We have met the enemy....

We have met the enemy and he is us.

When it comes to money, we are our own worst enemy.  Men, women....we are all human.  And being human means we are subject to human nature.  There is just no escaping it.

Tim Richards is an expert in psychology and finance.  A piece that he wrote whilst we were in the depths of the financial crisis in 2009 has recently been updated.  The market has gone up roughly three and a half times since when it was published.  But human nature hasn't changed.  Nor will it ever.

human nature
human nature

In the article he writes:

There’s no getting around the fact that us humans are subject to lots of biases and psychological quirks that combine to destroy our investing returns.

The psychological quirks are really different for men and women.   The quirk for women that destroysour investing returns is that we tend not to invest in the first place.  I cannot tell you how many times a woman has said to me 'but I just never imagined myself as an investor'.  Men?  I haven't heard those words from a man before.

Interestingly, women have been shown to be better savers than men, but we have far less set aside for retirement than men (men on average have 50% more in their retirement accounts).

It's partly due to lower earnings, but it's also because women don't invest their cash to the same extent that men do, and if they do invest they tend to have more in assets with lower volatility and therefore lower return.

So what is it that women need to overcome?  What is it that holds us back?  I believe that there are a number of things that hold us back, and here are some that I see most often:

  1. Women want certainty in their life and in the world before taking the first step.  This is a big problem because if you are waiting for certainty you will be waiting forever.  There can never be certainty because there is no crystal ball.  The future is always uncertain.  What you have to do is make decisions based on your best guesses and an analysis of history.  We have to be rational in the face of uncertainty.  You can't act on possibility, because anything is possible.
  2. Women feel as though they need to understand everything before they start.  I met a woman recently who told me that she had taken two weeks of work and bought a pile of investing books as she wanted to 'figure this thing out'.  You just don't have to do that, you really really don't.  What you do have to do is start where you are, find someone to help you (please make that a qualified professional), someone you trust and whom is dedicated to education.  Then know that you will figure it out as you go along.
  3. Women simply have so many demands on their time that their money never makes it to the top of the list.  My warning to everyone (men and women) is to make money a priority in your life today.  If you don't, it will become a forced priority later on.
  4. Women often rely on the man in their life to handle the finances.  I have seen this end badly far too many times.  The stories are endless.  We should never rely on someone else to make decisions for us that could impact our future.  Be involved, ask questions, go to meetings, and don't settle for something that doesn't feel right.
  5. Women are scared they might lose all their money.  I have heard on many occasions 'but what happens when I lose all my money?'.  The most important thing you can ever know about investing your money is that historically the market has never been capable of losing you money.  And that's because the market does goes down but it never stays down.  The only way you have been able to lose money in the US stock market is if you have sold the US stock market.  To conclude that if you invest today you could lose all your money is to conclude that the world today is a worse place than it was before the Great Depression, or World War II, or the Cuban Missile Crisis or the Financial Crisis or any of the many crises we have had in the last one hundred years.
  6. Women just don't know where to start; the financial world seems inaccessible, boring, untrustworthy, complicated.  Let me tell you this - it's not your fault.  Financial services has been all of those things to women because it has been designed by men for men.

I promise you, it doesn't have to be that hard.  Financial planning should be full of inspiration; it should fill you with inspiration.  It should be about getting the most joy out of the money that you have.  Money isn't something to be feared.  It's a tool that can be used to help us live a purposeful and fulfilling life.