Does Your Sex Affect Investment and Financial Success

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 Retirement Account.

     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.

     Diversification.  This 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 financial planning.