Why women must seize the investment opportunities on offer in equity markets

Investing in the stockmarket should be a priority for all women, and especially women of colour, argues Deborah Owens, founder of financial wellness company WealthyU

Today’s investment landscape presents an alarming trend: year-after-year the stockmarket proves one of the most viable paths to sustainable financial security. While women are poised to reap the benefits of sound, long-term investing, many of us continue to miss the opportunity. Moreover, the data suggest this loss of opportunity is even more pronounced among women of colour in the US. A recent survey by CNBC shows 34 per cent of white women, 59 per cent of Black women and 48 per cent of Hispanic women are not invested.

The power of compound growth

Albert Einstein famously quipped that compound interest is the “eighth wonder of the world”, and Warren Buffett has cited his own life as a “product of compound interest”. The keys to taking advantage of the power of compounding for women lie in growth and dividend paying assets, like stocks, and over time. As McKinsey and Company described in "The Great Wealth Transfer”, by 2030, two-thirds of all investments will be held by women, and these women outlive men by five years on average.

Middle-class misconceptions about wealth

While women have made significant strides in educational attainment over the past century, formal education has not commonly provided the knowledge — and by extension, the confidence — to participate in the capital markets. Current and future generations will be unable to follow the same “bootstrapping” ideal of our parents or grandparents. Therefore, to leverage our power we must confront the “conventional wisdom” that is, in fact, myth.

The first of these three defining myths is that more degrees equal more wealth. On an income basis, post-secondary degrees do yield “better” jobs, but the cost of college tuition has risen by more than 700 per cent over the past half century. Unlike the so-called “Baby Boom” generation, the average college graduate faces entering the workforce with nearly $30,000 in debt when they graduate — substantially limiting their economic flexibility despite potentially higher income. When factored with the wage gap for women — $0.83 for every $1.00 earned by men for comparable work product — academic excellence is no longer a safe bet.

The second myth is that a corporate career equals financial security. A high-paying corporate job may offer a stable and even significant income, but long-term financial security has always been founded on turning that income into wealth through assets accumulated over time. This benefit, once offered by pension plans that have largely been replaced by defined benefit plans such as 401Ks, is now the exception and not the rule. Today, pension plans are virtually extinct and, according to the U.S. Bureau of Labor Statistics, only 15 per cent of private industry workers have access to a defined benefit plan.

Finally, we must address the widespread belief that investing in stocks is a high risk activity. While popular psychology tells us women tend to be more “risk averse” than men, and this risk aversion has been used to explain the reluctance of women to participate in the capital markets, we need to accept that, in the long term, buying stocks is not nearly as risky as we may have been led to believe. Historically, stocks and stock mutual funds have outperformed investments that are traditionally less volatile such as bonds and asset allocation funds.

The investment community’s major blindspot

Currently, high-earning women with unlimited potential are falling through the cracks due to an antiquated perspective. Financial institutions, by their nature, lean on past performance to predict future performance. As such, while women continue to gain ground in high-earning roles, establish successful careers, and outlive their male counterparts, the investment community remains blind to their untapped potential.

As consumer-packaged goods companies learned long ago, buying power lies with women. As women become more comfortable with stocks as simply another “good” that can create value for themselves, their families and their communities, it will be the financial institutions that see this generational opportunity and re-classify these women from “low return” to “high growth” that will lead the future.

Owning Our Success

But we cannot rely purely on the banks and investment firms. Women must also take ownership of establishing financial security for themselves. There is no “magic recipe” for financial success, and we cannot wait for the investment community to lend a helping hand.

We need to mobilise to encourage education, including coaching from employers and increasing awareness of stock purchase programmes and health savings accounts. This can be combined with professional guidance from companies such as Ellevest and independent advisers specialising in women investors, providing trust and confidence.

Also crucial is the expansion of horizons and investment holdings. Women must be encouraged to establish a portfolio outside of their 401k plan and learn how to take advantage of individual stocks for dividends and capital gains that are taxed at a lower rate than ordinary income.

What is clear is that the global economy depends on investment, investment requires assets and time, and that the burden of using those resources wisely will be shouldered by women for the foreseeable future. We can no longer regard investing as something that should be delegated or put off because the financial markets are too complex or too risky. Studies have proven that when women gain the knowledge and experience needed to manage their finances, they excel. When these women excel, all of society benefits.

Deborah Owens is founder of WealthyU and author of a new book, Wealth Secrets.