The gender wage gap gets plenty of headlines, and rightfully so. In 2019, women still earn 79 cents for every dollar men make, according to PayScale data released ahead of Equal Pay Day. But there’s another financial gap to consider—one that may be easier for women to address, and that can help make up for those years of lower pay.
While research shows that women are generally stronger investors than men and routinely outperform them in the market, they still invest significantly less money than their male counterparts. A 2017 Fidelity study found that 35 percent of single women keep most of their savings in cash—and they are twice as likely than men to say that’s because they don’t know where to invest it.
At the end of the day, investing isn't about timing the market and knowing which stocks to buy and when. Individual stock picking actually isn't the most sound investing strategy. Your best bet is to adopt a diversified, long-term investing plan. Low-cost index funds and ETFs (exchange-traded funds that trade like a stock) are your friends here.
"I see a lot of women who just like to keep their money in cash, but cash isn't really safe," says Patti Black, a certified financial planner and partner at Bridgeworth LLC in Birmingham, Alabama. "If you're earning 1 percent on your savings account and inflation is 2 percent, you're losing money over the long term."
Put it another way: Your money will work harder for you if you invest it. Whether you’re brand-new to investing, or have already gotten started, here’s how to accelerate your efforts.
Even if you're new to the game, the best time to start investing is always now.
"When you start saving matters more than how much you save because of the power of compound interest, " says Black.
Compounding lets your savings grow at a faster clip because you’re earning interest on your balance as well as on the interest you’ve earned. (Or, in the case on investments, you’re seeing growth on the money you put in, as well as growth on reinvested dividends, interest, and other gains.)
One of the easiest, most hands-off ways to begin investing is through a 401(k), especially if your employer will match any portion of your contributions—say, 50 cents for every dollar you kick in. Another perk is that contributions are typically made through automatic payroll deductions, allowing for set-it-and-forget-it ease.
If you don't have access to an employer-sponsored retirement plan, an Individual Retirement Account (IRA) is a great way to begin flexing your investing muscles and growing your nest egg. You may be able to deduct contributions made into a traditional IRA, which is a nice perk come tax time. If you opt for a Roth IRA, your contributions, while not tax deductible on the front end, grow and can be taken out tax-free come retirement.
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Maybe you've got one toe in the investing waters, but haven’t really looked beyond your 401(k) or IRA. Think about branching out: Investing is about more than just retirement.
"People often inaccurately think that since they're maxing out their retirement plan, they're doing the maximum they can," says Jennifer Myers, a certified financial planner and president of SageVest Wealth Management in McLean, Virginia. “But we can all set up an individual brokerage account where we're saving in addition to our 401(k) or retirement plan at work and have extra savings.”
Black likens investing to bulking up your "freedom fund," which will ultimately get you to your goals faster. Maximizing those efforts often requires looking beyond your retirement accounts.
"We do better as investors when we know the ‘why’ behind why we're investing," says Black. "Is it for retirement? Or a shorter-term goal like saving for a down payment on a house, college for your kids, or the dream of taking a year off and living outside of the U.S. and traveling?"
With a brokerage account, you'll have much more flexibility compared to retirement accounts to use that money whenever you're ready to make a move on your goals. Note: If you tap your 401(k) before age 59½, you'll likely be hit with taxes and a 10 percent penalty.
Even if you're already diversifying with a tax-advantaged retirement fund and a brokerage account, there's still room to do more. If you have a high-deductible health plan, Black points to the benefits of health savings accounts.
HSAs have a triple tax advantage: Contributions are either pre-tax or tax deductible, plus the funds grow tax free and can be withdrawn tax free for qualified medical expenses. (The catch, however, is that you need to be in a high-deductible health care plan to use an HSA.)
"Women are likely to live longer than men, and we end up paying more in health care expenses during retirement because we're living longer," she says.
That makes it all the more important to start narrowing the gap.