“What do women want?” is an age old question that continually changes and will continue to change as we find ourselves developing in a society that has held us back for so long. It has always been implied that women’s wants are illogical and completely unpredictable, and therefore, we can’t be trusted to know what’s best for us.
There’s plenty of accumulating evidence that, as far as finances are concerned, those preconceptions are completely misguided. The percentage of women in the workforce and/or becoming well-educated has skyrocketed in the post-World War II era. During the same period, women have also been successfully and substantially building wealth – climbing that proverbial ladder, saving our money, and looking for ways to spend and/or invest it. While it wouldn’t be accurate to say that every woman in the developed world has saved appropriately and not spent her paychecks frivolously, generally speaking, we’ve been making steady progress. Just under half of the women in America today claim to be the primary breadwinner in her family. That’s up 12% in the last two decades. Last year, nearly a quarter of new U.S. billionaires were – you guessed it – women! The percentage of private wealth held by women continues to rise, and that trend is projected to continue into the future. Whether we’re talking about the rise of the self-made female billionaire or the widows inheriting their husband’s trust fund (who 7 times out of 10 ends up firing his financial advisor upon his death), it seems to me that it would be in the best interest of every wealth manager out there to figure out what women want when it comes to building wealth.1
The first and most obvious answer is financial freedom and stability. Behavioral finance research tell us that individual investor returns lag largely because we get impatient as investors and like to move from one thing to the next before we can realize the full return on our investment. More women, on the other hand, are risk averse with their savings and take a more patient approach with their investments. A study from Fidelity confirms that “although only 9% of women thought their investments would outperform those of their male counterparts, on average, women performed better than men by 40 basis points.” This can be directly attributed to their extensive investment research and lack of risky trading compared to men.1 Women like to think in the long-term, not just about hitting the jackpot on the next trendy stock.
That brings me to my next point. Women want to align their investments with their values. According to Morgan Stanley’s Sustainable Signals white paper, 84% of women seek sustainable investments. Additionally, women are more likely to focus on positive social and/or environmental impact alongside rates of return when investing as opposed to performance alone. The good news for those women is that it is becoming more and more evident that we don’t really need to choose between investing in our values and getting a comparable rate of return to other non-sustainable investments. As a matter of fact, it is starting to be evident that investing in companies that far exceed environmental, social and governance standards can potentially lower your investment risk long-term due to the idea that these companies will stick around longer than those that are not acting responsibly in the interest of their investors. For example, a company that is figuring out ways to lower their water consumption today is going to be much more prepared if the day ever comes where water is a scarce resource. In turn, they may avoid having to make abrupt changes in their daily operations which could potentially have a severe monetary impact on their bottom line. Female leadership is another great example. According to a research report from MSCI in 2018 titled “Women on Boards and the Human Capital Connection”, companies with diverse boards (3+ female directors over three years) and leading talent management practices experienced growth in employee productivity (compound annualized growth rate [CAGR] of revenue per employee from 2012–2016) that averaged 1.2 percentage points above their industry medians. The moral of the story is that not only does it make sense for women to invest in other women, but it can increase their investment performance at the same time!
Closing the pay gap, diversifying boardrooms, and increasing labor standards are all issues that directly affect women in the workforce. These all happen to be ESG (environment, social, governance) issues as well, so when women are investing in ESG, they are truly investing in themselves. As women continue to make more money and invest it in ways that change the landscape of societal norms, we will continue to see a shift in ESG investing. The more investors pour money into companies that are doing the right thing or adjusting their practices to start being on the right side of history (or HERstory for that matter), the better the performance could potentially be. Better performance can lead to steady growth in preparation for a stable and confident retirement which is all women, like anyone else, really want at the end of the day after all.
1Smith, Emma L. “Women and ESG Investing Intertwine.” Investment Advisor, 2019, pp. 31–32.
2 Richards, Carl. The Behavior Gap: Simple Ways To Stop Doing Dumb Things With Money. Portfolio/Penguin, 2012.
3 Coombs, Jennifer N, and Jim Pasztor. College for Financial Planning – Chartered SRI Counselor Course; Module 7 – Current and Future Opportunities. 2018.
Any opinions are those of Natalie Seber and not necessarily those of Raymond James. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. Expressions of opinion are as of this date and are subject to change without notice. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results. Utilizing an ESG investment strategy may result in investment returns that may be lower or higher than if decisions were based solely on investment considerations.