What’s Really Left On The Table When You Have Too Much Cash? Hint: It’s A Lot.
Originally written for ForbesWomen
An Instagram influencer walks in with $1,000,000 in cash from endorsements. She doesn’t know what she should be doing with her money, but her CPA said “you should talk to a financial advisor.” So she did, but only after a year of phone tag and rescheduled appointments.
An executive at a large bank has $900,000 in cash. She forgets to exercise some of her stock options and they expire, worthless, because exercising them wasn’t expressly on her priority list and the expiration date slipped through the cracks.
These are real life examples of incredibly driven women at the top of their fields, who sat on large cash positions for years and let opportunities pass by. They didn’t feel like they had the knowledge (or the time they needed to gain the knowledge) to be confident investing their money, and didn’t realize the significant toll it would take on their ability to build wealth. Given just that information, you could assume that women are more conservative than men when it comes to risk-taking and investing. And many women actually think they are more conservative than men as a group when polled for studies.
What’s interesting though is that women aren’t truly risk averse. Once we feel like we can ask any questions without judgment and have the information we need about a potential investment, women are actually more likely to make calculated but higher-risk moves with their money. So we aren’t risk averse, we’re risk aware. For example, women entrepreneurs and business owners with significant wealth are more likely to be angel investors and impact investors than their male counterparts (as a percentage of entrepreneurs overall) and are willing to put significant investments into people and causes that they believe will make a difference in an industry or in their communities. These investments are high on the risk scale, and potentially high on the reward scale as well. But the risk isn’t as much of a factor once women are able to look at an investment from as many angles as they need to in order to make an informed decision.
So let’s take a look at what all that cash on the sidelines really does to the bottom line, and what opportunities we’re giving up when we play small with our finances. Our Insta-influencer had $1,000,000 sitting in a money market account earning less than 1.5%, with no idea what to do with it. Our bank executive had $900,000 in cash and inadvertently let a $130,000 stock option grant expire, so she’s in the same boat as our influencer. What would happen if each one left her money in cash and just let it accumulate? Adding $10,000 per month for 20 years to a money market account earning 1.5% per year, each woman has just over $4,000,000 after 20 years.
That same money and that same savings amount, invested and earning an average of 8% per year, turns into just under $11,000,000 after 20 years instead.
*Investment results are not guaranteed, and past performance is not an indicator of future returns.
When we look at the difference between $4,000,000 and $11,000,000, the sheer size of the missed opportunity finally comes into focus. How many seed grants to new entrepreneurs could that additional money have provided? How many community outreach projects funded, or scholarships created? The work that women are doing can either provide a good life for themselves and their families, which $4,000,000 could very likely do, or they could provide for their families and make a lasting impact on the world in the ways that are most meaningful to them, starting from the exact same financial position.
Money is the fuel for great progress in the world, and the faster women grow their wealth the faster we can invest in people and organizations that push that progress forward in a meaningful way.
