The domain of investing has traditionally been perceived as a predominantly male arena, from which women have historically kept their distance. This has resulted in women falling behind men in wealth accumulation, leaving many females ill-prepared for retirement compared to their male peers.
However, there’s encouraging news on the horizon. A recent study conducted by Fidelity, entitled “Women and Investing,” uncovers several promising shifts in this landscape. Among the most noteworthy findings are as follows:
- A record number of women are venturing into investments. Currently, 67 percent of women are channeling savings outside of retirement and emergency funds into the stock market, marking a remarkable 50 percent increase since Fidelity initiated this study in 2018.
- The past year has witnessed a 43 percent surge in women establishing new retail investment accounts.
But perhaps the most intriguing revelation is this: when women do decide to invest, they are achieving remarkable outcomes. An analysis encompassing over 5 million Fidelity clients spanning the past decade indicates that, on average, women have outperformed their male counterparts by 40 basis points. In simpler terms, women are obtaining a higher rate of return on their investments in comparison to men.
How did this transformation come about?
In 2018, Fidelity began to observe an increasing trend of women taking a more active role in managing their finances. It appeared that women from all age groups were following an economic and educational trajectory that has only grown stronger as the months and years passed, as stated by Kapusta.
Surprisingly, this heightened financial involvement and growth persisted even during a global pandemic that disproportionately affected women, causing increased financial stress, job insecurity, and amplified daily life and family caregiving responsibilities.
In fact, it appears that the events of the past year and a half might have acted as a potent catalyst, motivating more women to prioritize their financial well-being. This shift includes activities such as building up emergency savings, developing or revising financial plans, and even transitioning from being savers to investors.
Fidelity reports an increased commitment to saving and investing within its customer base over the past year. Notably, women have shown a remarkable increase in their contributions to workplace savings accounts, averaging a record-high of 9.2 percent.
“The momentum we observed back in 2018 gained even more traction during the pandemic. It provided everyone with an opportunity to pause and reconsider their priorities,” Kapusta explains.
During this contemplative process, women came to realize their desire to see their money actively grow, aiding them in achieving their financial goals. Additionally, the shift to remote work for many of us allowed the opportunity to dedicate time to learning about investing, personal finance, and related topics. For example, there was a 37 percent rise in women seeking guidance from Fidelity during the pandemic.
What does all of this mean for women’s long-term wealth?
The fact that numerous women are now actively investing their money, rather than simply stashing it away in a savings account, represents a significant and commendable shift in financial behavior. This single change in financial habit can yield profound and far-reaching financial benefits, particularly over a span of 10 years or more, as pointed out by Kapusta.
Fidelity conducted an analysis to illustrate the eye-opening impact of moving money from a savings account to a conservative investment portfolio. The contrast is indeed striking:
- $5,000 placed in a savings account would generate approximately $30 in interest over a decade, whereas investing the same amount in the stock market with a conservative mix could potentially yield $3,199.
- $20,000 stored in a basic savings account would yield around $120 in growth over ten years. However, if that sum were invested in an average stock market, it could result in $12,795.
- With $50,000 in a basic savings account, one might expect roughly $301 in growth over a decade. Conversely, a conservative investment mix could yield approximately $31,989.
- For those who have $100,000 in a basic savings account, it might accrue $602 in interest over ten years. By contrast, investing that amount in the stock market could result in an astonishing $63,978.
What factors are contributing to women outperforming men in the realm of investments?
According to Kapusta, there are several factors at play, and it’s essential to recognize what these factors entail.
“Women demonstrate intelligence and thoughtfulness, approaching investments from a more comprehensive perspective,” Kapusta explains. “They consider the bigger picture: What holds significance for me? What objectives am I striving to accomplish? And for whom?”
Moreover, when women engage in investing, they often adopt a resolute approach, as highlighted by Kapusta. “They consistently adhere to a strategy of regularly investing a portion of their earnings,” Kapusta elaborates. “They possess a well-defined plan, and they remain committed to it. This differs from the trading behavior of men, who tend to engage in buying and selling activities more frequently and at a higher rate than women.
What lies ahead for the future?
While more women than ever are realizing the potential of investing and taking proactive steps to foster the growth of their wealth, there is still a significant portion of women who have yet to embrace these opportunities. Many continue to maintain substantial amounts of money (in excess of their emergency savings) in bank accounts, where it earns minimal interest, resulting in the forfeiture of thousands of dollars in potential earnings.
Fidelity’s study underscores this point by revealing that approximately 47 percent of women have reported savings of $20,000 or more outside of retirement and emergency funds. Additionally, 31 percent possess $50,000 or more, and around 18 percent have $100,000 or more in savings.
In essence, despite the exciting advancements made, there is still substantial work ahead. Kapusta and others emphasize the necessity of reshaping the perspective of many women regarding investments to sustain this positive momentum.