Investing is a skill every woman should possess. At some point in their lives, 90 percent of women will be single, divorced or widowed, according to the U.S. Bureau of Labor Statistics, and therefore entirely responsible for their finances.
Yet some women either don't invest or delegate the task to someone else, be it a spouse or financial advisor. According to Fidelity, one in four baby boomer and Gen X women actively invest, while only one in five Gen Y women do so. Their top reasons for not being hands-on: They have too much on their plate, don't know where to get help or have "divided up the labor," giving the job to their partner.
Women with some retirement savings of their own are the exception, as they are more involved managing their investments. A study by Artemis Strategy Group for Ameriprise Financial surveyed women ages 25 to 70 with at least $25,000 in investing assets and found that 41 percent of these women made financial decisions alone and 56 percent shared the decisions with another person.
The more involved women are financially, the greater their ability to withstand any investing challenges and recognize good opportunities. And there are other payoffs from having women own assets, either jointly or alone.
The returns will be higher. Women investors react less to the market and are more disciplined than their male counterparts, according to a Fidelity study released earlier this year. That study found that women save more – 9 percent of their salaries compared to 8.6 percent for men – and typically have higher rates of return (6.4 percent) than men (6 percent).
Investing can help level the playing field. Improving portfolio balance isn't the only reason women should participate in investing decisions. By not participating, women risk feeding a vicious cycle of being less comfortable with investing and consequently more reluctant to speak up and take part in financial decisions. Women need to believe in themselves; we know money, but often lack confidence in our abilities. If you don't feel up to talking to a financial advisor, take an investing education class online or read books about investing. Become more comfortable with how the markets work.
That knowledge is essential because investing can help level the financial playing field for women. What many of us fail to consider is that in general we earn less than men, so investing is a way to play catch up. And, since we tend to live longer than men that extra money will really come in handy.
Owning assets is empowering. Women also are more likely to become family caregivers, a role with financial costs, not only in lost income but also in lack of empowerment. Women still tend to give up our work for our families, either giving it up altogether or taking a lesser job, and husbands become bigger breadwinners. As such, it's not uncommon to sit down with a couple and hear that the woman doesn't feel like she has a voice even though they made this decision as a family.
In some cases, it's just the husband's name on an account, and the perception is it's "his money." To overcome this, we suggest putting all investing accounts in both spouses' names, because when you own something, you have a stake in it.
Financial equity within a marriage often leads to greater mutual respect, as having unequal distributions of savings in your household can cause stress on your marriage, especially if only one spouse is earning an income. Having assets in your name, no matter who you are, makes you feel safer, more capable and more empowered.
In addition to having a stake in joint assets, women should also practice investing with accounts they exclusively own. To that end, consider setting up a spousal IRA. Although you usually need earned income to contribute to an individual retirement account, married couples who file a joint tax return can create a separate traditional or Roth IRA for a low- or no-wage spouse and use a spouse’s earning record to contribute.
There are no unpleasant surprises. Having some assets of your own becomes important in the case of a spouse's death, divorce or other unforeseen circumstances. A typical example of why this is make sense is the following:
A wife lets her husband of more than 30 years handle their finances and has most of their financial accounts in his name only, listing her as a beneficiary. That became a problem when he suffered a stroke and was unable to make financial decisions or even pay their bills. During this extremely trying time in their lives, she would have to go to court in order to access their financial accounts just to stay afloat on their day-to-day living expenses.
Because a beneficiary has no claim to an account unless the account holder dies, married couples, or those in long-term relationships who share expenses, should have both names on all their accounts. Joint names can be listed on most investment accounts, such as bank and brokerage accounts, as long as they aren't a tax qualified account, such as an IRA or 401(k). That way if an emergency occurs, then the other spouse will still be able to maintain the household finances.
Unmarried couples also will need to address ownership of shared assets in the event of one partner's death. Along with naming each other as beneficiaries, these couples should consider setting up a revocable living trust, in which you place your assets, particularly those that you jointly own. You as the trustee can change the trust any time while you're alive, but when you or another trustee dies, the trust becomes irrevocable. Assets in the trust not only avoid probate but ensure that your partner has a claim to that property.
Such a trust is especially important for unmarried couples or a cohabiting couple that has children. If one of you dies, you want to make sure your heirs are correctly designated, because an unmarried partner doesn't have the same legal claim as a spouse, so without a revocable trust or beneficiary designation, all assets will be decided in probate court.