It’s generally accepted these days that women have a money problem, and that problem is often presented via the statistic that we earn only 78% of what men do. Less if we work in certain industries, and less if we are women of color.
And this is a problem, no doubt about it. It’s unjust, and it’s inexcusable. And we should fix it: As individuals, we should ask for the raises we deserve; as companies, we should quantify and then close our gender pay gaps.
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But this isn’t the only money issue facing women. There’s another gender gap that can cost women even more over the course of our careers, and that gap is the investing gap. A 2015 survey from the investment-management company Black Rock finds that only 53% of women have started saving for retirement, compared with 65% of men.
The numbers look like this, starting with the pay gap: Let’s assume you’re making a salary of $85,000 a year and that you have 40 years left to work ahead of you. If you were to start being paid what a man would make, you’d earn almost $1 million more over the course of your career. Pretty good stuff.
But what if you take 20% of your (pre-raise) salary and invest it in a diversified investment portfolio—one made up of stocks and bonds designed to help you get the funds you need to retire down the road—rather than leaving that money in cash? Over those 40 years, you’d earn somewhere between $500,000 to $2.1 million in additional funds, depending on market performance.
An extra $1 million in increased salary is good—but another $500,000 to $2.1 million on top of that is even better.
Read more: Pay Gap Calculator: How Much Would You Make?
Why do most people intuitively believe that the raise will have a greater impact on their lives than investing will?
It’s because they overlook the power of what’s called “compounding.” It essentially means that you earn returns on the money you invest, and you also earn returns on the returns themselves. So over time, the power of investing can outstrip the value of getting that raise.
(An important point: This is by no means meant to suggest that the stock market only goes up. Hardly. And believe me, I have the scars from the market downturn of 2007 to 2008 to prove it. But historically—counting up years and down years and bumps along the way—the stock market has returned 9.5% on average annually since 1928. This means that you can earn quite a bit more by investing than by keeping money in the bank, where it barely earns any return. So historically speaking, the reward for weathering some market ups and downs should be well worth it.)
Of course, we should ask for the raise at work and invest in our futures by putting money in something like a 401(k) and/or choosing a diversified portfolio of stocks to invest in on your own. I implore you: Take financial control now.