Planning for Uncertainty: Tips for Women to Become Confident Investors
Like many women, Sheryl had always been involved in her family's finances, from balancing checkbooks to paying the monthly bills. But she left the long-term planning—the retirement savings and the investment decisions—to her husband who worked as a CEO for a large corporation. So when Sheryl's husband passed away unexpectedly, she had little to no idea how to take control of her long-term finances, or how to make the best investment decisions for herself and her family.
This disconnect between Sheryl's familiarity with her family's everyday finances and her understanding of her own long-term financial well-being is an all too common tale for many women. When it comes to investing, women are no less qualified than men to make decisions about their financial future, but something known as unconscious bias
can hold them back.
Examples of unconscious bias: a financial advisor unknowingly assumes that the man is the primary decision-maker, or financial literature is geared more towards a male perspective. These biases can undermine a woman's confidence, suggesting that she might be less qualified to handle financial decisions. A 2015 poll found that while 92 percent of women expressed interest in learning more about financial planning, only 47 percent felt confident enough to discuss their personal finances with a planner.
According to the poll results, women also tend to be more risk-averse than men, preferring a "sure thing" to the risk of the stock market. And finally, women often blame themselves for losses, chalking up a bad investment to their own lack of knowledge instead of a bad market or shifts in the national or global economy.
"When you have a perfectly intelligent woman and a perfectly intelligent man, both with similar levels of education, both with similar levels of ability, why is it that you so often see that men are better at managing money than women? The reality is, they are not," says Jayne Hartley, senior wealth strategist and director of planning at Union Bank. "There is this misconception out there that they are."
In reality, women wield an immense amount of power when it comes to finances. In the next forty years, women are estimated to inherit 70 percent of the wealth tied up in estates.
In more than 90 percent of families,
women are either solely responsible for financial decisions, or make those decisions in conjunction with their partner. And by 2022, women are expected to control more than 60 percent of the wealth
in the United States—giving women immense power over the financial health of not only their own situation, but the country as a whole.
It's incredibly important for women to plan for their financial futures, because the vast majority of women—80 to 90 percent
—will be solely responsible for their finances at some point in their life. This could be due to separating from a partner, as 40-50% of marriages end in divorce,
or, it could simply be because of the fact that women tend to live an average of five years longer than their male counterparts. According to the latest census data, women outnumbered men nearly two to one by the time they were age 85.
"When you think about women, there are two triggering factors that really cause a life change, and that's death and divorce," says Lisa Roberts, managing director and head of Northern California and Pacific Northwest Private Wealth Management for Union Bank.
Planning for uncertainty can often seem like a daunting or morbid task—who wants to spend time thinking about what life would be like after a tragedy or separation from a loved one? But when it comes to planning for an uncertain future—and navigating potential misconceptions about women and wealth—financial experts agree: the more you know about financial investments, the more prepared you'll be for the future, whatever it may hold.
"The more educated you are, the more confident you are," Roberts says. "There are a lot of things that women do right when it comes to investing and which ultimately may result in them being best suited to drive their own investment planning process."
To illustrate just how much being educated about financial investments can help down the road, Roberts points to a real life example—a husband and wife. Initially, when the couple began working with Roberts' team, the husband was the primary decision-maker, with the wife "seeming disengaged," according to Roberts. Roberts' team, as well as the husband, continued to encourage the wife to attend the financial planning meetings—something she did sparingly at first, but gradually became more and more involved in the process. Now, Roberts says, the wife is an equal voice in the financial planning process, actively discussing the types of investments she'd like to be making with their money.
"I consider that a huge success," Roberts says. "No assumptions were made during this process and you're treating them equally. It has evolved nicely that they are both very much involved now."
In the above example, the wife had the opportunity to become more confident about investing with the encouragement and support of both her husband and the Union Bank wealth management team. But women whose lives change unexpectedly—either as a result of death or divorce—don't have this advantage.
For all women then, the smart approach is to give themselves an advantage by following the 5 tips below to get prepared in advance of a life-changing event:
5 Tips to Prepare for a Life-Changing Event
1. Don't undervalue yourself
It's so important to understand that while being a woman means thinking about investing differently, it should not be looked at as a setback or an obstacle to overcome. Women are just as capable at investing as men when it comes to math and finances.
In fact, women actually tend to be more decisive than men when it comes to figuring out their retirement expenses, how much health care coverage they will need once they retire, and other critical financial decisions.
Start by familiarizing yourself with your or your family's financial situation, from income to expenses, investments to IRAs. Get all that information in one place, so that it's easily accessible if you need to refer to it. Schedule a meeting with your financial advisor to talk about "what-if" scenarios like death or divorce, and talk through how you or you and your partner/spouse might want to tweak your portfolio to account for unexpected life changes. Also take advantage of any "financial wellness" programs that might be offered through the workplace—these are easy, low-stress ways to become familiar with the ins-and-outs of investing and financial planning, and you don't have to take time away from the office to make it happen.
2. Surround yourself with a strong team of experts
You don't have to navigate the entire process of planning for the future alone. Financial planning—especially for uncertain events—can often seem overwhelming at first. "If you decided that you wanted to learn how to swim," Hartley says, "would you simply jump in the water without any advice? Or would you seek out an expert who knows how to safely navigate the water? The same goes for getting started with financial planning: start by finding an expert—or a team of experts—who can help you navigate the process from the beginning.
"You need to make sure that you have a team of decision-makers, so start by identifying who you need to talk to in order to make decisions," says Hartley. "At a simple level, it's probably an accountant and somebody in the financial services industry. But your team can also involve people outside of the industry. Do you have a family member you trust, for instance? Identify who's on your team."
3. Plan for an uncertain future by thinking about the short-term
One of the most important tips for ensuring financial success in the midst of an unexpected event—like illness, divorce, or death—is to keep some cash reserves accessible in stable investments or bank accounts, which can be easily accessed should you need to make an unplanned withdrawal. Work with your financial advisor to make sure you and your family members have the right kind of life insurance or disability insurance to supplement your finances immediately in the event of a tragedy.
4. Don't be afraid to take some risks
When it comes to financial planning, women tend to be more risk-averse than men, meaning they are less likely to take chances with their investments. And while that's not necessarily a negative, it can leave women further behind than their male counterparts when it comes to saving for the future.
"It has become generally accepted based on the results of numerous studies that women tend to be more risk-averse and that's one factor that hurts them from the get-go," Roberts says.
To avoid missing out on potential investments because of a fear of risk, work with your financial advisor to understand how much risk your portfolio can take while still achieving your baseline goals. Talking with a professional can help overcome some fear associated with investing, while helping you find a balance between too much risk and not enough.
"I don't care what the topic is, it's about breaking down the decision-making into what you need to know to overcome the fear," Hartley says.
5. Start planning for the future early
It's crucial that women begin planning for long-term financial success early, not only because women tend to live longer, but also because they tend to make less than men. Saving for retirement as a woman, for instance, means needing to save an average of 26 percent more than men to make up for wage gaps and differences in life expectancy.
The retirement gap between men and women is a real thing, but it's not insurmountable with a little advanced planning. Make a list of long-term financial goals, and visualize the kind of life you want to lead in your retirement years. Then, make a plan for getting there.
"Everybody thinks that saving for retirement is buying the hot stock. That's not how life works. The key is understanding what asset allocation is, which helps you design your blend of investments. And you need to also understand diversification, which is about buying various kinds of investment forms under different conditions" says Hartley.
Whatever unexpected events life might throw at you, be sure to surround yourself with a team of experts to help you protect the wealth that you've worked so hard to attain. At the Private Bank, we are dedicated to helping our clients plan so that they can enjoy the present knowing that whatever comes their way, their financial future will be protected. Drawing on a tradition of excellence and personalized service, our teams have the experience to help you with all of your financial needs, from banking and investment services to specialty asset management.
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The general information provided in this publication is not intended to be nor should it be treated as tax, legal, investment, accounting, or other professional advice. Wealth planning strategies have legal, tax, accounting and other implications. Prior to implementing any wealth planning strategy, clients should consult their legal, tax, accounting and other advisers.
Wills, trusts, foundations, and wealth-planning strategies have legal, tax, accounting, and other implications. Clients should consult a legal or tax advisor.