Single women are neglecting their finances.
A new survey out from Fidelity shows when compared to men, single women are less likely to consider themselves knowledgeable about investing and saving for retirement. This confidence gap is holding women back from making smart financial decisions, and it comes with a real cost.
Take for example the fact that single women are twice as likely as their male counterparts to keep their savings in cash. As much as 35 percent of single women keep the majority of their savings liquid. Why?
[See: 7 of the Best Stocks to Buy for 2018.]
They simply don’t know where else to invest it, the Fidelity survey showed.
Ouch.
This is a big problem because as any 1-percenter will tell you, the key to building wealth lies not only in stashing away your hard-earned paychecks — but also in making your money work for you. Savers who squirrel away funds in a mere checking or savings account might as well just hide their cash under a mattress. These accounts pay just 0.1 percent interest lately, according to Bankrate.com.
Inflation makes matters even worse by eating into the value of those savings. Each dollar saved packs about 2 percent less buying power with each year that passes. That means, when you keep money in a savings account, your funds are essentially declining in value every year.
“Today, stowing away funds in a checking or savings account is not enough to keep pace with inflation,” says Alexandra Taussig, senior vice president of women investors at Fidelity. “If you’re not investing your savings, you may be losing money over time.”
If single women would instead invest their money in the stock market, those savings could have grown far more quickly. One of the broadest and most popular measures of the stock market, the Standard & Poor’s 500 index, has gained 15 percent over the last year. Sure, that’s not always the norm: It’s been a very good year for stocks after all. But even when you take some major booms and busts into account, the S&P 500 has averaged 9 percent annual returns over the last 30 years. That’s far better than some measly 0.1 percent money market account.
Sure, it’s good to keep some money in a savings account as your rainy day fund. Sallie Krawcheck, a Wall Street legend and now founder of Ellevest, recommends women stash three to six months of their take-home pay away in case you lose a job or need to deal with an emergency. But after that, it’s important to invest.
Don’t know where to start? Try reading a few books. Dana Anspach, a certified financial planner and founder of Sensible Money in Scottsdale, Arizona, recommends “Four Pillars of Investing” by William Bernstein, “Behavior Gap” by Carl Richards, and “The Wealthy Barber” by David Chilton. If you’re not a book person, subscribe to financial magazines and start reading the articles, Anspach says.
“You won’t understand everything at first, but if you stick with it, over a year or two, you’ll be amazed at the knowledge you can pick up,” she says.
[See: 10 Skills the Best Investors Have.]
When it comes to opening up an account, you can start with your 401(k) if your company offers one, and aim to get the full company match. If your employer offers a 3 percent match, then put in a full 3 percent of your salary. That’s free money. Don’t leave it on the table.
Next, consider putting up to $3,400 in a health savings account, again if your company offers one. It’s the only financial product to offer triple tax benefits. First, your contributions are tax deductible. Second, when you invest the funds, the growth is also tax-free. And third, when you eventually use the funds for qualified medical expenses, the withdrawals also aren’t taxed.
Next, consider putting up to $5,500 in a Roth IRA. If you want to keep going, consider bumping up your 401(k) contributions even more. You can contribute up to $18,000 in your 401(k) this year. And if you have other big goals, like saving for a house, a regular brokerage account might be a good option, too.
As always, when using these various accounts, it’s best for newbie investors to build a diversified portfolio with either low-cost ETFs or mutual funds. Don’t try to beat the market by becoming a stock picker. Study after study shows that neither individual investors, nor the professionals, succeed in outperforming the major market indexes consistently over the long run.
Anspach says one disheartening reason for women’s confidence gap. “Women have less confidence because they weren’t included in conversations about money,” she says. “I’ve been told many times in my life ‘don’t worry your pretty little head about that.'”
The cost of not taking charge is a lack of independence, Anspach adds.
[See: 8 Cheap ETFs to Build Your Nest Egg.]
“I’ve watched too many female friends marry or stay in an unhealthy relationship for financial reasons,” she says. “They are scared to be on their own because financially they don’t feel like they can make it.”
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Single Women Are Falling Behind as Investors originally appeared on usnews.com
