Money. We earn it (boy do we ever!), we spend it (did you know that moms control 85% of household purchases?), we save it, but we don’t talk about it. When was the last time you had a conversation with a girlfriend about her income, her investments, her savings? We also don’t take the lead in investing it.
Many reasons, but here’s a biggie: our upbringing. Research points to key differences in the way parents talk to their children about money: little boys are taught to take risks and build net worth, whereas little girls are taught to budget and save. A downstream effect is that many women abdicate their family’s investment decisions, leaving it to their partner, which can undermine their financial security. We chatted with Zoe Wolpert, Senior Investment & Retirement Specialist at Wealthsimple to understand the implications when women aren’t actively involved in investing, and how to get involved in a low effort way.
I work because it’s intellectually rewarding, but also because I want to be financially independent. I have a great marriage, my parents are still crazy in love, but I’m not going to turn a blind eye to the risks of being financially dependent on anyone. – a Sophia
What To Do (Bites)
Divide and conquer is great, but just not for this one.
As time-starved working parents, divide and conquer is our survival strategy. But while it will be okay in the long run not to be the parent who makes school lunches, taking a backseat in investment matters creates real risk for you. According to research, typically whoever takes over as household CFO gains financial literacy through experience, while the non-CFO may know the ‘gist’ but lack the know-how that develops over time, leaving him or her financially vulnerable. So if you’re the non-CFO, protect yourself by getting a little more involved. If your family has a financial advisor, attend the next meeting, and ask questions (check out Tip 2 for good ones to ask and answers to expect).
If not, grab a glass of wine and sit down for an hour once a year to review your investment statements with your partner, and see where things are, if there are any questions or if you have any big unknowns. Tax time is a great time to do this, as it’s an automatic reminder. Another great way to get started: Wealthsimple has created an Investing Master Class, a totally jargon-free investing course to help turn you into a financial genius in 45 minutes.
Your investment instinct is sound: trust it.
A common misconception is that investing is all about stock picking – tracking stocks, picking ‘good ones,’ selling, buying, selling – which feels intimidating, especially when it’s not your day job. But success for the vast majority is about investing in long-term strategies rather than frequent trades. Research shows this is how women typically invest. On average, men trade 1.5x more often than women, which leads to less successful results. While that may be driven by differences in confidence (men self-report higher levels of investment knowledge than women) that confidence doesn’t translate to better performance. So know that if you want to see your money grow, it doesn’t have to be effortful.
And not just to girlfriends! Many couples aren’t talking about money. Therapists and researchers report that couples in therapy find it easier to talk about topics like sex and infidelity than topics like the role of money in family life. We’re not suggesting cause and effect, but financial literacy is helped by engagement, talking, doing. And when big money topics emerge (or need to!) like taking extended maternity leave, what you’re saving for, even legacy questions – like if you want to leave money to family – you’ll already have solid foundations for discussion.
The best way to build confidence in investing is through experience. New moms don’t feel confident and perfectly ready for motherhood but like anything, you learn by doing. Zoe Wolpert, Senior Investment & Retirement Specialist at Wealthsimple
Jargon sucks – it’s not helpful and it can intimidate us. Don’t let it – just learn these key terms so you can feel confident speaking about your finances. And if you’re in a meeting with an advisor and aren’t following what’s being talked about – speak up. It’s your life savings on the line, and you deserve complete clarity around how it’s being handled.
- Equities: Another word for “stocks”. When you own a stock of a company, you actually own a very small part of that business. You participate when that company is doing well and when it’s not doing well.
- Fixed Income: Another word for “bonds”. When you own a bond you are lending a company (or government) money. You are compensated for this by receiving interest.
- Mutual Fund: A type of fund that pools your money with other investors to be managed by a team of fund managers. This is also called Active Management and has a cost associated with the management and marketing of the mutual fund.
- ETF: Stands for Exchange Traded Fund. Similar to a Mutual Fund, an ETF is a basket of stocks or bonds. But, instead of being managed by people, an ETF will simply track a specific country or industry. For example, you can invest in the entire Canadian stock market with just one ETF. This is also called Passive Management because it does not rely on human ability to pick stocks or time the market. For this reason, ETFs are also a fraction of the cost of Mutual Funds.
- MER: Stands for Management Expense Ratio. This is a fancy way of saying the cost of your investments.
- Risk: Risk is the potential to permanently lose money. Volatility on the other hand, is a normal part of investing. Markets go up and down over time, and this should be expected by any investor.
- Diversification: Basically means “don’t put all your eggs in one basket”. You want your money spread out among many baskets (companies, industries and countries) to minimize the risk of the permanent loss of money.
To make it easier to jump in, here are a few important questions you should be asking (and the answers you should be listening for):
- Do my investments support my goals? Common investment goals are things like children’s education, home purchase, retirement – really anything that is going to cost a lot! Your timeline, tolerance for market volatility, and overall financial plan should be taken into consideration when selecting an investment portfolio.
- How are the investment decisions being made? Being human comes with having emotions and biases, which do not mix well with your investments! Your portfolio should have a disciplined methodology that follows a long term strategy, as opposed to reacting to the news or short term changes. It should be rebalanced and maintained consistently. A system that uses technology can help us with this in a cost-effective way.
- What am I paying? We would never pay for any other service without knowing the price, so make sure you know what your investments are costing you! The rule of thumb is to keep costs under 1% of your total portfolio. Your investment fees should include portfolio selection, maintenance and finance planning.
Getting in the market helps break down barriers. You can start with putting one, five, 10 dollars into an investment account just to see what happens. There is no minimum requirement, so a great way to gain confidence is just to give investing a try, starting with a small amount. It’s a super low-risk way to see money grow and shrink and get a sense for what investment is about, so you’re experienced and more confident when you’re ready to put more money aside for your long term goals.
Wealthsimple is offering the Hacking Sophia community an exclusive offer of $10,000 managed for free for the first year – get the details and offer here. (Limited to Canadian residents).
There may be an experience factor holding women back from taking advantage of investing, but thankfully it can be overcome with small easy steps. Investing is amazing because it’s simply giving your money a job – it will work for you and grow over time. Better yet, it’s a way to make more overtime without actually working more ourselves. Investing can have a massive impact on our future financial wellbeing. – Zoe Wolpert, Senior Investment & Retirement Specialist at Wealthsimple