CHAPTER 7

Invest in Your Future

How to Make Your Money Work for You

Being rich is having money; being wealthy is having time.

—Margaret Bonnano, author

My friend Jessica vividly remembers the beautiful bracelet she got from her parents when she had her bat mitzvah at twelve. And she remembers clearly a couple of years later when, for her brother’s bar mitzvah gift, their dad opened an investment account for him and started teaching him how to invest so that he’d have enough to help support his own family one day.

Of course, neither she nor her parents ever imagined that twenty-seven years later, Jessica—who became a single mom at age thirty-nine—would be the one supporting a family herself. “I could have used that investment account,” she told me.

Women—much more than men—are rarely taught how to invest when growing up. As I mentioned earlier, surveys find parents are more likely to teach girls how to track their spending and budget and to teach their boys about building credit and investing. And while few Americans get much of a financial education in school, men are much more likely to take finance and business courses in college and tend to outperform women on financial literacy tests overall. So it shouldn’t be surprising that, as women, we tend to feel less knowledgeable, less confident, and less comfortable talking about investing.

I still remember a party I went to when I was in my twenties with some friends from the newspaper where I worked. When the men started comparing the performance of their stock market investments and trading tips, trying to one-up each other with their investing acumen, the women fell silent. Lost, and a little embarrassed, my female friends and I turned to one another to discuss our weekend plans instead. When we did talk about money, it was usually related to the amazing deal we got on a pair of shoes or how to split up a restaurant bill. At the time, I was hardly putting anything into my 401(k) retirement account, and I had little idea of how the money was being invested. I’d literally just ticked off the portfolio that had been recommended to me.

From the data, it seems like things haven’t changed much for women since. In a recent survey by Fidelity Investments, eight in ten women said they’ve refrained from talking about their finances with the people they’re close to, and less than half of the women surveyed said they’d even feel confident discussing money and investing with a financial professional on their own. While women are almost equally as confident as men when it comes to financial tasks like paying bills and budgeting, men continue to be much more confident about managing investments—with only about one in four women saying they’re comfortable with how much they know about investing. The result is that many of us end up waiting too long to put our money to work by investing it.

This is a critical mistake. And it is probably the single greatest reason why we lag so far behind men when it comes to building wealth and having enough money for retirement.

That’s because time is often the single greatest factor in our ability to grow our money. More important even than the amount of money we invest. The earlier you start investing, with any amount, the better off you’ll be. Wealth building, financial freedom, the ability to make the choices you want to make, the postwork life of your dreams—it all comes down to investing. Right now. Today. No matter what amount you start with, the most important thing you can do is to start. Because the moment you invest your money, it can start growing—faster than it would sitting in the bank, and certainly faster than sitting in your wallet.

Men have already figured out that investing money in the stock market can be one of the most efficient ways to build wealth. Yes, the market can go down. But over time, it has consistently recovered from every downturn and gone on to new highs. In the last fifty years, the stock market has grown more than sixfold. It’s hard to find that kind of growth anywhere else.

Yet many women are still making the same mistake I did—and waiting. Well, actually, my mistake was worse, because I started investing in a 401(k) retirement account in my midtwenties but then cashed it out when I switched jobs, erasing all the hard work I’d done and years of potential gains. (Had I left it alone, instead of emptying it to pay off a car loan, it would have easily tripled in value in the years since.) I learned my lesson and quickly began investing again—for retirement, at least—but by then I was nearly thirty, so I’d already missed out on almost a decade of growth.

I thought I was an exception. But it turns out that a lot more women than men tap their retirement funds early, even though it means paying a 10 percent penalty on top of taxes. A 2015 survey by Boston Research Technologies revealed that, among those with 401(k) balances below $5,000, women tend to cash out at significantly higher levels than their male counterparts. As balances grow, that gap starts to shrink. But if you’re cashing out early and then starting all over, as I did, it can leave you scrambling to make up for lost time.

And looking at the data, it seems like a lot of us are scrambling. Some of us start early and then tap our retirement savings, setting ourselves back. Many others don’t start saving at all for retirement until they’re already years into their careers. In a 2017 study by Financial Finesse, only a quarter of women said they felt they were on track for saving for retirement. (In fact, one in five women has nothing at all saved for retirement, according to a recent CNBC–SurveyMonkey poll!) And even when women contribute, we are less likely than men to put enough money into our employer-sponsored retirement plan to even capture a full match in contributions from employers that offer one, which means many of us are basically leaving money on the table.

Outside of retirement accounts, the investing gap is even wider, in part because women are much more likely to leave our money in savings instead of investing some of it. Yes, saving money is important, but once we’ve got enough money stashed away in a high-yield savings account for emergencies and short-term goals, continuing to funnel money into savings instead of investing it can actually hold us back. Yet many of us continue to do that.

In fact, the Fidelity survey found that more than half of women were not investing anything outside of their retirement accounts. Instead they were leaving nearly all their money in cash or in bank accounts—which, by the way, are paying out less than 0.05 percent annually in interest now, on average. (Yeah, that’s a nickel for every one hundred dollars you deposit.) Meanwhile, the Standard & Poor’s 500 Index, which tracks five hundred of the largest stocks and is used as a gauge for the overall stock market, has averaged annual returns of nearly 10 percent (or about 7 percent, adjusted for inflation). That’s nearly 200 times as much. That can be a difference of literally tens of thousands of dollars in potential earnings over time.

Preeti, the Chicago doctor in her late thirties who is the main provider in her relationship, used to be among them. She says she’d always been diligent about saving some of her income, but it took her years to get comfortable putting it anywhere other than a bank account. “I’ve generally been pretty conservative when it comes to money,” she told me. “I would keep all of my money in my bank. I’m not sure why. Maybe because I felt like I could see it, and then I felt safe.”

But after talking to her older sister, who was participating in her company’s retirement plan, she started maxing out her own 403(b) plan (a retirement plan offered to employees of tax-exempt organizations and certain other workers). That was it, initially, since she felt uncomfortable investing on her own. But then she was talking about her finances with an older female colleague “who is excellent with money” and who encouraged her to invest in a regular brokerage account, too. Her guidance and prodding prompted Preeti to start looking at online brokerages. Had it not been for her colleague, though, Preeti’s not sure she would have considered moving some of her money from a high-yield savings account—that still pays less than 1 percent a year in interest (so, not even enough to beat inflation)—into an investment account, which has the potential to earn exponentially more than that.

Why are so many of us still leaving most of our money in the bank? Probably because that’s where we were told to put it! For decades, after all, men have been conditioned to look to the stock market as a means of supercharging their wealth-building efforts, while we have been encouraged to save our pennies. For a long time, that’s how the financial responsibilities broke down in heterosexual couples: The men invested, and the women saved. The assumption was that men would earn more, so they had more to invest, and they were encouraged to focus on long-term planning. Meanwhile, women were encouraged to save for short-term goals like new furniture or vacations.

Wall Street was (and still is) dominated by men, and investing in stocks was portrayed in popular culture as a testosterone-fueled endeavor with mobs of red-faced men in blue jackets waving papers and yelling over each other on the floor of the stock exchange. (The first female trader wasn’t allowed on the floor until 1967 and, more than fifty years later, women still make up just 9 percent of traders at the New York Stock Exchange. Even when I shot some episodes with Cheddar TV on the floor of the NYSE a few years ago, the female cohost and I were among only a handful of women on the floor.)

While all that is changing—the first female president of the New York Stock Exchange took office in 2018—there’s still a perception that investing in the stock market is a man’s game. And that men are more adept at investing (despite growing evidence that women actually have better results, but more on that in a minute). So, many women—even young women—still end up deferring to their male partners on investing and financial planning decisions. A recent UBS survey found this to be true for nearly 60 percent of women in their twenties and early thirties! Or they simply stash away their money in a bank.

We also tend to prioritize more immediate financial goals and needs over long-term ones. In a survey by insurance brokerage Willis Towers Watson, women ranked investing for retirement as their fifth most important financial priority, after managing daily living and housing costs, paying down debt obligations, and building up savings. For men, investing for retirement was number one. Sure, you can explain some of that because we earn less than men, on average, so we need to pay more attention to daily expenses, and we tend to owe more student and credit card debt. But we also aren’t brought up to believe we need to start investing for retirement—or for other goals in the decades before—right away.

“Investing is often just not as high a priority in the moment as whatever urgent situation is right in front of us that day,” said Bobbi Rebell, a certified financial planner and author of How to Be a Financial Grown-Up, when we were commiserating on how much money women miss out on by putting off investing. Why isn’t planning financially for our future on our “self-care” list, too, she wondered, along with—or even ahead of—a manicure or spa day? “There’s been a great movement recently, in large part because of marketing, to put ourselves first,” she said. “But it is often focused on something we need to buy: a candle, a solo trip, or even a membership to a networking group.”

Yet one of the best ways to care for ourselves is to take the time to make sure we’re investing enough to set ourselves up for the future we want.

Battling a Scarcity Mindset

What a lot of this comes down to is mindset, and many of us are still operating from a scarcity mindset. Think about this for a moment. While men are comfortable trading stock tips and trying to one-up each other with the returns on their investments, women are more comfortable comparing bargains and trying to one-up each other with the money we saved. Browse the bookstore aisles, and you’ll see plenty of books about bargain hunting, budgeting, and couponing with titles like Extreme Couponing and Never Pay Full Price! and Meal Planning on a Budget—all of them written by women. But wander over to the investing section, and the majority of books on investing and building wealth—from The Intelligent Investor and The Little Book of Investing Like the Pros to The Secrets of Getting Rich and I Will Teach You to Be Rich—are written by men.

“Women will have five times the emergency fund they need, sitting in the bank, not doing anything,” Cary Carbonaro, managing director of United Capital Financial Advisors of New York, lamented to NBC. “Women are afraid of losing money, while men seem to be afraid of losing out by not playing the market.”

But here’s the thing: By waiting, we do lose out.

Because the earlier you start investing, the more your money works for you—and the less time you’ll end up having to work for your money. Think of it this way: Every year you’re investing now could be a year less you have to work later. That’s thanks to the power of compounding, or when the returns you’ve earned on the money you invest start earning money, too.

Kameka Dempsey, an executive coach and founder of KD Leadership Strategies, learned this firsthand. The first in her family to go to college, she grew up without much money and had little firsthand knowledge of how to build wealth. But her parents did instill in her a voracious love of learning, she says. “They convinced me that education was the way out.”

Then a high school classmate encouraged her to apply to a program called INROADS, which targets talented minority students, through which she was able to take courses on business etiquette, acumen, writing, presentations, and even dress codes—“all of these things that are so important in how you show up in corporate America,” she says. It also helped her to start working in paid internships just after she graduated from high school and throughout her time at Yale (which she also helped pay for through scholarships and a work-study program).

The program also gave her the opportunity to take a financial literacy course, and she paid close attention. “I wanted to make sure that once I started making money, it was not here today and gone tomorrow,” she told me. “First, it was about getting paid the most I could get at that point in time. And then investing it.”

She started investing in a 401(k) as soon as she had access to one. “I remember when I was presented with my first 401(k), and someone said, ‘The company will match your contributions one hundred percent. You have to contribute the max you can!’” she recalled. “So I did.”

More than twenty years later, she looked recently at the projections for her combined 401(k) accounts and realized she’ll be a millionaire in retirement even if she doesn’t invest anything more. “It’s not that I’m going to be rolling in dough, but it’s comforting to know that I will have enough money to live on even if I didn’t invest another dollar,” she told me. “I bought myself that flexibility, unknowingly, by investing early.”

The breadwinner mindset is a growth mindset. It’s thinking about how you can put as much of the money you earn to work for you so that you are not stuck working for your money for the rest of your life. A million dollars in retirement may seem like a faraway goal. But the more your money works to earn money, the less you’ll have to work for it. And the earlier you start, the harder those dollars will work—they can grow exponentially over time. “A lot of times women wait because they think they’ve got time . . . but then you miss out on all those earlier years and compounding returns,” certified financial planner Stacy Francis, the CEO of Francis Financial and founder of the nonprofit Savvy Ladies, which provides financial education to women, told me. “Had you started earlier, those dollars would have been the hardest-working dollars you invested.”

Debunking Common Investing Myths

What you earn is important, but what you do with each paycheck is even more important. One thing I noticed among all the breadwinner-minded women I interviewed is that they diligently put a double-digit percentage of every paycheck straight into savings and investing.

Some of that should go toward retirement—enough, eventually, to max out any employer-sponsored retirement plan, but at least enough right away to capture any employer match money. (If you don’t have access to one, you can use an individual retirement account, which we’ll get into later in this chapter.) Some money should also go toward saving for short-term goals—like an upcoming vacation or summer camp for kids, if you have them—and building up an emergency savings fund. You’ll want enough, eventually, in a high-yield savings account to cover at least three months of basic expenses. (Basically, enough savings to cover your expenses in case you lose a job while you look for new income.) And once you’ve got enough savings to feel comfortable, you can put money into a regular investment account, too, for other mid- or long-term goals. By investing, you stand to reach them much faster because your money will be earning more money, too.

More so than any other area of personal finance, investing is plagued by myths that tend to hold us back though. So let’s get some of the big ones out of the way.

Myth #1: Investing is hard.

Given how many books, podcasts, shows, and “pros” there are when it comes to investing, it’s easy to understand why it’s gotten a reputation for being something complex that requires a lot of expertise. But nothing could be further from the truth. Investing successfully is not hard. You don’t need to day-trade (in fact, you probably shouldn’t). You don’t even need to pay that much attention to your investments on a day-to-day or even a month-to-month basis. I learned this when I started investing, and I’ll share the simple, successful approach I took with you later in this chapter.

Myth #2: Investing in stocks is risky.

I grew up believing that investing in stocks was risky—their value could go up, sure, but it could also go down, or maybe even disappear altogether. (Remember Enron and Lehman Brothers?) But the reality is that just a small fraction of the thousands of companies that trade publicly have filed for chapter 7 bankruptcy (the kind that can wipe out any stock value). So if you invest in a broad and diverse mix of stocks, you can substantially lower your risk of losing money and increase your chances of picking winners.

Myth #3: Investing is something you can’t do until you’re wealthy.

I’d gotten it all wrong: The truth is, you usually don’t get wealthy until you invest. Which is why it costs us so much when we don’t do it. Sallie Krawcheck, founder of the investing platform Ellevest, estimates the gender investing gap can leave women with about $300,000 to $1 million less than men at retirement after a thirty-five-year career. That difference can make it much harder to fund the post-work lives we want and ensure we have enough to cover healthcare and other expenses.

Myth #4: You need to hire someone to help you invest.

Nope. Wall Street has done its best to perpetuate this myth. Financial advisors, who are still predominantly older white guys, act as if investing is so complicated that it’s best left to the professionals—that you wouldn’t understand. Of course: Their business depends on that. But as I’ve learned from personal experience, the truth is that investing is not hard. And while you may choose to work with a financial advisor, you don’t need someone to do it for you.

Myth #5: Men are better at investing than women are.

In a 2017 survey in which Fidelity asked men and women who they believed made better investors, just 9 percent of women thought they’d outperform men. But here’s the twist: A growing body of evidence, including an analysis of more than 8 million Fidelity clients, shows that women actually do tend to outperform men in the returns they generate on their investments. That’s partly because men tend to be, shall we say, overconfident? And that results in a lot of churning (e.g., buying and selling and buying again) of stocks. So they end up paying more in trading fees. And they are more likely to buy when prices are high and sell when they are low. If you’re a woman who was raised to be risk-averse, you can use that to your advantage in investing.