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September 24, 2018 Wealth Management

Female investors have a growing influence

Valerie Dugan

How far we women have come from the days of being uncertain about family finances, to starting our own portfolios.

The contemporary female investor is the driving force behind much of the nation's investable dollars. Globally, women control and influence private wealth totaling some $50 trillion.

Assets held by women in the Asia-Pacific region are increasing fastest, at about 13 percent a year over the past five years. In North America, women's assets are growing in line with the global average: about 8 percent a year. The world's female population also makes some 85 percent of all consumer purchases, from new homes to new cars, from health care to vacations.

Professionally, women are increasingly present in the C-suite: As of this year, some 25 CEOs, or 20 percent, of Fortune 500 companies are women, whereas in 1995 there were only 10 percent.

How do these successful women manage their wealth?

Data on investing habits of women and men show interesting patterns: while men tend to be more confident in their investments, they aren't necessarily more successful. In fact, a six-year study showed that women take fewer unnecessary risks than men in investing. They also tend to do a better job at diversification of their portfolios.

Women tend to change investment allocations less frequently than men and are more likely to invest in their employer savings plans — both of which, analysts say, are comparatively conservative behaviors that tend to lead to good outcomes.

However, positive outcomes may not weather potential risk; because women tend to be more heavily invested in their employer savings plans than men, there is a great risk to becoming overweighted in those plans and not sufficiently diversified. The higher women go on the executive ladder, the more likely that at least part of their remuneration will be in their company's stock. All fine and good — to a point. The higher percentage of her wealth invested with the employer, the more risk she assumes should her employer unexpectedly face financial challenges.

Regardless of taking on higher risk with company stock, women tend to mitigate added risk by better managing personal debt. On average, they owe slightly less in auto and personal loans as well as on credit cards, all having a positive effect on their credit — their credit scores tend to be higher.

Ironically, though, women tend to have less saved up for retirement; experts say this is not because of bad habits but rather due to income inequality between genders. The pay gap means that women typically only earn about 80 percent of what men do for the same work.

And, women of color face an even wider pay discrepancy when compared to their counterparts.

Pay disparity can be the largest contributing factor in saving for retirement between the sexes. Research shows women may ask less often, but are more tentative when negotiating for raises, whereas men may push harder for higher compensation.

Many women may be the secondary breadwinners in the home, but it is imperative that the secondary breadwinner establishes her own credit and becomes completely familiar with financial issues that relate to each partner individually as well as together.

To get started, one topic women should think about is tolerance for risk. A woman's tolerance for investment risk may well differ from her spouse's and other female investors, particularly if she has taken time off from work to raise a family and therefore has not built up the same size 401(k) or other retirement funds as her husband. With the potential for less income, it becomes imperative that women plan carefully for their financial future and invest wisely.

Regardless of where in life they are — in relationships or not, established in a career or not, mothers or not, women should define their values and goals for the milestones of their lives and for their financial aspirations.

Valerie B. Dugan is a financial advisor with the Wealth Management Division of Morgan Stanley in Hartford.

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