Women & Investing: Bridging the Gap

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Investment has never been easier as new trading platforms and services enter the market, but many women still find the whole concept of investing intimidating.

As many as 66% of women do not feel comfortable making investment decisions, with 40% admitting that they have little investment knowledge according to a survey by George Washington University. For Swiss women, 42% have never invested at all. Key reasons for the gender gap in investing are, that women to struggle with completely different topics than men. For a big part of them (36%), the first hurdle already appears when they feel overwhelmed by the broad field of finance and don’t know where and how to start. Secondly, 33% are scared of losing money, whereas 28% find the topic too complex and daunting.

Main reasons why Swiss women don’t invest
Source: Inyova

We all dream of a stress-free retirement unplagued by any financial worries, but we all know women – perhaps our mothers, sisters, aunties, or friends – who have unfortunately fallen short of their ideals. Instead of becoming part of these statistics, it’s time to empower each other as women to achieve common financial goals. In this article, we offer top tips to help get you started as a female investor. Alternatively, if you are the spouse or partner of a reluctant female investor, here is how you can help her start.

Why Women Should Invest and How to Get Started

If you’ve never invested before, where do you start?

Just like a tree, you need to allow time and space for your investments to grow. This is even more important for women who, even in our modern era earn 11 percent less than men in Switzerland. Women specifically need to harness the power of time and compound interest to retire at the same level as their male colleagues. Women also live longer on average, and therefore need a larger nest egg when they retire.

What is compound interest? The cornerstone of a solid investment strategy, compound interest is when you reinvest your returns and receive future returns on both your original investment and the returns you have reinvested in the past. This means that your returns compound on top of each other in order to grow. For example, an asset with a moderate annual return of 8% will double in value in just 9 years.

If you are hoping for a comfortable retirement, don’t delay starting to invest by waiting for the best buying opportunities. While you can’t time the market, what you can do instead is make regular small investments. This will reduce the risk of investing too much when the price is high, but ensure you are consistently investing to build your portfolio. This investment strategy is referred to as dollar cost averaging, and it is used by the largest funds right down to the smallest of individual investors.

So, start investing today. As the classic Chinese proverb says:

“The best time to plant a tree was 20 years ago. The second
best time is now.”

What kinds of investments should women pick?

Most investors start off with the classic combination of stocks and bonds.

Stocks (also called equities) are a fractional share of ownership in a publicly listed company. The value of the stock moves up and down according to the fortunes of the company. As a part-owner of that company, you also receive dividend payments and can vote at stockholder meetings.

Bonds (also called fixed income investments), on the other hand, are investment securities where an investor loans money to a company or a government. That institution then pays you interest at agreed intervals and will pay you back the principal when the bond matures. The value of bonds tends to be more stable than stocks as they are generally less susceptible to price fluctuations. Bonds also react to economic conditions differently to stocks which provides a diversification benefit for investors who hold both types of assets.

But which stocks and bonds should you choose? Staking your money on one or two stocks or bonds is risky. Even professional investors can get it wrong with a single investment. A better strategy is to buy a basket of different types of stocks and bonds, the logic being that when one investment performs badly, it is offset by another better-performing investment. Ideally, your portfolio will be made up of around 30 different asset classes from various industries, but even a basket of 10 is better than three or five. This is called diversification, which cannot be achieved by investing only in publicly traded assets, as they by investing only in publicly traded assets, as they all have a positive correlation with one another.

There are also investment platforms and products that can help you diversify. For example, Moonshot Strategies provides a basket of several different types of investments, including private equity, private debt, and luxury and commercial real estate. Not only do these asset classes provide lucrative returns, but they also provide strong diversification benefits for a portfolio which already contains stocks and bonds.

Avoid these common pitfalls for women investors

As more and more women find themselves venturing into previously male-dominated spaces, such as the finance industry, it is worthwhile to examine some common investing practices of the past that may turn out to be a mistake in the present. If these can be avoided, women can greatly improve their investment performance:

· Holding too much cash – Women tend to be more cautious than men when it comes to investing, and so women often hold a greater percentage of their investments in cash positions than men. While less risky, cash delivers lower returns than most other investment classes. The Swiss Franc is historically one of the most stable currencies globally, but even the value of the Franc will struggle against the rising tide of inflation. Women can better increase and preserve the value of their wealth by taking some of their cash and investing it into low-risk assets.

· Risk-aversion – A certain amount of reason is good, but if caution skews to the extreme, it can lead to an imbalance between avoiding crises and missing out on windfalls – leaning too far to the latter. This is where an outside perspective from a mentor, fellow women investors, or a good financial advisor can help.

· Defaulting back to a man for advice – When the going gets tough, don’t turn to a man to take over. Get advice when needed, but try to pull it off yourself if possible. See the mistakes and losses as part of your learning journey. Rest assured that the men in your life won’t be handing over their finances to you when they make mistakes, so nor should you give them yours.

· Not seeing your money as a way to express your values – Women tend to express their values through how they spend their time, who they spend their time with, the products they buy, the charities they support, and the companies they work for. They don’t tend to express their values through their investments. However, we are now living in an era where investors hold companies to account against higher Environmental, Social, and Governance (ESG) standards than ever before. The industry has matured, and today it can provide a way for individuals to make their money work for more than just fiscal gain. Women investors should add their voices and funds to this movement and join the rising tide of more ethical, values-based investing.

Lean on the natural feminine strengths

While many women tend to be tentative about investing, studies show they are better at it than men. A study by Fidelity found that women investors outperform men by 0.4%, while a study by Warwick Business School found women outperformed their male counterparts by 1.8%. This may not seem like much, but with the magic of compound interest, it makes a huge difference over time.

There are a number of key reasons why women tend to win out over male investors. These can be attributable to women’s tendency to have certain character traits, such as:

· Women are more cautious than overconfident male investors – While they may miss out on some windfalls, they can also avoid trading disasters.

· Women are more disciplined – They are more likely to develop a financial plan and stick to it.

· Women are less aggressive in their trading frequency – This results in fewer realized losses, better overall returns, and lower transaction costs.

“Rule number one is never lose money. Rule number two is never forget rule number one.” – Warren Buffett

Get inspired by leading women investors

There are plenty of female success stories we can take inspiration from in the investing world. Role models are a powerful motivating force. They show us how to overcome adversity and the heights that can be achieved. With so many leading ladies to choose from to turn to for inspiration, it is hard to pick just a handful. Below are three top women investors who have achieved great success by being willing to stand out, take risks, and refuse to accept no for an answer.

· Mellody Hobson, CEO of Ariel Investments: Mellody came from a single parent family which struggled financially. This motivated a young Mellody to study hard and do better with her finances. After studying International Relations at Princeton, she took the opportunity to enter the investment world. Now, she is the CEO of a fund with nearly USD 18 billion of assets under management. In addition, she also sits on the boards of Starbucks and JPMorgan Chase.

· Valérie Baudson, CEO of Amundi: Amundi is the number one European asset manager with EUR 2’000 billion in assets under management. The daughter of a doctor, Valérie worked herself up through the financial industry over 27 years.

· Muriel Siebert, Founder of Siebert brokerage firm: Muriel never graduated from college, but instead fell in love with finance after starting in an entry-level position at a brokerage firm. She went on to start her own brokerage firm and, despite being rejected nine times and facing more stringent entry requirements than her male colleagues, she became the first woman to get a seat on the NYSE in 1967.

You are not alone

Starting your investment journey may seem daunting, but you don’t have to go it alone. Remember that there are so many women out there in your position who are looking to get started, and many who have already paved the way for you. Find a mentor, a group of fellow women investors on social media, or a good financial investor you can trust and relate to. Not sure where to find one? Start by talking to successful women in your life and chances are they can point you in the right direction. They may even be willing to mentor you themselves!

Whenever you are faced with questions about how to invest, keep in mind that one of the best things you can do is to ask for help. There are no stupid questions, and the doubts you have today were most likely the same doubts that others had when they were first starting out. What matters is starting.

Join the Moonshot Strategies presentations and discover more about the range of effective strategies tailored specifically for new investors like you to protect, diversify and provide attractive returns.

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