Women investors need to take more risk if they expect to have enough money for retirement, says Diane Garnick, managing director and chief income strategist for TIAA, a financial services firm based in New York City.
Because women live longer than men, frequently earn less and take breaks from the workforce to care for children and the elderly, they need to save more of their income than men in order to fund a secure retirement, Garnick says.
However, if they do not take calculated risks with their investments, they face losing returns they will need.
“Women can be much more risk averse than men and therefore invest somewhat differently. They trade and rebalance their portfolios less often, seek to protect the assets they have, and are much less likely to endure risk in hopes of generating higher returns,” she says.
Women hold 20 percent of their money in cash compared to 15 percent for men, Garnick said in a white paper written for TIAA, Income Insights: Gender Retirement Gap. Conversely, women hold an average of 44 percent of their savings in stocks and mutual funds compared to men who have 54 percent.
Garnick says she tries to put the need for taking some risks to her clients in terms of what they may be missing rather than in terms of dollars.
“Losing those potential returns can mean one less trip to visit the grandchildren each year,” she says.
“One of the keys to long-term investment success is the ability to take well-chosen risks, notably equity risk, the principal source of long-term investment returns,” Garnick adds, but many women still have not taken this lesson to heart.
“By taking more risk and investing in higher returning assets, such as large cap stocks, international stocks, and real estate, women have the potential to improve the performance of their investment portfolios, resulting in higher levels of lifetime income,” she says.