How Can Women Hedge Their Investments To Make Up for Making Less?

Young millennial business people developing investment ideas, dealing with finances and start-up assets.
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There’s no glossing over the hard reality that women on average earn less than men, even in the same profession. To help make up for that income gap, many women have to invest more strategically if they want to reach their financial goals. In addition to making every dollar stretch at home, women should focus on maximizing savings and investments. Working with a financial advisor who understands women’s needs is a good first step, but here are some other tips that women should consider on their own to help decrease the wealth gap. 

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Save a Higher Percentage

Conventional investment wisdom says to set aside at least 10% of your salary to reach your long-term financial goals. However, as women are paid less than men on average, they should consider setting aside 15% or even 20% of their income in order to maximize their savings. Although this can be a struggle, it can also help ensure that women hit the same levels of retirement savings as men, even on a lower salary.

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Invest More Aggressively

If you’re a woman earning less than the average man, you might not have as much money available for your savings and investment plan. If that’s the case, you might have to consider investing more aggressively. While you shouldn’t take wild chances, getting an extra percentage or two of return on a smaller amount invested can still help you reach your long-term goals. Just remember that taking wild, speculative chances with your retirement funds is not the same thing as increasing your overall risk profile in an appropriate way. Putting your entire retirement fund into cryptocurrencies, for example, isn’t the most prudent way to manage your risk. However, increasing your allocation to stocks over bonds might be a good step. Speak with your financial advisor to get some ideas on how to match your portfolio with your risk tolerance. 

Take Advantage of Company Matches

One of the biggest benefits of working for a corporation — even one that doesn’t pay women as much as it does men — is the 401(k) match. But you can’t take advantage of an employer match unless you maximize your 401(k) contributions. Many companies match 50% of the first 3%-6% that an employee contributes to a 401(k) plan, so be sure to put in at least this amount. The money you receive from your employer every year is the closest thing to “free money” that there is. But don’t stop at that. Your 401(k) plan still offers great tax benefits even on contributions above and beyond the employer match level.

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Reduce or Eliminate Fees

Fees are the bane of any investor, but even more so when you have less money to invest to start with. The combination of a lower amount to invest and high investment fees will act as a lead weight on your portfolio, making it harder to reach your investment goals. This makes it even more important for women to reduce or eliminate investment fees as much as possible. The good news is that many brokerage firms now offer $0 commissions on stocks and ETFs, in addition to $0 annual account fees. Be careful with the “hidden” annual fees within mutual funds and ETFs, however, along with high annual fees charged by certain financial advisors. 

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Last updated: Sept. 2, 2021

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About the Author

After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.
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