Does Your Sex Affect Investment and
By Ralph Bovitz, CPA, PFS
Are there differences in the
way men and women invest and view their finances? It would seem so.
This does not mean that all women take the same approach to investing and
finances as all other women. The same can be said for all men.
Recognizing the differences should help an attorney, male or female, young,
old or just starting out, to understand their financial behavior and modify
it as necessary.
Like men, women must become
financially independent. Married or not, attorneys must be prepared
for the full range of possibilities. Consider those who are
financially dependent upon you - children, aging parents, either your own or
possibly your spouses', should one spouse die or become disabled.
While both men and women must save for retirement, on average, women live
longer than men. Women, sometimes earning less than men, have the dual
problem of needing to save more out of a smaller income, to finance their
longer life expectancy.
An underlying cause of
financial insecurity for women may be shorter job tenure, i.e. taking time
out to have and raise children or caring for elderly parents. Shorter
job tenure affects pension buildup, due to a loss of vesting in the pension
or limited contributions to a 401 (k) retirement plan. To remain
flexible in their family responsibilities, women attorneys sometimes work
for smaller firms, which often do not have retirement plans, like 401 (k).
Male attorneys who approach employment with an expectation of
employer-provided retirement plans, "or I am not going to work there", often
have a more secure retirement because they insist on having a retirement
plan. Therefore, many women worry about being impoverished in old age
and rightfully so.
Studies indicate that gender
does affect how men and women view the purpose of money. For women,
meeting immediate goals, like the children's education, a home, and the next
vacation are typical. Thus, women are more concerned about immediate,
but perhaps historically relied upon men for financial support, causing a
belief that they cannot handle money competently. For men, it seems
that changes in their portfolio value, the ups and downs, has a direct
affect on their self-respect.
Men often take too much risk
in their investment planning, while women take too little risk, by investing
in savings accounts and not in stocks or stock mutual funds. Taking
too little risk means failing to beat inflation, due to lower investment
returns characteristic of bank accounts. On the other hand, taking too
much risk jeopardizes the portfolio.
If you are a Generation-X
attorney, under age 35, see if any of these describe your financial
lifestyle. You live from paycheck to paycheck. Studies indicate
this is more characteristic of young women than young men. You don't
participate in your employer's retirement plan; again young women fall into
this category more often than young men. You tend to spend and not
save, either in an employer provided retirement plan, your own individual
retirement account (IRA) or taxable investment accounts.
Less than half of Generation-Xers
believe the best way to create long-term financial security is through
investments in equities, stocks and stock mutual funds. Yet,
historically, equities have proven to be the correct route to financial
security. More than 50% of Gen-Xers, on the other hand, believe
savings accounts, money market accounts and certificates-of-deposit (CDs)
will result in financial security. Historically, this has proven not
to be the case, due to the erosion of buying power from inflation.
Regardless of age or gender,
you need to become acquainted with investment terminology. One study
found that both men and women are largely unfamiliar with financial
terminology, with women being even less informed than men. Let's test
your familiarity with some financial principles:
The benefit of your retirement
account is tax deferral; your money is allowed to grow year-after-year
without payment of income taxes on the growth or on the income the account
earns, until you make withdrawals from the account at retirement. And,
there are no taxes to pay on retirement withdrawals from a Roth Individual
Compounding is the growth of
money on money. Thus, a 25-year-old attorney, planning to retire at
age 65, making an annual retirement account investment of $1,000, that earns
8% per year, will grow that $40,000 investment, through compounding, to
nearly $280,000 after 40 years. If you wait 10 years, before you start
saving, until you are age 35, you would have to save over $2,250 a year, to
accumulate nearly $280,000, by age 65. This is a classic example of
compounding; less money can grow into more money, the longer you invest it.
means not putting all of your money in any one type of investment, such as
everything in big companies, small companies, savings accounts, bonds or
real estate, for example. It also means not putting all of your money
into any one industry, company or country. Thus, an investment in Ford
Motor is the same as buying General Motors stock, while buying shares in
Disney, instead of General Motors, is not.
Studies indicate gender
differences affect behavior in money matters. This does not mean all
women act the same, nor do all men act the same when it comes to finances.
Nevertheless, recognizing that your gender may predispose you to certain
attitudes and behavior should help you overcome those that may damage your