… and why this needs to change.
When you hear of a ‘boys club’, most people will be taken back to some form of childhood nostalgia where tree huts or play dens had signs saying, ‘no girls allowed.’ For me, it reminds me of the industry I work in today – the finance industry.
I (Victoria Harris) learned about investing when I was about eight years old. My parents had bought me some Contact Energy shares, and I used to receive dividend cheques a few times a year in the mail. I thought investing was just getting money in the letterbox. I wasn’t wholly right, but I wasn’t entirely wrong either. However, I didn’t fully understand investing to generate wealth until I took Finance at University. I then learned the real-life relevance of investing and how it could make a huge difference when applied to my life.
The gender split at University finance classes was relatively even, but once I started my first job in the industry, the difference was much more male-skewed.
Over the last decade, I have been fortunate to work in the finance industry in Auckland, Sydney and London. However, the case has been the same in all three cities; there is a significant lack of females. In this day and age where gender diversity is becoming an increasing discussion, the finance industry still has a long way to go.
This sense of ‘boy’s club’ that the industry still has is (slowly) changing. But there is still work to be done. Across all my employers, in every investment team I have been a part of, I have been the only female or the first female. Initially, this used to intimidate me, but now I see it as an advantage and it’s become a passion of mine to bring about necessary change. So how do we solve this issue? And why should we?
To get more women into the industry, we need to get more women into senior leadership roles so young females have someone to aspire to and can see finance as a viable career path. Achieving equal representation is not an easy task and will take generations, but we can achieve it. We can start by breaking down some common misconceptions of the industry and of women as investors.
Firstly, finance is all about sitting behind a desk and working on spreadsheets. Of course, there will always be spreadsheets, but most of a financial professionals day is actually spent networking and relationship building. Not only are communication skills key – so too is empathy, and women, in general, are fantastic at both.
Another myth is that men are better at investing than women. International studies have shown that actually the opposite is true. Women tend to spend more time researching their investment ideas, therefore making more rational decisions. And while they do take on less risk than men when it comes to investing, that doesn’t mean they’re risk-averse. Instead, they’re simply more likely to take on appropriate levels of risk with their investments than men. They are also less emotional when it comes to investing and take a more pragmatic approach. They are also less likely to trade on a ‘hot tip’ or feel the need to ‘just do something’. This behaviour creates the tendency for erratic and sometimes regretful actions like doubling down on a bad trade. Even well-experienced investors forget that if a share price falls and you sell, you crystallise your losses. If you do nothing, it’s only an on-paper loss. These traits are more prevalent when men manage money and hence leads to women achieving better investing outcomes.
Women are also better at following the age-old investing mantra; invest for the long-term. This future-focused view lends itself to women being more calm, on average, during times of market turmoil as they have a longer-term approach to investing and growing their wealth.
Thirdly, women don’t have the money to invest. We, as a gender, are now much more equal participants in the workforce. We have come a long way from historically men being the only providers of household income. We now earn money and are much more equal contributors. Yet, we are still significantly underrepresented in the finance industry, and there is still a significant investing knowledge gap.
Don’t get me wrong; there are also many men in the industry that are huge advocates for increasing the skew towards women. Throughout my career, I have been fortunate to work alongside some great men. Many would love to hire more females in their teams’, but no women apply for the roles when available. The supply is there (the jobs), but the demand (the women) are not. We need to change this.
Diversity is great for any industry, including finance. More women in the finance industry not only brings gender diversity, but we can spot investing trends our male counterparts might oversee. For example, we might spot a new technology that could benefit the next generation of women. Or we might see a specific womenswear retail chain full of customers and rapidly expanding its store footprint. Investing is all around us. We are researching investing ideas without even knowing it!
Women, on average, take less risk with their investments than men. However, risk shouldn’t be viewed as a bad thing. In the industry, we tend to say that you can take more risk with your investment if you’re younger. This is because you have a longer time horizon and therefore can weather the market volatility. And higher risk means the potential for higher returns. However, while a degree of risk-seeking is good, it should be in moderation and not carelessly used. For example, the Global Financial Crisis in 2007 was bought on by people (mainly men, as they dominated the industry even more so then), taking too much risk. This led to dire consequences resulting in many investors losing life savings—greediness partners with overconfidence and too much risk-taking. Remember, “Be fearful when others are greedy and greedy when others are fearful” – great words spoken by the legendary Warren Buffett.
Women taking less risk also means we have a higher allocation to cash (a lower risk asset) versus shares (a higher risk asset). With more women in the industry, our overall investing knowledge and confidence will improve when investing. If you have more confidence, you’re willing to take more risk with your investments.
Gaining knowledge and building confidence when it comes to investing has many benefits. You will have a better ability to grow wealth and have the knowledge to pass on to the next generation. Things such as teaching your children, particularly young girls, about the power and benefits of compound interest from a young age. Compound interest is interest on interest, and when your savings are compounded over a long time, it can significantly benefit your wealth creation. For example, if you invested $10,000 at 1% per year, roughly what you will receive today if you left your money in the bank, you will have $13,500 in 30 years. However, if you took a bit more risk and invested this $10,000 in a Fund that returned 10% return per year, you will have over $200,000 at the end of 30 years. I was fortunate that my mother got me interested in investing at a young age, and I hope to do the same for my children. We need to educate the next generation as early as possible so they can start enjoying the benefits of ‘the eighth wonder of the world’ – compound interest, as soon as possible. We need to be positive role models.
People (men and women) can be guilty of having a lot of cash sitting in the bank. You may think this is saving – however, it costs you money. There is an opportunity cost of not investing it (you are missing out on potential returns), plus inflation means the purchasing power of your cash is getting less and less as time goes on.
Imagine the companies we could support and see grow if we shift that investment in money to investing in shares. We could pick the investments that align with our goals and values and keep them in their growth journey by providing them with the necessary capital – our cash. If we all fractionally increased our allocation to shares and took on a bit more risk, imagine the positive impact we could make. Our money could help grow our economy, our savings and our future.