Investing Mistakes Women Make

By Samantha Chang

It’s no secret that most women would rather discuss Angelina Jolie’s love life than finance, but women—in fact, everyone—should have some basic understanding of investing. It’s almost impossible to get rich simply by making a good income; usually wealth is created through a combination of earnings, good investment choices and long-term financial planning.
Many women are actually scared of investing, according to a report by Schwab & Co. And only one in three women considers herself knowledgeable about investing at all.
Let’s face it: We all put off doing things we find tedious or difficult, and that’s exactly what happens with women and investing. Here are some common investment mistakes women make and how you can avoid them.
Delaying Investing
Most women put off investing as long as possible, but because we live longer than men, we should actually start investing at a younger age. “The earlier you start, the greater the effect compounding can have on your investments,” according to Heidi Koler, a financial advisor with Wachovia Securities.

And it doesn’t require a lot of money; you can start investing today for as little as $50 a month. Investing takes less time than you think, so try to work it into your schedule. Even the smallest amounts you invest now may pay off down the road, says Koler.

Fearing Risk
Many women are risk-averse when it comes to investments, and for good reason: You stand to lose more money on riskier investments. On the flip side, the gains are greater if you make do money on them. Studies indicate that women are more anxious about the idea of losing money (risk) than the prospect of gaining it (return), and this inhibits their investing.
In addition, women blame themselves if their investments lose money, while men attribute their losses to bad luck, weak markets or poor advice. Because of this anxiety over losing money, women tend to invest in more conservative vehicles such as savings accounts or U.S. Treasuries. Unfortunately, the rates of return on these products are so low that women don’t optimize having their money work for them.

An overly conservative approach increases the chances that inflation will take a chunk out of our retirement dollars. “With a women’s longer life expectancy, you need to make sure inflation isn’t eating away at your nest egg,” says Kohler.

Ignoring Stocks
While having all your money in the stock market is never a good idea, not investing at all in stocks isn’t good, either, experts say. Many women don’t invest enough in stocks, according to the Schwab study. By bypassing stocks, women can end up with an investment plan that doesn’t offer the growth potential to meet their income needs. While there is greater risk investing in equities, the benefits of investing in them outweigh the risks over the long haul, experts say.
Not Investing in 401(k) Plans
While many people bypass company-sponsored retirement plans, women are far less likely to participate in 401(k) plans than men, and are too conservative in their investment strategy, studies indicate. Experts say this is a big no-no. “If you’re in the 28% tax bracket, one dollar out of every four you invest in your pretax retirement account is paid for by a reduction in your taxes rather than a change in your take-home pay,” according to Koler.
Before you start investing, you’ll want to get a basic understanding of how various investments work. And if you’re serious about building wealth this way, you may want to consult a financial professional.

But remember that even the experts don’t have all the answers. The most important thing for women to do is to demystify finance and realize that we can all acquire some basic understanding of it and maybe even become good at it over time.

Additional reading

Top 5 Financial Mistakes Women Make

Why Women’s Financial Needs Are Different From Men’s