Women are different than men. As a Certified Financial Planner® this holds true in the investment world. Women are faced with unique challenges as they prepare for retirement. Women live longer than men meaning their retirement assets need to last longer. A 65-year old woman is expected to live, on average, another 20.3 years. Also, women earn less than men. Part of the reason is that women are more likely to work part-time jobs and there are gaps in employment due to the birth of a child. Therefore, social security payments for women are generally lower.
However, research tells us that women are excellent investors. According to Openfolio, an online investment platform, female investors outperformed male investors by an average of 0.4 % in 2014. In another study by SigFig, women outperformed men by 12% in 2014.
So Why are Women such Great Investors?
Women are Committed
Women are more likely to stay committed during a recession. Women stay the course and are more stable with their investments. According to Gary Dayton, founder of TradingPsychologyEdge.com, women tend to be calmer, remain steady under pressure, and do more research. These character traits are important because women stick with the plan and trade less. In a 2001 academic paper, “Boys Will Be Boys: Gender Overconfidence and Common Stock Investment” Brad Barber and Terrance Odean found out that men trade more excessively than women thus hurting portfolio returns. Women are more patient thus producing positive long-term investment portfolio returns.
Women save More
Women are more likely to save than men. According to Vanguard, women save across all income levels 7% and 16% more than men. Fidelity found out among its clients that men save 7.9% of their salaries and women save 8.3%. Women also save more in their retirement plans than men. The participation rate for women is 73% and only 66% for men. You may say these percentage amounts are small, but over time the values really add up. Since women live longer than men, saving more is beneficial because their retirement assets need to last longer.
Women Ask for Help
Women are more likely to use a financial advisor. According to Prudential’s 2012 – 2013 Research Study titled “Financial Experience & Behaviors among Women”, women seek financial guidance from a financial professional more than men. Working with a financial advisor pays off in the long run. My recent article, “How Much is a Financial Planner Worth?” explains that working with a financial planner pays off in the long run. The conclusion of Vanguard’s study “Quantifying Vanguard’s Alpha” was that working with a Certified Financial Planner® increases the client’s portfolio return by 3%.
Six Steps to Take
- Begin working with a Certified Financial Planner® that is affiliated with an independent Registered Investment Advisor (RIA) firm to help you prepare for retirement. An independent CFP® works with his or her client’s in a fiduciary capacity. This is extremely important because this type of financial planner is required to always do what is in the client’s best interest.
- If you are married, work as a team regarding your finances. If one spouse works with a financial advisor make sure you both meet with him or her. Set-up a disciplined budget. A good rule of thumb is to earmark 15% of your income for retirement savings.
- Take full advantage of your matching opportunities within your 401(k) at work. Your employer is providing free money therefore please take advantage of this option. If you do not have a 401k through your employer there is no need to worry. A competent CFP® can walk you through retirement planning vehicles outside of your employer benefits to prepare you for retirement.
- Consider working past the age of 62 even if your spouse is retired. Your Social Security benefits will increase. There are multiple social security claiming strategies for a married couple. Sitting down with a financial planner that can walk you through your maximum claiming strategy is important for a proper retirement plan.
- Understand your investment risk tolerance regarding your investment portfolio. In other words, “What is the Maximum loss you would accept before you would begin to feel very Uncomfortable?” If you are more moderate risk (Goal of 9% to 10% per year over 5-10 years) a tactically managed stock portfolio to where you will not have catastrophic losses within your portfolio is your best choice. However, if you are lower risk (Goal 6, 7, 8% per year over 5-10 years) then a properly designed tactical bond (fixed income) portfolio may be more appropriate for your financial situation.
- The #1 fear for investors is outliving their money. If you are in or near retirement, income planning or cash flow planning is key. A great solution is a product that is safe and secure and offers guaranteed monthly income during retirement. In other words, money you can never outlive. Keep in mind, this type of product offers asset based long-term care. With women living longer and almost a 70% chance of needing some type of long-term care service after the age of 65, long term care coverage is a must.
To learn more about Blake Fambrough and his approach to financial planning designed for women view his Paladin Registry Research Report.
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