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Here’s what every woman needs to know about investing

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Despite the setbacks during the pandemic, the financial power of women in the US will only grow in the coming years.

By this point, as more and more women become aware of their economic power, they are increasingly taking on the basics of personal finance.

McKinsey predicts that by 2030, American women will control the lion’s share of the $30 trillion in financial assets owned by baby boomers. The shift, which rivals the annual gross domestic product of the US, is due to a 30 percent increase in the number of married women who make household financial decisions compared to just five years ago.

Young women seem even more interested. According to the Boston Consulting Group, 70% of millennial women reported taking the reins of all financial decisions, a finding supported by other recent studies.

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The female longevity advantage also plays a role. McKinsey estimates that women, on average, outlive their male counterparts by five years. But it can be a double-edged sword. According to BCG, almost 30% of women’s portfolios are in slower-growing assets such as cash and bonds (versus 17% for men). This preference for stability could lead women into scarcity as they live longer, an even bigger threat now that inflation has reared its head.

So, whether you’re already a part of this growing movement or just taking your first steps towards financial enlightenment, here’s a handy list of five things you need to know.

1. Know your number

To really take control of your finances, keep a few numbers handy. The most important thing is the costs. How much are you spending now and how much do you plan to spend in the future? Although it may seem intimidating, it’s worth understanding what your salary is and how much of it you spend monthly or annually. From there you can get what you save.

Keep in mind that when predicting your future energy expenditure in retirement, don’t assume that you will spend less. Experience shows that between travel, medical care, and just a longer life, spending doesn’t drop as much as you might think.

Finally, find out the value of your assets across all of your accounts—not just your retirement, checking, and savings accounts—and how you currently invest. Ideally, keep all this information in one place where you can check it regularly (half a year or yearly). There are many online tools and financial aggregators to help you keep track.

2. Expect the Unexpected

Nobody likes to think about worst-case scenarios like losing a job or getting sick, but protecting against them is key. Create a cash reserve to cover six months of expenses (assuming you are still accumulating wealth rather than spending from your portfolio).

Many women already have life insurance, but don’t forget other types of protection such as short-term and long-term disability, especially if you’re the breadwinner. Believe it or not, the chances of taking advantage of a disability policy are higher. According to the Social Security Administration, a 20-year-old has a 25 percent chance of becoming disabled before age 67, compared to a 13 percent chance of dying.

Even these two policies are not enough. You can also consider long-term care insurance and an umbrella policy for property and accidents. And if you purchased insurance more than five years ago, review your policies – prices and product features will change.

3. Get your financial house in order

Cleaning has become popular during the pandemic as many women have “tidied up” their living space. But what about organizing your financial environment? This means knowing the advisors who handle your household finances and how to access all of your accounts. Since there are probably more than one, consider using a password manager app to keep track of them. Keeping this information secure will be critical in your quest to get your numbers.

Then collect estate planning documents (trusts, wills, etc.) and understand which ones take effect when. Check them every three to five years, either when changes occur such as a birth, death, marriage, or divorce, or as external factors change, such as rising rates, inflation, or tax laws. Also develop a care plan for the elderly and communicate it to your children. The hit HBO series Legacies is a great reminder of how difficult situations come up, and many of them are not at their best when parents become incapacitated or sick.

4. Build your dream team

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Assemble a team of financial trustees to keep in touch as your needs evolve. Recruit trusted professionals that you feel comfortable with and develop personal relationships with each of them. This is especially important in families that divide and rule.

Even if only one of you participates in meetings with external consultants, make sure that the consultant team resonates with both. In the BCG study, many women expressed dissatisfaction with their current welfare advice, with almost a third reporting that they were treated differently by their relationship manager because of their gender.

How about one-stop shopping? This may sound convenient, but rarely works in practice. You will most likely need a separate tax professional, lawyer (which type depends on your stage of life), financial advisor, and insurance specialist – although they should seamlessly connect and coordinate on your behalf.

And even if you “inherit” a team, you may need to change to make it your own. You have the right to stand up and defend yourself, no matter who is sitting at the table.

5. Fund your favorites

Regardless of how you created your wealth, you can make decisions that can truly give you power and influence. For many women, wealth is a means to an end, but which “goal” is most important to you? What are your priorities? What makes you the happiest?

Making deliberate and effective investment decisions starts with learning your values.

This is why attracting a financial partner who understands your hopes and dreams is the best thing you can do. Work with someone you can trust.

Helping kids get higher education, donating to your favorite charity, taking a sabbatical or investing in a cause can be within reach. You just need strategic advice from someone to help you consciously align your financial decisions with your ideals.

Beata Kirri, Co-Head of Investment Strategy at Bernstein Private Wealth Management


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