Women now integrate inflation into intuitive risk assessments

Risk isn’t what it used to be, not for women.

The economic and social upheaval of the past two years has upended how many women define and manage risk across all their personal asset classes, including investments, career and time, said Sathya Chey, managing partner of Arise Private Wealth. Inflation and other uncertainties are now factored in as millennials and Gen X women become more comfortable and adept with equity investing, she said.

This year, inflation has put a fine point on the rationale related to reasonable risk in long-term portfolios because women realize that they can’t save enough to outrun rising prices.

“Usually people become more conservative across the board in times of chaos,” Chey said. “It’s counterintuitive to add to your investment portfolio now and take more risk,” which is what many women are doing, she added.  

Chey's observations are in line with the findings of the State of Women 2022 report released earlier this month by the Alliance for Lifetime Income, whose corporate members are largely insurers that offer annuities.

Women are shifting some of their risk tolerance to their investments and away from their careers and personal lives, according to the study, with 43% of respondents indicating that they take “more risks with their money than with their life or work.” The study found that 73% of women are worried about inflation and 41% said they weren't sure how to manage the implications of inflation.

Only 12% of women labeled themselves as risk-averse investors, and 35% reported that they are more tolerant of risk than their partners.

Jean Statler, CEO of the Alliance for Lifetime Income, said she was surprised at first by the findings, which were drawn from a survey of more than a thousand women with incomes generally between $100,000 and $150,000, in a community affiliated with the group.

But Statler explained that the shift in risk tolerance likely reflects women’s well-established capacity for coordinating multiple considerations, now including inflation.

“Women want to know what the impact is on the rest of their household,” she said. “When you define risk, you have a better understanding of how to live and how to spend. That’s why we found inflation an issue.”

Women’s tolerance for risk when investing is the topic of ongoing debate. Some research indicates that women consider more factors than just financial return. Women tend to invest for the longer run and to be less fixated on brag-worthy short-term gains, according to some experts.

In a fragmented economy with quickly changing, often contradictory forces, it makes sense that women are redistributing risk across their work and personal responsibilities, Chey said, because they see how the factors intersect.

“If you have concerns about your job security, it’s not the time to take risks with your investment assets,” she said. “And inflation can change your perspective on risk because you have to keep up with it.”

Statler added that the takeaway for advisers is to understand how women adjust their definition — not just tolerance — for risk according to prevailing economic conditions. One factor that remained steady: About 40% of the respondents indicated that they prioritized protected income over higher returns; safety, she said, continues to be a major factor for women, even among “a little wealthier, more educated, professional women.”