Inc.
The content of this letter does not constitute a tax or legal opinion. Always consult with a competent professional service provider for advice on tax or legal matters specific to your situation. To the extent that a reader has any questions regarding the applicability of any specific issue discussed in this content, he/she is encouraged to consult with the professional advisor of his/her choosing.
Originally published in Johnson County Lifestyle Magazine in October 2016 and for the blog on October 13, 2016 by Searcy Financial Services, your Overland Park, Kansas Fee-Only Financial Planner and Investment Manager.