Cool to Be Conservative

By Sallie Krawcheck

If I’ve heard it once, I’ve heard it a million times: women are more risk-averse investors than men.

This is given as one of the reasons women don’t invest to the same extent men do. And this investing gap can really hurt us: if we save 10% of our income every year and hold it in cash, our chance of retiring well* is…wait for it…approximately 0%. That’s because there’s barely any return in cash these days. Invest that same amount annually in a diversified portfolio with a firm like Ellevest, and we forecast the chances of reaching that goal at closer to 70% likelihood.

But here’s the thing: our research at Ellevest shows that women may be more risk-averse than men. But they are more risk-aware. They want to understand risk and what it means: not in the “standard deviation of returns” way, but in the “if the market wobbles, can I still reach my goals” way. That’s what holds so many of us back from full investing.

Here’s how we address this at Ellevest and work to increase your chances of reaching your financial goals:

1) In putting together your financial plan, we forecast your salary over your career based upon what the data shows.

And that data tells us that we earn less than men and that our salaries peak sooner than men’s.

I know, it’s frustrating as all-get-out that this gender pay gap exists. But if we don’t account for this difference, we would be assuming that you can invest more money over your life; it’s more conservative to forecast a female-specific, education-specific salary trajectory.

2) For your retirement goal, we assume you live longer than men do.

Again, gotta do this, to be more conservative in our assumptions for your investment plan, and project out that you’ll need more money for longer.

3) For retirement, we shoot for getting you to an annual income of 90% of your pre-retirement earnings.

Some other advisers shoot for 80%, on the assumption that a variety of expenses go away in retirement (think work expenses, as well as saving for retirement itself). And targeting 90% is more conservative than 80%, because it builds in a greater cushion. Because life happens.

4) We don’t invest your money with a goal of outperforming some market index.

Instead we invest with the objective of getting you to the amount required for achieving the specific goals you include in your financial plan (whether it’s buying a home, retiring well, or starting your own business). Our proprietary algorithm constructs an investment portfolio designed to get you to the amount of money you need — or better — in 70% of market scenarios. (Why not 100%? Because that’s saving — not investing. And there’s almost no return to be earned on saving.) Not many other firms invest this way; others that do, shoot for 50%.

5) We reduce risk of your investment portfolio as time passes and as you reach your financial goal.

Our forecasts include the impact of decreasing portfolio risk. That way, a market wobble in the years right before you need your money won’t hurt as much. Others don’t do this, and while some state that they do, they don’t incorporate it in their forecast. So what you see might not match what they’ll do.

6) We believe we have more conservative (and, we think, realistic) market assumptions than others do.

We believe we have more conservative and realistic market assumptions than others do.

This can be hard to tease out, but our Chief Investment Officer spent lots of hours disaggregating the projections of other digital advisors. She found that Ellevest projects lower dollar amounts than they do, at the same probabilities. The difference, she concludes, is more conservative expectations of capital markets performance, which are inline with what many economists are projecting.

7) We assume that you pay taxes on dividends and interest from your Ellevest account as they are incurred, typically annually.

We also assume you pay fees to us out of your Ellevest account. Others show projections that are before taxes are paid. This means their projections may be higher than what we show at Ellevest. Showing the numbers as we do is more conservative.

8) We’ll reach out to you if a market decline causes you to fall off-track in getting to your goals.

Markets go up and markets go down. One thing that has always driven me nuts is I never knew what a down market actually meant for me. For example, if the market is down 5%, can I still retire on time? Can I still buy that house? And if I’m off track, how far off am I, and what can I do to get back on?

While I’m sure that the next time the market declines, Ellevest will send out the same “Don’t just do something; stand there” email that every investment firm does, we’ll do something that we think is even more impactful. We reach out and give you concrete action steps you can take to get back on track. This guidance could be to buy that home a bit later, or put some more money toward that goal, or to buy a smaller house. (Our moms told us not to brag, but we can’t help it: we have a patent pending on this, and you gave us great feedback on this in our testing.)

And you don’t have to wait for us. At any point, you can log into your account and see your progress in reaching your goal, and if you remain on track.

9) We do the complex math behind estimating your retirement income and give you a realistic number, down to the dollar.

The annual amount we project for your retirement is the estimated amount of income from all sources, including Social Security benefits, interest income, dividends, realized capital gains and withdrawals from your investment accounts.  We simulate withdrawals in a way that accounts for real world eventualities, such as required minimum distributions from accounts such as a traditional IRA or your 401(k). These distributions are calculated amounts that the government requires you to withdraw after you turn age 70 ½. Other services don’t take these required withdrawals into account, and not considering them can have adverse tax consequences.

Our projections also assume that your portfolio continues to grow while you are in retirement. Other services assume that you liquidate your entire investment portfolio at retirement and purchase an annuity (e.g., a fixed sum of money that is paid to you each year in exchange for a lump sum payment upfront). But hardly anyone actually does that. Estimating retirement income is complex — and what we’ve estimated for you reflects, as close as possible, how we believe you would most prudently manage the accounts and resources you have told us about.

10) Ellevest portfolios are constructed to minimize the risk of you ​not​ reaching your goals.

Ellevest portfolio recommendations are goal-based. This means we construct your investment portfolios not just to maximize returns, but to minimize the risk of you not reaching your goal. We apply techniques that consider not only your assets, but also the amounts you need for each of your goals. Other services focus primarily on driving investment returns, and that results in portfolios with higher international exposure, and, thus, we forecast, more wobbling along the way.

11) Ellevest portfolios are goal-specific and account for the risk capacity of each goal.

For example, we recommend that you take zero risk with your emergency fund. We propose that you keep that money in FDIC-insured cash, so you can feel confident that it’s there when you need it. Other services can recommend you put aside more funds than you might need for emergency and invest that money in stocks and bonds, so it has the potential for growth. If the markets rise, you'll have a bigger emergency fund; but if the markets tank, you could have much less in your emergency fund at a time when you might need it most. Because emergency funds are earmarked for emergencies (go figure), we believe they should not be in risky securities.

On the flip side, a splurge goal such as an epic vacation may afford more risk. If you don't quite reach your target goal, it doesn't mean you forgo the vacation; it might mean you stay at 3-star hotels instead of 5, or that you wait another year to go big. Because each of your goals are different, they have their own specific portfolios meant to help you achieve each goal in the time you want.


We define this as having an income of 90% of your pre-tax income.

Disclosure: We compare the outcomes of a 30-year-old woman saving 10% of an $85,000 starting salary for 37 years in a savings account with the outcomes associated with investing those savings in an Ellevest account.  We assume her annual retirement goal is $125,550 in future dollars. We assume the savings account yields a 1% average annual cash return and has no account fees. For investing, we assume an investment with Ellevest (including fees) using a low-cost diversified portfolio of ETFs beginning at 91% equity and gradually becoming more conservative during the last 20 years, settling at 56% equity by the end of the 40-year horizon.  The likelihood results are determined using a Monte Carlo simulation—a forward looking, computer-based calculation in which we run portfolios and savings rates through hundreds of different economic scenarios to determine a range of possible outcomes.  All simulation results include the impact of inflation, and taxes on interest, dividends and realized capital gains.

The projections of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

Information was obtained from third party sources, which we believe to be reliable but not guaranteed for accuracy or completeness. The information provided should not be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice.

The information provided does not take into account the specific objectives, financial situation or particular needs of any specific person.

Diversification does not ensure a profit or protect against a loss in a declining market. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

Investing entails risk including the possible loss of principal and there is no assurance that the investment will provide positive performance over any period of time.

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Sallie Krawcheck

Sallie Krawcheck is the Co-Founder & CEO of Ellevest. Her life’s mission is to help women to reach their financial and professional goals.