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There are only two scalable and dependable ways to build wealth: buy a home and invest. And despite last year’s poor performance, the stock market has delivered an average annual return of 9.5% since the early 1900s. Financial advisors can add up to 3 percentage points on top of that, making this a business that compounds, said Sallie Krawcheck, CEO and co-founder of Ellevest.
But the industry has created the perfect product market fit for middle-aged white men, Krawcheck said, and women don’t invest.
“It’s a lifetime of messages that she’s no good with money,” Krawcheck said.
Ellevest recently conducted some research to find out what women want, and to get insights into how better to meet their financial needs.
One thing we often hear, she said, is that women are risk-averse; they don’t invest as much as men do.
“Here’s another explanation: They don’t invest as much because maybe we as an industry has not met their needs as much,” she said.
Ellevest found that it’s not a risk aversion, but rather risk awareness that women have.
“Risk aversion is ‘let me stay away,’” she said. Risk awareness is, ‘could you please explain to me in plain English how much money I could lose, and how bad it could be? What are the chances I end up as a bag lady?’ This is what women want to know.”
When you lay these things out for them, they actually take on more risk to fund their retirements.
Another reason they don’t invest is due to the industry’s use of jargon; they want to understand what they’re investing.
“What we did find is that when you throw jargon at a man, he invests, even if he doesn’t understand it,” Krawcheck said.
Further, when men go through the onboarding process with an advisor and fill out a risk tolerance questionnaire, they tend to make an educated guess and move on.
“What we saw with women is, ‘that seems like a super important question. I’m going to go figure this out,’” she said. While well-intentioned, they then go away and don’t come back.
Another difference Ellevest found was that women see investing not as an activity in itself, but as a means to an end.
“She wants to know if she can start a business in five years, have a baby, retire well,” Krawcheck said.
That’s why Ellevest put a goals-based framework in place, one focused on getting to where she wants to go, not on outperforming the market.
“She wants a higher probability of reaching her goals,” she said. “She will give up return for greater certainty, if you can share with her the trade-offs.”
Lastly, Krawcheck found that since women tend to live longer—with some 80% of them dying single—they want a big retirement.
“She wants a higher percent of her pre-retirement income when she retires,” Krawcheck said. “She knows she’s going to have to make it on her own, and she wants to have fun.”
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