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How to Overcome Investment Risks as a Woman

Recent studies have shown that women outperform men as investors. They are also likely to save more in their workplace retirement accounts, individual retirement accounts and brokerage accounts. The one area where women fall short of men is in their confidence to invest effectively, according to a study released by Fidelity Investments in May 2017.

Women have demonstrated that they have the knowledge to be good investors. But in order to become better investors, women need to be confident enough in themselves and their ability to take investment risks.

Why Women Lack Confidence About Money

More young women obtain college diplomas compared to men, and women are increasingly fulfilling the role of family breadwinner. Yet, women still face a number of financial hurdles that impact their confidence.

Gender Wage Gap

The glass ceiling still exists, with women facing a 22% wage gap, according to the U.S. Department of Labor. Lower earnings naturally translate into lower savings potential. (For related reading, see: Why Women Retire with Less Money.)

Lower Paying Occupations

In addition to the persistent wage gap, women tend to pursue lower paying jobs in fields like health and education.

Caregiver Responsibilities

Flexibility is often a key variable when it comes to women’s career paths. Women are twice as likely to assume caregiver roles, resulting in potential earnings gaps as they tend to the needs of children and elders (often simultaneously, as the sandwich generation becomes more prevalent).

Single Parenthood

A significant rise in families headed by single women compounds matters, with only one paycheck to support the family. According to the U.S. Census Bureau, 23% of households were headed by single women in 2016, compared to only 8% in 1960.

Social Stigma

There’s also a lingering social stereotype that men are better at managing money, despite evidence suggesting otherwise.

Lower-Risk Investments Rewarded Women in Recent Years

The Fidelity study in 2017, and other studies, show that women outperformed men in investment performance during recent years. The results illustrate several interesting factoids, notably pertaining to risk tolerance.

Women Are More Conservative

The Fidelity study, like other studies, revealed that women were slightly more conservative in their investment posture, with less exposure to stocks.

Women Utilize More Age-Based Investments

Women also gravitated more toward age-based asset allocation funds, versus picking their own investments. While these funds have merits, they can be expensive, because they’re often an amalgamation of funds that entail a layer of fees. Furthermore, age is only one variable to consider when determining an appropriate investment approach.

Women Trade Less Frequently

They opted to buy and hold, in part due to a preference for asset allocation funds that adopt a long-term approach. Conversely, men were more apt to jockey the markets, which can prove both dangerous (as repeatedly shown in market studies), and expensive in terms of trading fees.

Are Lower-Risk Investments a Smart Choice?

The fact that women outperformed men with more conservative investment portfolios begets the question of whether it’s wise to accept investment risk. The past several years in the investment markets have presented an anomaly between stock and bond investment returns. U.S. stocks have significantly outperformed bonds over extended periods of time. However, this hasn’t held true in recent years, as shown below.


                                                            U.S. Stocks                   U.S. Bonds

            1926 through 2016                    10.2%                             5.4%

            2000 through 2016                      5.0%                             5.2%


Stocks underwent two turbulent downturns in the past two decades, bruising average returns and shaking investor confidence. As a result, more conservative investors were rewarded in recent years. However, we don’t know if these years, or if longer historical periods, will be indicative of the future.

If longer-term averages prevail, where stock investors are more handsomely rewarded, conservative investors, including women, could fall short in their investment performance. (For related reading, see: Financial Solutions for Young Women.)

How Women Should Approach Investing for the Long Term

An important factor to consider when determining one’s investment positioning is investment horizon. Most individuals, of all genders, require investment growth to sustain their financial needs late into retirement. However, women are more prone to need higher growth to sustain longer life expectancies.

Women statistically live longer than men. Today’s actuarial tables suggest that the average American female will live to 81. Future medical advancements and healthier lifestyles could easily extend this age projection. Furthermore, if you’ve already lived to a mature age, your life expectancy is even longer. For example, the Social Security Administration offers the following estimates:


At Age

Additional Life Expectancy

Estimated Total Years














Financial advisors often counsel women to plan on living to age 100, which isn’t as old as it once sounded. Keep in mind that the life expectancy figures above are averages, meaning that some women will live shorter lives and others will live longer. If you happen to be in the latter group, you’ll need your income and assets to sustain you later in life. This translates into a need for growth, and potentially higher stock allocation requirements for female investors.

How to Stomach Risk

Greater stock exposure begets greater risk, which is a four-letter word that many people shun, particularly women. Here are five points of advice to help women, and all investors, identify appropriate investment risk assumptions.

1. Develop a Long-Term Retirement Plan

One of the best ways to assess how much growth you need is to develop long-term planning assumptions that model your assets, income flows, and projections about investment growth. The Monte Carlo analysis tool looks at varying ways that average investment returns might be generated in real life, including investment highs and lows at different time intervals. Long-term planning helps to remove uncertainty, creating a roadmap for your financial and investment decisions. In addition to these long-term planning tools, it is advisable to work with a Certified Financial Planner who can help you update your planning projections on an annual basis.

2. Keep an Emergency Fund

Everyone needs an emergency fund, held in cash or certificate of deposit (CD), in the event of a cash crunch. These funds allay concerns about how to cover unexpected expenses, and allow you greater comfort to develop a long-term savings and investment approach.

3. Keep Five Years of Living Expenses in Liquid Assets

As you approach retirement, it’s important to structure your assets to replace your paycheck once you transition from the work force. You never want to risk having to sell stocks at a down point in the markets, locking in losses, just to cover current cash needs. It is recommended that you hold a minimum of five years of potential needs in cash, CDs, or high-quality bonds. This offers a secure runway of time to cover potential liquidity needs, while also allowing your stocks to recover.

5. Mentally Segregate Your Safety Net and Growth Assets

Many investors need to mentally bifurcate the assets that are intended for capital preservation (namely bonds) from long-term growth-oriented assets. Keeping a mental note of the allocation between the two – in both dollar and percentage values – helps investors to maintain perspective between addressing short-term needs and capturing growth for decades to follow.

6. Be Disciplined

Finally, you have to be a disciplined investor with a long-term outlook and a long-term investment plan. Day trading or making emotionally-charged or rash decisions about investment positioning can decimate your portfolio if you make a wrong move. Rebalancing toward a long-term investment objective is vital because it allows you to take profits from stocks when they’re rising, and buy when they become cheap.

Gaining Confidence Extends Beyond Investing

Ultimately, gaining confidence about money extends beyond investing. It prevails through daily decisions relating to money. Every individual needs to know where they stand with respect to financial security and preparedness. Knowledge is power. (For more from this author, see: 5 Tips for Women to Secure Their Financial Future.)

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