5 Reasons Why Women Should Start Investing

5 Reasons Why Women Should Start Investing in 2022

12.07.2021 - This post was originally published on hardbacon.ca. Read more of host Anastasia Barbuzzi’s articles on Hardbacon’s blog.

One of the biggest arguments for why women don’t invest as much as men is that they lack their testosterone-backed confidence that decreases fear. Even neurologists who pay strict attention to the problems it causes for investors stand behind this fact.

Actually, testosterone not only decreases fear, it increases greed and contributes to overconfidence which further clouds judgement. That said, women deal with relatively small quantities of the hormone compared to men and they’re still less confident when it comes to long-term planning and investing.

According to a recent study on women and investing, 69% (that’s 7-in-10 women) wish they had started investing earlier in life. The report inspected the annual performance of 5.2 million Fidelity accounts from January 2011 to December 2020 and as it turns out, women’s investment returns were 0.4% higher than men’s, on average.

So, what are some other reasons for why women are less likely to invest on their own? Let’s go through them together:

The pay gap has been hovering around 88 cents earned by women for every $1 earned by men. Women are still making less which means they don’t have as much money to save and invest with.

Since the pandemic hit, women are even more likely to take time off work or potentially leave the workforce altogether to care for children and aging family members.

It’s been discovered that women’s risk aversion is dependent on social context, however, when it comes to investing, women are known to take fewer risks when picking stocks, investing in venture capital, and making acquisitions.

To complicate matters, women’s lower economic status can make it harder to recoup lost earnings. The grass is greener on the other side though. Experts say that investing in riskier assets like stocks is a smarter move at younger ages (hello, 20 and 30-somethings!) for two reasons:

You have more time to recover lost assets.
You can adjust your investment strategy and shift it towards safer assets as you get closer to retirement.

Keeping this in mind, consider our top 5 reasons for why women should start investing in 2022. The new year offers you a perfect opportunity to shift your mindset on the subject once and for all.

Financial independence

As we’ve mentioned before, nearly 28 per cent of Canadian women are dependent on a partner or someone else to make ends meet financially. Plus, 16 per cent of women leave the management of household finances and investments to their partner.

Unsurprisingly, finance experts agree that offloading financial responsibility on a partner or allowing them to take full ownership of managing and controlling finances puts women at a major disadvantage. In fact, letting someone reign over your personal finances tops our list of “investment mistakes women must watch out for”.

Taking full control of your personal finances and investments guarantees you financial independence, which is something you’ll want to assure yourself for the future. There’s a major bonus that comes with managing your own investment portfolio too: if you take a risk and it pays off, you can potentially live off your assets alone.

Stability & security

So much of the fear over investing has a lot to do with thinking about a future tense that doesn’t exist yet. If you look 5 or 10 years down the line and only think about what could happen if you lose a large chunk of money to investing, you’ll never be able to see what’s beyond risk: reward.

There are two things to remember here. The first is that you don’t have to invest incredibly large sums of money that could increase the risk of your investments. Also, investing is a game of patience—with the right guidance, you can step back and watch your assets multiply over time.

Speaking of the risk-to-reward ratio… investing can help eliminate worries about financial instability in the future. It can also bolster your regular income and as a result, increase your financial independence.

Disposable income

When you’re ready to take advantage of the market and the money that’s compounded in your investment portfolio one day, there’s potential for you to have a large amount of disposable income to play with. How you use it is up to you.

One of the great things about investing is that when it’s time to gather your assets, you can better afford to pay off large chunks of debt or put a significant amount of money toward a financial goal. That could be buying your dream home or starting your own business.

Let’s face it: at the end of the day, who doesn’t dream of having extra money to do whatever they want with?

Build a backup reserve

Call it what you want. Whether you prefer “emergency” or “rainy day fund”, having money available to you when you need it most is essential. Sometimes, life puts us in some pretty tough circumstances. The last thing anyone wants to do is borrow money just to get over a bump in the road.

And interestingly enough, having the funds to support yourself through tough times may be more rewarding than you think. So, build up that backup reserve because it’ll be worth the time and money you invest when you least expect it.

Grow your money

Perhaps one of the most rewarding parts of investing is watching your money grow. A prime example is your backup reserve. Although investing is a long-term strategy for building wealth that can seem so far off and intimidating, it offers you one of the most passive ways to make money—without having to really work for it.

Remember: the sooner you start, the more time you have to tailor your investment strategy so that it pays off in the end. But first you have to ask yourself: is the risk worth the reward? Financial independence? Stability and security? More than enough money to do what you want with?

As always, there’s no better time to start than now.

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