For many young women, investing can often seem complicated — and inaccessible.
Between managing student debt, pursuing a dream career or raising children, millennial and Gen Z women will often put off decisions about their financial future. The fact that women still earn less than men, and may not be encouraged to manage finances as much as their male counterparts, doesn’t help.
Studies have shown that women are historically less confident in their ability to invest. Data from the Financial Industry Regulatory Authority shows that only 54% of women said they trusted their investing knowledge, as opposed to 71% of men. Only 34% of women said they feel comfortable making investment decisions.
“Women in particular tend to want to understand and educate themselves ad nauseum before starting something new,” says Natalie Colley, an advisor for women-led firm Francis Financial. “With investing, that can really hurt women.”
But here’s the thing — investment behavioral studies have also shown that women have the potential to be more successful investors, because they tend to have more self-control and discipline when it comes to leaving their money alone to grow. Their need to learn also plays into this, as women tend to avoid high-risk investments and end up making smarter decisions.
The only problem? Women, even when they invest in the financial market, aren’t starting early enough. The later you start, the more opportunity you lose, and the broader the economic gender gap gets. That’s why we talked to two financial advisors who can help young women start the engine on the investment boat. Here’s what they said.
It’s OK to Invest Small Amounts
“The most powerful tool that any investor has is the power of time,” says Colley.
Colley, who grew up with limited resources, said she began investing when she was right out of college. Her suggestion to young women is to not wait at all, but to start putting aside money for investments as early as your on-campus job at Jamba Juice. “The most important first step is to just get started,” she says.
Even if all you can put aside is $15 each month into saving for retirement through a target date fund (also known as a life-cycle fund), Colley says “the important thing about starting early is getting into the habit, and setting up those automatic transfers to your investment account every month.”
Ryann Kilgore, market director for wealth at J.P. Morgan Wealth Management, also suggests investing as soon as you get your first job out of college, or sooner if your financial situation allows. “For women specifically, when we start working, we should immediately be thinking about saving and how much we should be saving,” Kilgore says. “The earlier you can start, the better.”
Understand Your Priorities
While putting aside $15 each month doesn’t sound so bad, you will eventually want to increase your investments. For that to happen, Colley says making a “priority list” can be handy.
“Step one for everyone out there is to have an emergency fund of cash,” Colley says. “Start building that cash pile to the side before you start investing.”
Both Colley and Kilgore suggest having at least $1,000 put aside before you start contributing any larger amounts into any sort of mutual fund or retirement plan. For bigger investments, think bigger savings.
Then, recognize all your short-term goals, such as buying a home or paying for a wedding, and make sure you’re not investing that money. Because the stock market fluctuates, you should only invest money that you can let sit long-term.
“Rule of thumb, if you’re going to need the money within five years, don’t invest it,” Colley says. “People say that cash sitting on the sidelines is losing money, but you have no idea where the stock market’s going to be in five years.”
Consider a Financial Advisor — or At Least Educating Yourself
“Every single one of us have different financial situations, or have different goals,” Kilgore says. “There [are] very few bad investments — they’re just the wrong investment for the wrong people.”
Financial advisors that we spoke with, naturally, advise consulting a financial advisor. And that might be a good idea, especially if you’re willing to pay the fees involved. Generally speaking, fee-only advisors make money either by charging a flat or hourly rate. A fee-based or commission-based advisor might be paid through investments they sell. If you go this route, make sure you know how your advisor is paid.
A smart financial advisor can help you decide which investment opportunities will best accommodate your needs and personal financial goals. But it’s also possible to educate yourself, thanks to a growing number of resources available, especially for women.
Those include stock investing classes offered by nonprofit BetterInvesting, instructional articles on Investopedia, and free virtual courses offered by various financial planning companies. The nonprofit Women’s Institute for Financial Education (or WIFE … get it?) provides financial education and even money clubs for women.
The New York Times has an investment guide for young people. And a new breed of influencers, such as Mrs. Dow Jones on Youtube and Tiktok, offers humorous advice to make financial planning less mysterious.
Think Carefully Before Making “Fun” Investments
As you learn more, it might be tempting to invest in, say, trendy stocks. But here is where you need to think carefully, control temptation and decide if you can afford to make a speculative bet.
“There are always going to be these hip hot stocks that you’re hearing about in the market,” Colley says. “It can be fun to be involved in those, but that amount of money should be thought of as a bucket that’s purely for fun investing.” In other words, if your money goes to zero, “it wouldn’t impact you financially,” she says.
For that reason, Colley strongly trusts in contributing to either a target date fund or a Roth IRA — an individual retirement account that is usually tax-free upon collection — and says minimal knowledge is needed to open either of those accounts. Your employer may offer access to a retirement plan through a 401(k) — and in an ideal world, might match your contributions.
Colley suggests looking at traditional firms such as Charles Schwab or Vanguard to get started. Newer platforms include Ellevest, which uses a women-targeted algorithm (this takes in factors such as less salaries, longer life expectancy and the tendency to take more career breaks) and Acorns, which lets you start investing with small amounts of money.
Whatever You Choose … Just Get Started
Over the course of history, men have always had more wealth than women. They have always earned more money, invested more money, and as a result, saved more money.
But now, dynamics are changing. “We are working, we are having bigger jobs, we’re making more money. And we’re also getting married later,” Kilgore says. “So now is the time for us to be thinking about investing and having our own wealth, because we aren’t getting married at 21 right out of college.”
If women want to take control of their own wealth, investing is a vehicle they need to learn how to drive. “Money is freedom, money gives you options in life,” Colley says. “The more you can do to set yourself up financially today, the more freedom and opportunity and options you’re creating for yourself in the future.”