158: Women and Investing with Meredith Jones

Today’s guest is Meredith Jones. Meredith is the founder of MJ Alternative Investment Research, where she provides timely research, education, and actionable insights to the alternative investment community. She’s also the author of Women of The Street: Why Female Money Managers Generate Higher Returns (and How You Can Too), which looks at behavioral and biological investment research to explore how women think about investing, and why women may have a money management edge!

Over the past 17 years, Meredith has presented her original research and insights to industry participants around the world, and she is a frequent speaker on the international conference circuit. You may have seen her findings published in major media outlets including the Economist, the New York Times, CNBC, the Wall Street Journal, the Financial Times, and the Journal of Investing, to name a few.

Meredith has a deep understanding of the cognitive and behavioral factors that affect investing at every level for both men and women. Today, she joins the podcast to bust stereotypes, talk about the unique traits that make women outperform in a male-dominated field, and how women can become financially empowered at every stage of life.

In this podcast interview, you’ll learn:

  • Why Meredith is on a mission to help women better understand their personal finances and retirement planning – and the big ways that the financial industry still lets many women down.
  • The importance of bringing a wide variety of perspectives to important decisions and financial planning.
  • How our society and education system fails to make many women as financially literate as men – and the major impacts and consequences that this has in retirement.
  • What exactly hedge funds and alternative investments are, who they’re right for, and who should avoid them.
  • Why Meredith finds meaning and purpose by bringing diversity and inclusion into her life’s work – and what retirement means to her.

Inspiring Quote

  • I think it’s really critical for women not to be looked at just as a ‘We need to get them in by having mimosa night and pink brochures.’ We really need to react to their specific needs and we need to do a better job of recruiting so that maybe these women actually meet people that look like them when they come in to talk.” – Meredith Jones
  • If you look at the percentage of women who fire their financial planner when they become a widow and their husband is no longer making the selections, it’s about 75%.” – Meredith Jones

Interview Resources

Disclosure

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Read Full Transcript

Casey: Meredith, welcome to the podcast.

Meredith: Thanks so much for having me.

Casey: I am excited to have you here. We're going to have a wide-ranging discussion here covering a lot of different issues around women's finances. I know you have a wide range of knowledge not around just women and finances but the investment industry. Hopefully, we can hit on the definition of a hedge fund, alternative investments. You have a wealth of information to share with us.

I want to kick our conversation off around your book, Women of The Street: Why Female Money Managers Generate Higher Returns (and How You Can Too). I think this will be a good lead-in to women's personal finances and some of the issues around women's retirement planning. First of all, I just wanted to ask, why does this matter? How has this become such an important mission of yours?

Meredith: Well, I think it goes back some to how I started out in the industry. I don't know how many of your listeners know this, but the investment industry is not one that historically has had a lot of women in it. I think it's hard to really know just what the dearth of women looks like until you talk to someone who's been in it for a long time.

I started in the industry in 1998 and I did not meet another woman who had a job that was similar to mine until 2007. Almost 10 years for me to meet somebody who looked like me and in the same job that I had. From that, I guess that really made it hit home just how few women there were. The women that I did know in the industry were actually performing really well. They were generating great investment returns. They were mitigating volatility and portfolios. They were really killing it.

It became a mission of mine to figure out, (a), was there something to being a woman in this industry that gave you some sort of edge? Or was it just the fact that because there were so few of us and it was so hard to do, that only the best and brightest made it through, and so there really wasn't anything compelling there? It took me a number of years after that— until 2010— to get enough information to actually start doing the research. What I found was that women had a lot of innate talent that not only could be additive to investors’ portfolios— make them more money, help mitigate their volatility— but also they had traits that can be emulated by anybody in the industry that would help make them better investors to you.

Casey: What are the stats? How much more money are women making on a return basis than men?

Meredith: It depends on what study that you look at. The bulk of the research tends to show that women, whether they are managing hedge funds or private equity or venture capital or any type of investment, are making returns that are equal to or slightly better than the returns of the universe at large, which, as I mentioned, is largely male-dominated. In addition to that, they're investing in differentiated ways that help add an additional layer of diversification to portfolios.

If you think about the way that we think about diversifying portfolios, we've always been stuck in kind of diversify by asset class, diversify by geography, diversify by liquidity. We've never really thought about diversifying by behavior. The studies that I've done across this show that men and women have a tendency to behave… If you add in a behavioral diversification requirement that means that you have both men and women portfolio managers, then you get additional protection from volatility in your portfolio. I think, especially given what's going on now with market uncertainty, that's something that would appeal to a lot of investors.

Casey: What is it that's making women outperform? You mentioned that it could be— and this was my initial thought— well, if there's so few women and it's really that competitive, you're just going to have the very best of investment managers leading the crew when it comes to women and investing. You also brought up biology and I wondered, well, what about conditioning? What exactly is it? Is it one element or is it just a diversity of elements here?

Meredith: There's no one element, for sure. The one thing I will say is, I think everyone immediately goes to “it's so hard for women to rise to the top in this industry that it's got to be best and brightest. That's what we're dealing with.” The intriguing thing is that when you look at retail portfolios… Most of the research I do is on professional money managers, but I also researched brokerage accounts, and IRA accounts, and 401(k)s, and just general portfolios that could be managed by anybody.

What we saw is the exact same characteristics that play out within female money managers at the professional level also play out at the retail level, at the individual investor level. Some of those things are women seem to be particularly adept at ignoring market noise. For example, the way that women react to stress is really driven by a part of your brain called the amygdala. It's wired differently in men and women and it is connected differently. What that means is that when a guy is under stress— and I know this from several big arguments with significant others— their tendency is they want to fix the problem. They want to identify it. They want to fix it. They want to make it stop. That's just the way, in my experience, that many men are hardwired.

On the flip side, when I'm under stress, when I have a problem, I have a tendency to bring that internally. I may eat a lot of ice cream. I may exercise on it. I may sleep on it. I may meditate on it. I don't necessarily look for a way to solve the problem immediately. In investing, that can actually be a good trait to have because when things are stressful it's usually when the markets are difficult. If your reaction is to solve the problem, usually what that means is that you want to make the pain stop and you want to sell. Women, in the meantime, if you're like me and you ice cream on the problem for a while then maybe you don't immediately go to that selling mode.

If you look at a period of significant market volatility, like 2008, what you see is that women were actually 10% less likely to sell into the market volatility because they were internalizing that stress as opposed to externalizing it, which meant that they were then able to capture the entire run-up of the market when it did start going up, and so their portfolios outperformed by about three percentage points, which is meaningful over time. There's a host of factors like that that come into play.

The great news is that this means that even though women are often characterized as being bad with money, we have some innate skills that make us in fact good with money. Even more than that, that's certainly a behavior that men can adopt as well and make their portfolio returns even better. In fact, I just did a financial wellbeing seminar last week where the number one piece of advice I gave to the people on it was, “If you have retirement assets and you're not near retirement, don't look at them right now. You're not going to help yourself. You're just going to encourage yourself to make some bad decisions and react when you shouldn't be reacting.” In this case, it's better to invest like a girl.

Casey: To me, I think about this, and I know you've spent so much time in behavioral finance, and I've spoken with many behavioral finance experts here on the podcast. It's largely understood that emotions have no place in investing, or we should remove emotion from investing. I think when I think of my wife, she's much more emotional than I am. I think in general, we stereotype women as being more emotional than men, and so you would think that those emotions would come in to the investing playing field. There would be more reaction. There would be more panic with a woman managing a portfolio over a man. Maybe this is just a stereotype, a misunderstanding?

Meredith: It is totally a stereotype. Like I said, the whole way that women react to stress versus the way that men react to stress, that's hardwired in our brain. That's something where that tendency is going to be there. Now, obviously, I speak in generalities. It doesn't mean it applies to every single man or woman on the face of the earth.

Certainly, I think when it comes to investing it's things like that. It's the fact that, for example, there's been a lot of studies that show that women tend to be less confident investors. While you would think that would be a bad thing too, it actually ends up being a good thing. There was a study of about 35,000 brokerage accounts and they looked at men versus women. What they found was that the men had much higher portfolio turnover; they sold and bought stocks a lot more. When they traced that back, what they found was that that was because the men were more confident in their decisions. When you're confident, you're positive that when you're buying you're doing the right thing and you're positive when you're selling you're doing the right thing, and so that tends to lead you to do more of that.

One of the things that can erode your investment performance more than anything else is overtrading because you just have those transaction costs, you miss out on gains, you react emotionally. Women just don't have that. There's not any one behavioral factor I can point to, but when you put them all together in the enchilada of the way that women approach money and investing, it ends up being really very conducive to being a successful long-term investor.

Casey: It seems like taking these things into consideration, you might see women investment managers outperforming during a bear market and then underperforming during a bull market because they may not have that same level of confidence? What do the studies show?

Meredith: It's not the difference between being under confident and confident. It's the difference between being confident and overconfident. If you're a confident investor then that's a good thing. I'm not saying that women are second guessing themselves all the time and whatnot, although women do have a tendency to reevaluate their investment thesis a lot more. What I'm saying is that when you get to that level of overconfidence where, again, every decision you make has to be the right one because you made it, that's where you start to see the problems happening.

I do think that there is a stereotype that says, okay, maybe women are better on the downside, but because women are “risk averse” they won't do as well for you on the upside. That's actually been largely debunked as well because what we found is that women and men don't necessarily have different risk tolerance. In fact, if you look at their portfolios, their exposure to stocks versus bonds and things like that tend to be pretty similar.

What you do see is that women have differences in how they weigh probabilities, and they do a very good job of matching their expected outcome with their actual outcome. That's great because what it means is that maybe you don't hold onto something too long expecting that, “Oh my goodness, I think this is going to take off,” that kind of thing.

I think the lack of confidence also plays a role because I think women really want to understand what they invest in. They have a tendency to do, what I call, “own what they know.” Just because something's the newest, sexiest investment trend, you don't often see women running after that kind of stuff. When they get into an investment, even though they're generally less confident overall, they're very confident in that particular investment. They know a lot about it. They've tended to research it a lot more. As a result, they can step back and they can say when there's market volatility, “Is this market noise or is this an actual problem with my investment?” Because they've done all the work because they're concerned about knowing everything they can, they can make that decision really well. Again, it makes it harder to shake them out of a position. But because they can step back and ask that question because they're not overconfident, if it turns out they are wrong, generally speaking, you'll see women admit that as well.

Casey: I can see some men listening right now going, “No, no.”

Meredith: They’re getting very mad at me.

Casey: They’re pounding their fists going, “I'm way better than my wife at this. There's no way that she could beat me in an investment competition.”

Meredith: Well, let me give you one story. A friend of mine was working with a couple that was getting divorced during the financial crisis. She still worked with both of them at that point in time. The gentlemen in the divorce scenario looked at the market every day and he worried about what was happening. She talked to him sometimes more than once a day, and ultimately he ended up liquidating his portfolio in late February of 2009. We all know that the market started going up and started a 10-year plus bull market in early March. I think it was March 9th, 2009. He missed all of the early run-up because, again, he felt the need to act. On the flip side of that, his wife did not talk to the broker a whole lot, didn't really look at anything and just let it ride. She ended up actually making a lot more money during that particular period than he did.

Again, the one thing I want to stress is I'm talking about it in terms of good and bad, right? The important thing, I think, here is that if you think about this from a portfolio perspective, most of the time, a lot of us don't manage our own investments. What you want to try to do is look for mutual funds or other investments where you get a balance of behaviors. It’s not necessarily good to have the all-male dominant behavior because then you have more volatility. I can't imagine, from a diversification standpoint, it would be good to have the all-female model too. I'm not sitting here saying, “Shoot all the male investors.” That's not the goal at all.

What I'm saying is that if you take a balanced approach and if you consider that there are cognitive and behavioral factors that can impact your portfolio, then paying attention to those factors, both in your own personal investing and in the people that you hire to do your investing, can be a way to make more money and also to safeguard the money that you have.

Casey: I think quite often we get diversification twisted. We think of, “Well, diversification means I just have a bunch of holdings,” like you're diversifying across asset classes. That's most often the way we think about it. It's not just asset classes; it's types of products, it's diversifying your tax buckets, diversifying based on the behavior of the manager or the financial advisor.

We've talked about a lot of different ways that women are better than men. Now, do we get anything here? I was talking to my wife about this. I love the research you showed about biological differences where you said there's better connectivity, I believe, between the right and left hemispheres for women, and better between the top and the bottom for men when it came to brain connections. Which I said, “Honey, I've always told you that you could read other people better than me. You have women's intuition. Well, there's some science behind that. Then I'm a little bit better with a golf club or a basketball because we've got a little bit more connectivity there.”

There are some biological reasons why men might be stronger at some things or women might be stronger at some things. That would show me that, well, aren't we better together? Can we fill in some of the gaps for one another? I know with my wife and I, I feel like if we didn't have each other, we'd be a lot worse off than we are together. What are the strengths of men and how can we work better together?

Meredith: Again, I think that goes to my last point. That I'm not sitting here saying you should go out and if you have a male money manager, you should fire them and things like that. I think all of the research points to the fact that having differences of opinion and differences of behavior are a good thing. That happens at a corporate level. That's why there's such a huge push, for example, to get more women and more diversity through ethnic minorities on boards. You get people with different perspective, and who react to information differently, and who have different upbringing and therefore different experiences. When you bring all of that to the table, that's incredibly powerful.

The real issue, and the reason that I focus so much on women is that when you look at the people who take risks with capital professionally these days, only about 5% of them are women.

95% of the people who take risks with capital professionally are men.

Again, I'm not saying that it should be 95% women because women do everything better. What I'm saying is that if we can all make more money from having more diversity within the industry, if we can mitigate volatility… There's been studies that show, for example, that the market actually might be less volatile if there were a better balance of men and women. There was a study that came out of Finland, for example, that showed that when men were selling stocks, women had a tendency to be buying and vice versa. That's something that smooths out volatility just overall from a market perspective and provide volatility to the market-

Casey: For the market and for your portfolio.

Meredith: Exactly. I don't know what the right percentage is for having women in your portfolio or women in the marketplace. I just know it isn’t 5%, right? That is definitely a number that is too low.

Casey: Now, I want to get back to this confidence thing. You said that women aren't overconfident. They're confident but they're not overconfident. I see this same ratio that say 95:5 with women and men when they come in to meet on a financial planning basis. Many times, on average, there's more men coming in to be the point person on the financial planning than women. I'll often ask the husband, “Why isn't she here? What can we do to bring her in?” He said, “This stuff just makes her uncomfortable. She's not confident in her ability. She doesn't know what you're talking about.” It's talking about her language. She's uncomfortable having this conversation because of a lack of confidence. How can we encourage those women that maybe don't have that confidence to get involved in the conversation? Can we build up that confidence in some way, make the conversation more comfortable?

Meredith: Yeah. I think number one, the investment industry has a long way to go on that. It's really hard to feel confident if you look at the people that you're going to for advice and they don't look like you. For example, if you look at financial planners, only about 23% of financial planners are women. Chances are if you're going to visit with a financial planner, unless you make a concerted effort to find a woman, you're going to go meet with a man. When you never see anybody who looks like you that is successful in this, I think it helps to reinforce those feelings.

The other thing is that the financial services industry really has to do a better job of engaging with women. By that, I mean dropping some of the jargon and making this less opaque and making it less of this secret handshake club and everything. Unfortunately, I think because of the wealth transfer that's going on, women now control 53.1% of investible wealth in the United States. That number is going to go up to over two-thirds over the course of the next 10 to 12 years. I think financial advisors in the financial industry recognize at this point that women are an important demographic for them to be courting. To this point, they've been engaging in what I call “pink it and shrink it.” They take their existing collateral materials and they put some smiling women on the cover and they make it a nice friendly pink or purple color and they expect that that's going to make the difference. That doesn't really help.

The financial industry needs to understand that women and men approach financial planning differently, and those are for very legitimate reasons. For example, women, on average, live longer than men. Also there has historically and continues to be a gender pay gap. That means that women have a smaller nest egg that they have to make last longer. So, it's not about making a brochure look pink and smiley and happy. It's about recognizing that that's a real reality.

In addition, if you look at polls and surveys of women, women have a tendency to react very strongly to wanting to align their values with their investments. The industry is starting to embrace things like ESG investing, ‘environmental, social and governance investing’ and things like that, but really, if you look at surveys of financial planners, a lot of them haven't done much with that yet. That's another area where women's needs aren't being met in this space.

I think it's really critical for women not to be looked at just as a “We need to get them in by having mimosa night and pink brochures.” We really need to react to their specific needs and we need to do a better job of recruiting so that maybe these women actually meet people that look like them when they come in to talk. It's funny, I have friends that work in this industry and one of them told me about a meeting they went to. One of the key takeaways from the meeting that they were pushing was that they were reminding the male financial planners, when they went into a room, not to ignore the wife. A lot of times what they were finding was that the wives were feeling like they weren't engaged with at all, and so they just quit going. The level of dissatisfaction with the industry just spiraled out of control. Now, if you look at the percentage of women who fire their financial planner when they become a widow and their husband is no longer making the selections, it’s about 75%.

Like I said, there are definitely things the industry needs to do. Then just from an engagement standpoint in your own household, I think recognizing that you may approach money differently, but differently doesn't mean bad. It could actually, if you blend the behaviors together, make you richer and more secure. I think that just acknowledging that and making sure that the differences is good and not weird or funky or not acceptable.

Casey: Well, if women on average are making better investment decisions than their male counterparts, doesn't it make sense for the men to say, “Hey, you should be involved in this conversation”? Maybe this is a good argument to get him involved?

Meredith: Yeah. I think it is, but there's still a surprising amount of resistance there. I remember being in front of someone when my book first came out, and I was giving statistics about some of these behavioral issues and whatnot. They said, “But that's just professional investors.” I gave them the statistics about the financial crisis, and how women were less likely to sell, and they actually outperformed in their 401(k)s and IRA accounts.

One of the guys that was in the meeting looked at me and he said, “Well, my wife doesn't even know the password to her investment account. I do all of her decision making for her. What if all the women in your sample, all of their accounts are actually being managed by men?” I was taken back, and the person that was with me was kind of grabbing at the back of my shirt to keep me from going across the table at that particular person. I paused and then I just looked at him and I said, “Well, that's an interesting idea. Why do you do a better job for your wife than you do for you then? If that's the case then you're all doing better for your spouse than you're doing for yourself, and that just seems kind of weird.” He didn't have a response to that.

I do think for the most part that the concept of diversity, and additional diversification, and the benefits of having different perspective is getting much more well-received and mainstream acceptance in investing at this point. There are still pockets, unfortunately, where maybe that hasn't happened yet.

Casey: What's the biggest risk for women in not being involved in the financial planning process?

Meredith: Ending up at the short end of the retirement stick. Like I said, if you are in a situation where you have a good chance of outliving your spouse— which, again, just from a statistical standpoint that is the case— and you don't take an active role, and the investments that are made maybe aren't optimal for your lifespan… My biggest fear is that I'm going to end up a little, old lady eating cat food in my retirement and I don't want that for anybody else either. Fancy Feast smells pretty bad as it is. I can't imagine eating it. If you're not involved, you increase your chances of being the Fancy Feast lady. I think it's really important to have an active role so that you can safeguard your collective financial future, you and your spouse and your kids and whoever else depends on you, but also yours when maybe you're the only person left in the family.

Casey: Well, I just want you to share a little bit more about that statistic. Maybe I missed you hearing this but you said, what, 50.2% of the wealth in the U.S.?

Meredith: 53.1%.

Casey: Is currently controlled by women?

Meredith: Yes.

Casey: However, due to longevity, the statistics show, what, in 10 years it's going to be 85% or-?

Meredith: Yeah. 10 to 12 years it'll be about 66%.

Casey: Wow. Well, I think that should be enough motivation for women to get involved in the planning process, if nothing else, and also the advisory process. This is maybe a little bit more of a selfish question, but we do have a lot of financial advisors listening to the podcast. We do have an all-male team, and that's not by design. It's not something that we wanted. We want to recruit more. Women are just better, right? I think there's something about women advisors that they tend to outperform male advisors on a lot of different levels.

One, there's just not that threatening element that I think some men bring to the table. Women can be much less threatening, much more relatable, much more relational. As you said, they can be much better financial planners, much better wealth managers at the same time. My selfish question is, how do I attract more women? 23% of the industry is women. I think that's a broad, right? We’re talking about [crosstalk 00:28:09]–

Meredith: Well, that's at the high end, just so you know. If you actually look at the investment industry, about 35% of registered investment advisors are women, about 23% of financial planners are women, about 19% of chief investment officers like at endowments foundations, pensions, that type of thing globally are women. Then you drop all the way down to about 11.7% of investment professionals within the private equity space are women. Then about 9% of mutual fund managers are women. About 8% of venture capital investment professionals are women. About 2.5% of hedge fund managers are women. 23% is actually where we're doing pretty good. Everything below that is even a more dire situation.

Casey: You're also talking nationwide. I think if you look at some of the things–

Meredith: Well we’re talking globally, really.

Casey: Globally?

Meredith: Yeah.

Casey: If you look at some of the larger cities, other advisors I know, they have a fairly easy time recruiting female advisors. If you look at the smaller cities like us in the middle of the Midwest, the percentage of females here might be less than 5% of the financial advisory world. What can we do as a firm to recruit more female advisors? Where do we look? Do we have to pull them in from the big cities? What's most attractive?

Meredith: I think the issue is that there's no simple answer. If there was a simple answer to that question, I would have already been shouting it from the rooftops because, obviously, this is something that I feel pretty strongly about. I am a deep fundamental capitalist, a rational capitalist but I want to make all the money that I can. Diversity is one of the ways that you do that.

To me, this is one of those situations where… There is an old joke where an efficient market economist and a money manager are walking down the street. The money manager stops and says, “Hey, was that a $100 bill?” The efficient market economist never break stride, just keeps walking and he says, “No, it's not.” The money manager runs to catch up with him and he says, “How did you know that wasn't a $100 bill?” The efficient market economist says, “If it had been a $100 bill, someone would've picked it up by now.” To me, diversity is the $100 bill that nobody has stopped to pick up yet, and it's incredibly frustrating to me.

Part of the reason why people haven't done more with this is because it's not an easy one-time solution. Part of what happens is that women start… I guess I should say girls start opting out of STEM topics that would lead them to a financial career around age 11, and that really accelerates around age 15. Right now a lot of the intervention that's done in an attempt to get more women interested in finance and investing happens at the college level, and we've already had, at that point, a large group of girls opt out.

One of the things that I do, I'm very active with a nonprofit called Rock The Street, Wall Street. We actually go and provide a year of financial and investment literacy education to high school girls, which is well before most people intervene. What we’ve found is that if you don't do it then, the funnel is already narrowing and you don't even know it. That's a significant problem.

The second thing I think is, again, being more cognizant of what happens during the recruiting process. The way that you write ads, for example, the language that you use can determine the pool of the applicants that you're going to get. There are definitely ads that are going to come across and get more men than women. For example, “We're looking for an energetic self-starter to aggressively build business or book a business in this particular area.” That's probably going to get a lot of male applicants. Where if you just made some slight tweaks, “Our team is looking to expand by adding a dynamic team-oriented player to help us grow our business.” That would get you both men and women. So, thinking about those types of things.

Thinking about your interview process, that can be really important too. Who's doing the interviews? You can institute something like the Rooney rule in football. In football, they have a rule that says that for any head coach position that opens up, they have to interview a minority for that. It doesn't mean that you have to hire them, but it just gives you the exposure to people and to talents which you might not otherwise see in your process. In the financial services industry, we can have our own Rooney rule that says that for any position or promotion, that we require there to be a diverse individual at least in the interview process, because that's part of what makes it possible.

Expanding your network, so where you're going to meet people. Usually, people recruit from their networks. If your network is all men, you're going to get all male applicants. That can be another thing. Where are you meeting people? How are you circulating things? A friend of mine, for example, who works for a major pension retirement system just forwarded me two positions that they have open within their investment office. They asked me if I could post them on LinkedIn because my network is very different than the network that they have.

Again, there's all kinds of things. Some people even incentivize If you use recruiters, if the recruiter brings you someone who is well qualified and gets the job and ends up getting hired, maybe you pay that recruiter a bonus. Again, that doesn't mean that you're only interviewing women or diverse individuals, but what it does do is it encourages people to go outside of their comfort zone. There's a lot of levers that can be pulled. I think collectively we have to try to pull more of them. If not, as I say, we're all going to end up poorer for it.

Casey: Well, we're definitely going to implement some of those pieces of advice. We might just have to hire you to review our ads, now it sounds like, and post it to your LinkedIn.

Meredith: Yeah. There's actually software that will review your ads for gender bias. Again, you're not trying to get one gender over the other. You just want the biggest pool. Ultimately, investing is a meritocracy. How you perform should be the thing that gets you the job or not the job. If you're attracting a smaller pool of people, your chances of finding the best performers is reduced. You just want to make sure that you're casting the biggest net that you possibly can.

Casey: You mentioned Rock the Street and I found that to be really interesting what you're doing there with financial investment literacy for high school girls. As I was thinking through that, I said, one, what are the current gaps in the educational system? What are the biggest gaps in the educational system that you're filling? Also, what can parents or grandparents do to fill that gap?

Meredith: Number one, my mom is a retired teacher, so I say this with no malice towards teachers whatsoever. I think they do a great job for very little reward in many cases, at least monetary reward. As a result of that lack of monetary reward, there is some research that shows that teachers actually are the number one demographic that is likely to get a payday loan, which of course is not a good financial decision for anyone to make. They're the folks that are often tasked with teaching what little financial literacy— and I mean little— is taught in school. I still think back to my days, the financial literacy that I was taught. I had one teacher in junior high that decided to teach all of us how to research stocks back in the days when you still had to do it in the newspaper and everything.

Casey: Yeah, I remember that.

Meredith: That’s one of the reasons why I'm in the industry, but that was in a special class that I opted into. I did that in part because my mom was a math teacher, so math wasn't something that was intimidating to me. In the class that everyone had to take, the entirety of my financial literacy education in high school was how to write cheques. That was all we learned. How to write cheques is great but it doesn't really teach you how to build the wealth that's in your checking account. That's a huge deficiency there.

The other thing is, again, I think we're focusing on having women go in and teach these classes. Part of the year is teaching and part of the year is mentoring. It's that whole concept that I mentioned that you would be less likely to go to a financial planner if there was no one there that looked like you. Girls are likewise less likely to get involved in finance if there's no one… they don't see role models.

When you open the paper, you see Warren Buffet, George Soros, you see John Paulson. You see a whole cornucopia of men, but you don't usually see a whole lot of women, which is one of the reasons why I wrote this book in the way that I did. By having women go in and teach these classes and then provide one-on-one mentoring, it's kind of a “if you can see it, you can be it” mentality. It helps to demystify the entire industry and make it seem like it's something that women can and do actually do, not just something that they see pictures of rich dudes on TV doing.

Casey: Yeah. As a parent, I'm always looking for a way to bring more financial education in a creative way to our children. We have a lot of grandparents that will reach out and say, “What can we do to get them involved in this or make sure that they have a high level of financial literacy?”

Meredith: That’s great.

Casey: Maybe this comes down to actually understanding what financial literacy is as well. I think you kind of hinted on it there.

Meredith: Yeah. I think too, it doesn't have to be really huge things. If you look at some of the statistics these days, boys are more likely to be paid in allowance than girls are. All genders and all children allowance is a good thing because it teaches people to be responsible with money. I am the godparent to a number of kids and my favorite gift to give is something called a Portfolio. It's a piggy bank that actually links to smartphones, because evidently people have smartphones when they're, like, three years old now. They can track their savings and they get acquainted and comfortable with the concept of money. Girls also report that parents and grandparents and members of their household don't have as many financial conversations with them as boys report. That can be things like, “How are we going to pay for college?” And, “How are we going to save for your car?” And, “What is the payment on your car?” It's all about getting people comfortable with the concept.

For those of your listeners who maybe work in the industry, the most simple thing that you can do is just talk about what you do at home. I gave a TED talk a couple of years ago on the topic of how to get more girls into finance.

One of the women that I have known in the industry has the best story for this ever. She makes a point to talk in front of her daughter about what she does. One day her daughter had a play date. This woman was in the kitchen making snacks or what have you, and her daughter and her friend came in and they were dragging suitcases behind them. Her mom looks at her and she's a little concerned and she says, “Are you running away?” The little girl looked at her and she goes, “No, we're going to a board meeting.” It's just flipping the switch and making it normal to interact with money, to think about going to board meetings, to talk about investing. All of that can be done at home and doesn't need formal intervention. Although the formal intervention, I think, does still need to happen.

Casey: That reminds me. Since my son was one year old, our oldest, I would come home and I'd pick him up and I would tell him what I did all day. I would talk to him about tax planning and investment planning and estate planning. Some people would hear me and say, “You know he doesn't understand you, right?” Over time, as things catch on…

Meredith: Exactly.

Casey: I think the pig… It’s the pig folio?

Meredith: Portfolio.

Casey: Portfolio.

Meredith: I haven't given one in a while because my friends are starting to get out of the childbearing age, but hopefully they still make them. It was great. Something like that that again…I put money in the portfolios so that, again, you're monitoring your money and you're watching it, all of that kind of stuff. I always tell people that as the godparent and/or as the slightly potty-mouth aunt that I am to children, that my role is to bail them out of jail and to make sure they understand money. I've taken that on myself. Hopefully, it ends up meaning that the folks that call me Aunt Meredith or some variation thereof are going to be more comfortable with money, and it's both boys and girls.

Casey: Well, hopefully it's more the money than the jail. We’ll include a link-

Meredith: I think their parents hope that too, so yeah.

Casey: We’ll do a little research. If we can include a link to that gift, we will include that in the show notes at our website www.retirewithpurpose.com. Just click on the podcast tab. Meredith, I want to shift the conversation, as we wrap up here, to some more of your technical expertise. You've got two areas. I know ESG is a big one of them. I think with hedge funds and alternative investments, that's just kind of a confusing piece of the industry for a lot of individuals. Many times we get it wrong what a hedge fund is. I think even us advisors get the idea of a hedge fund completely wrong many times and explain it very incorrectly. What's a hedge fund? What's an alternative investment? What are they? Who are they right for? Who should avoid them?

Meredith: Alternative investments are a broad topic that's going to cover anything that is not your traditional mutual fund ETF long only kind of investment. That could be private equity, venture capital, hedge funds, infrastructure investment, real estate. Most of the time, those are going to fall under the category of alternative in some way.

Hedge funds specifically, I think, are particularly difficult for people, (a), because they have such bad street cred, (b), because people watch that show on, is it Showtime, Billions and so they've got this idea that all hedge funds are out there being sociopaths and having therapists and getting chased by the SEC. When, in fact, the vast majority of hedge funds are pretty boring, to be quite honest.

From a hedge fund perspective, it started out with a very specific definition that was developed by a guy whose last name is Jones, no relation. The idea was that you invested both long— so you invested like you would in any other stock— but that you also invest short as a hedge. In the event that there was market volatility then those hedges would help to protect you from negative consequences. Over time, the definition has expanded to include more of what I would call a vehicle-based definition. There are hedge funds that don't short stocks, they are hedge funds that hedge with options and other types of derivative overlays. There are hedge funds that don't hedge at all, to be quite frank.

What it’s come to mean, I think, more is a group of strategies that have a fair amount of latitude in how they get deployed, but ultimately they are restricted to high net worth individuals and they are restricted to a certain number of investments. As a result of those restrictions, the hurdle for getting into those tend to be higher. Your minimum investments are going to tend to be in the $250,000 plus range.

A lot of hedge funds have gotten a pretty bad rap, particularly over the course of the bull market that we have been in up until this year. The reason for that is if you are a hedge fund and you are hedging, you're always going to underperform the market when the market is going up because you've got that… It's kind of like having the gas and the brakes going at the same time, right? You can't necessarily keep up entirely. I think people have gotten the perspective that hedge funds always underperform just because we've been in a market where it hasn't been conducive to outperformance as a whole group. In terms of market volatility, you can definitely tend to have some benefit from investing in very carefully selected hedge funds.

We did see that in 2000-2002, hedge funds performed very well during the tech wreck. Hedge funds actually outperformed during 2008. People were a little beefed because they did still lose money. Just because you're a hedge fund doesn't mean you’ll always make money when the markets are down, but they did lose a lot less. I want to say on average, it was down about 14%-15% as opposed to the S&P, which was down in the 40s.

For people who are concerned about market volatility and who want to have some sort of safety net, again, evaluate… and assuming that they are also qualified to invest in those based on SEC guidelines and based on the minimums. That they're not going to put their entire nest egg into one hedge fund investment because the minimum is so high. I think that certain investors that have larger portfolios and who are qualified and who, again, are looking for the diversification not just from a company geography liquidity tax behavior standpoint, but also in terms of a long and short standpoint that hedge funds can be an attractive option,

Casey: Doesn't it have to do more with the compensation structure, given that you can have long-short mutual funds, long-short separately managed accounts, unified managed accounts? Is it more about compensation structure?

Meredith: Certainly, the compensation structure plays a role but it's often about operational flexibility. Even if you're a long-short mutual fund, you still have certain regulatory burdens and guidelines that you have to deal with that hedge funds get largely excluded from. For some certainly the fees tend to be higher, and that can be a motivating factor for structuring something as a hedge fund. For other folks, it's the freedom to do more different kinds of investing and not necessarily having to align directly with a stated and very narrow prospectus.

Casey: Well, that's going to be valuable information for many. I know once we get in and we start looking at hedge funds, alternate investments, we should probably be looking for female managers apparently.

Meredith: Yeah. There's not a lot of them but it's a growing group. In fact, the original research I did on the difference between women and male managers was in the hedge fund space. Over roughly a six-year period, I found that the women hedge fund managers generated more than a six and a half percentage point differential in performance. It was extraordinarily meaningful.

Casey: Yeah, sounds like it.

Meredith: Again, a lot of what I'm talking is in generalities. I always come back to the term well-selected. Well-selected is really meaningful here. You want to make sure if you're looking at a hedge fund that it's something that you understand, and that has appropriate operational controls, and that it's doing what you think it’s going to do. If you're looking for a female manager, you want to do all of the same levels of diligence and whatnot and making sure that it aligns with your risk/reward profile and the rest of your portfolio. Assuming that you do all of that, yes, you can definitely find some great talent and maybe some excess returns that way.

Casey: Awesome. Following up that technical discussion, let's just wrap it up with a couple of more philosophical questions. One is, where do you find meaning and purpose? How do you find meaning and purpose in your life?

Meredith: A lot of the work that I do around diversity and inclusion, I think, is something that I feel extraordinarily strongly about. I grew up really poor. I like to call it powdered milk poor because I didn't know that milk came in liquid form until I was old enough to go to elementary school. In my house it came in a box and a dry powder that you mix with water. I was raised by a single mom, and so she had a whole host of challenges that contributed to that powder milk poorness.

I'm very committed to trying to make sure that future generations of single moms or married moms or children just in general have the financial tools that they need to be more secure and have more choices. At the end of the day, I always tell people, “I'm not here to tell anyone how to invest or spend their money. All I'm trying to do is make sure that you understand the different levers that you can pull that puts you in the space you want to be in.” Making sure that these next generations of girls… A lot of the girls that we work with, about 70% of them are also ethnic minorities. Making sure that that financial social justice has a chance to happen is something that actually makes me get up and be excited in the morning.

Casey: That's awesome. You're already making a meaningful and powerful impact out there in the world. We can see it in all of your work. That kind of leads me into this last question. What does retirement mean to you?

Meredith: Oh my God. Right now I think we're all facing some unprecedented… I call it the white noise of stress that's going on behind all of us. I don't think we've ever been in a situation where going to get groceries could conceivably give you a sickness that would kill you, where we've got economic uncertainty, where we've got civic unrest and where there's just so much uncertainty happening. I can't even really contemplate retirement in this kind of environment, to be quite honest.

In a perfect world, when I get to retire it means travel. It means more time to do the work that is my calling rather than what gets me paid. It means more opportunities to be able to do some of the financial and social justice work that I really love. It probably means a few more cats, which is going to make me that crazy woman with the cats. I already know that. Yeah, just trying to use the time in a way that makes the world a little bit better than it was before.

Casey: Well, I can't wait to see you get to job optional status because you're going to make an even bigger impact in the world that we live in today, especially–

Meredith: If any of us ever do at this point, but that's the pessimism in me talking today. Yeah, hopefully next week will be better than this week in terms of just the miasma of things that are going on around us.

Casey: I'm sure it will be. Meredith, thanks for joining us. Before you take off, I want to make sure our audience knows that we joined together for a special offer. You were so kind to send us over a box of your books and so we want to give those out at no cost, no obligation. All you have to do is write a review for the podcast, an honest review for the podcast.

Just scroll on down in your Apple device or hop on over to www.retirewithpurpose.com, click on the podcast tab right there it says, “Leave a review on the home screen.” Leave a review and then send us an email at info@howardbailey.com with your username. Then we will send you out a copy of Meredith's book, Women of The Street: Why Female Money Managers Generate Higher Returns (and How You Can Too). No cost, no obligation. Just an honest review. That's the currency of the podcast world that we live in today.

The more comments, the more reviews we get, the better off everyone will be. Especially women out there in the world of finance, because Meredith is on a mission to get you more involved because you’re just so astute and you're so much better at so many things in the financial world than us. I'd love to see more women getting involved in the financial planning process and more women involved in our financial advisory team. I'll go ahead and throw that out there. If you know, a woman that would like to work in the financial planning world, we'd love to have another woman on our team.

Meredith, thank you so much for joining us here on the podcast. What a wonderful discussion.

Meredith: Thanks so much for having me. Best of luck to everyone in navigating the white noise of stress. I hope you all have a wonderful retirement with purpose.

Casey: Thank you, Meredith.

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