Flowers are nice and chocolates are sweet, but if you really want to do something loving for your mother or wife on Mother's Day, teach her how to invest . . . if she isn't already savvy about investing.
And if you don't know how to invest, learn with your mother or wife.
Most Americans--regardless of gender--lack the basics they need to accumulate the money that will be essential for retirement, but more women than men are missing some of the nuts and bolts, according to research by Dartmouth College professor Annamaria Lusardi.
In surveys of individuals, she found only 55 percent of workers knew that government bonds provide a lower rate of return over 20 years than the stock market, on average. Only 52 percent knew that holding a single stock was significantly more dangerous than investing in a stock mutual fund. And only half of people over 50 understood two critical facts--that inflation undermines the buying power of a person's savings, and that the compounding effect of your investment return (or interest rate) makes a tremendous difference in the money you will accumulate over many years.
"Females are approximately 10 percentage points less likely than males to answer correctly," Lusardi said.
That could be one reason why over the years I have heard from many people--mostly women--who thought they were doing a good job of preparing for their future by putting money into a savings account.
But they didn't realize that with taxes and a 2 percent interest rate in a savings account, they weren't going to be able to accumulate anywhere near what they would need for retirement.
A person who has $30,000 in a savings account is likely to end up with only about $46,000 three decades later. Yet if she protects the same $30,000 from taxes in an individual retirement account or a 401(k) at work, and makes 10 percent on average a year by investing the money in a simple stock market index fund, she likely would end up with more than $500,000.
Women can't afford to be naive about investing. On average, their incomes are lower than men's, they are less likely to have pensions and collect less Social Security. So maximizing the impact of their savings through smart investing is critical.
Further, women are likely to live longer than men, so they are likely to need a nest egg that will be there into their 90s--even after handling the financial drain of a dying husband.
While self-sufficient women increasingly are handling money with success, experts say, research continues to show large numbers of married women defer investment decisions to men if they can.
Confidence levels among women tend to be lower.
But that doesn't mean men are better investors, said Brooke Harrington, a Brown University professor who has been researching gender differences among investors.
In fact, research shows tendencies that are just the opposite. Finance professor Terrance Odean at the University of California, Berkeley, found that women tended to outperform men as investors because they researched stocks thoroughly and were patient with them. Meanwhile, men tended to buy and sell stocks more frequently. That caused expenses to mount, and ultimately undercut the money they were making.
Harrington said that while serious investors in investment clubs do well after learning the vocabulary and rules of investing, women often don't seem to outgrow a lack of confidence.
But she said that ultimately serves them well. "They are more thorough and deliberate" when they do their investment research.
"It's the silver lining in feeling incompetent," she said.
Her advice to women is to realize that investing is like shopping: "You look for value and compare--looking for bargains."
To start with the basics, learn how the interest rate you earn on your investments matters significantly. And understand what you are likely to need for retirement. At the Web site Choosetosave.org run a "ballpark estimate" to see what you will need for retirement. And to appreciate the impact of inflation on your investments, run http://partners.leadfusion.com/tools/choosetosave/savings06/tool.fcs. It answers the question, "How will taxes and inflation affect my savings?"
After running the calculator you will see that taxes take a huge chunk out of savings, so start saving, or save more than you have been saving, in an IRA or 401(k).
Learn about picking mutual funds. Keep in mind that if you select mostly bond funds, you are likely to earn about 5 percent a year on your investments. And in stock funds over many years you could earn about 10 percent. But from year to year, stocks can fall hard--maybe 20 percent or more.
Don't make the mistake of being too conservative--a frequent mistake made by women. Instead, combine stock and bond investments.
A classic combination would be 60 percent of your money in stock mutual funds and 40 percent in bond mutual funds.
An easy way to get a mixture appropriate for your age is a "target-date" mutual fund which adjusts quantities of stocks and bonds in your portfolio as you approach retirement.
Gail MarksJarvis is a Your Money columnist and the author of the book, "Saving for Retirement Without Living Like a Pauper or Winning the Lottery." Contact her at email@example.com.Copyright © 2015, Los Angeles Times