Amid New Year’s resolutions, vision boards, and future planning are a myriad of discussions about financial goals. Most of us aim to grow wealth — but how?

I recently sat across from a group of undergraduate students on a train from Montréal to Toronto, and couldn’t help but overhear several hours of investment advice. Their interest in financial markets at such a young age is not uncommon these days. As we reach the limits of the homeownership dream, many young people are turning to investing as a way to build wealth for the future.

The rise in personal investing among young people

Recent reports show that Gen Z is taking an interest in investing much earlier than previous generations. On average, Gen Z has started investing at the age of 19, compared to the age of 32 for Gen X. As a result, 45 per cent of Gen Z reports having investment experience already. 

In an interview with The Varsity, Kristine Beese, the founder and CEO of Untangle Money, a financial consultant for women, said young people have access to an overwhelming amount of online financial advice — not all of it is reliable. This influx of information can foster overconfidence about market trends and investment strategies. Despite being relatively new to investing, 70 per cent of Gen Z said they felt confident in their investment strategies due to early exposure. 

When it comes to investing, however, young people have one major advantage: time. Investors who are many years away from retirement can generally afford to take on more risk, which, with patience, can lead to higher returns over the long term. As Beese explained, “we really want women or [people under] 45, to be getting their money working harder for them.”

Understanding the gender investment gap

According to a 2020 policy brief by the Rotman School of Management, women are less likely to save and invest than men and, when they do, tend to accumulate less wealth overall. These findings are supported by data from a 2018 Wealthsimple survey, which found that women respondents had an average of $18,000 less in savings and approximately $24,000 less in investments than men. The report attributes this disparity in part to the persistent wage gap: men earn more over their lifetimes, and as a result, have more disposable income to save and invest. 

The report’s conclusions are significant. Women face greater financial insecurity, especially in old age, and these risks are deeply connected to the structural inequities they experience throughout their lives. However, this narrative can also reinforce the idea that women must model their financial strategies after men. In reality, the opposite may also be true — men may have something to learn from women’s generally greater risk-awareness and caution in investing.

Where women perform better

Women earn less on their investments in overall dollars, but these figures often fail to account for how much was invested at the start. When outcomes are compared using rates of return rather than total amounts, a different story emerges. On average, women outperform men in both saving and investing. 

Despite earning roughly 20 per cent less in wages, reports from Fidelity show that women’s portfolios performed 40 basis points — 0.4 per cent — better than men’s, while other studies show returns up to one per cent higher for women investors. Women’s portfolios also tend to lose less value during economic downturns, leading to more stable wealth accumulation over time.

These outcomes may be linked to women’s more conservative risk distributions and long-term investment strategies. As Beese explained, “the more you look at your long-term money, the worse you do… Markets are too volatile, and there’s too much noise, meaning you can’t always figure out why things happen… One of the secrets for women, why they outperform men, is we set it and we actually forget about it. That’s shown to be a winning strategy time and time again.” This means that they may not react to short-term market fluctuations.

Men, on the other hand, often take on greater overall risk and trade more frequently. A Wells Fargo report revealed that single men trade 27 per cent more frequently than single women, and are more likely to adjust their asset allocations in response to market conditions. While this approach can occasionally capture highly speculative gains, it also increases the likelihood of steep losses when markets turn. 

Reframing the problem

The gender investment gap, therefore, is not the result of women’s risk aversion to investment losses. In fact, a 2020 study from the Institute for Gender and the Economy shows that women are not inherently more risk-averse, and that risk is highly context-dependent. Beese believes that “risk-aware” is a more accurate way to describe women’s approach to investing, suggesting that overconfidence is actually one of the greatest pitfalls for men.

Despite outperforming men, women still have less income on average to invest and live roughly four years longer. As a result, even with effective investment strategies, young women may need to make their money work harder to afford retirement later in life.

In order to “catch up” to men when it comes to investment returns in overall dollars, women might need to put more of their income into the market to get it working early –– even $25 or $50 per month can make a big difference compounded over time. Beese also suggests that women more than 20 years away from retirement should take on greater risk distributions in their portfolios while continuing to do what they do well: setting a strategy and sticking to it. 

For men, on the other hand, catching up to women’s investment performance might mean gaining greater risk awareness and sticking to a long-term strategy in the face of market volatility.