Dear Financial Voice Reader,
As we celebrate Navratri and Diwali approaches – Goddesses Durga and Lakshmi are on our minds.
Turning therefore to more worldly matters - What Can Women Teach Men About Investing
Women don't invest in the stock market as much as men. However, there are several reasons why they should, like growing their pension or accumulating wealth. But perhaps the biggest reason is that research shows women are better investors.
Why Women Typically Invest Less Than Men
Women typically invest less than men for a mix of reasons:
- The gender pay gap means, on average, women have less money to invest.
- Women tend to save in cash ISAs at a higher rate than men.
- Women cite a reluctance to take risks at the same rate as men.
- Many women lack the confidence to invest.
Why Women Make Better Investors
A lack of confidence and a lower risk appetite are cited as reasons why women invest less. However, there is some evidence to suggest that this might not be the disadvantage it seems at first glance. Men tend to overestimate their ability in the market, which can lead them to take an excessive amount of risk.
Women Panic Sell Less Than Men
Let's take a look at panic selling. Stock markets are unpredictable and volatile. During market dips, many investors become skittish and try to time the market. More often than not, this strategy backfires when the market recovers.
Research from the Massachusetts Institute of Technology has shown that the people most likely to panic sell are men aged 45 or over who consider themselves to have "excellent investment experience." Women are more likely to hold on to stocks instead of timing the market.
Women Take Fewer Risks
All investing carries an element of risk. But the best investors don't bite off more than they can chew. The financial advisory company Betterment looked at how a lower appetite for risk helps women in investing.
Betterment suggests that women trade less, take fewer risks, and generally stay within the confines of financial advice. Some conservatism in investment is great over the long term.
More Research, Less Panic
Men and women approach risk in different ways. One of the most glaring differences between investment styles is research. Women tend to do a lot more research than men before investing. Additionally, they tend to demonstrate more patience in the market.
As mentioned earlier, women are less likely to unload stocks during a stock market dip.
Women in Hedge Funds
Women outperforming men in investing isn't a new phenomenon either. University of California, Berkeley looked at 35,000 private brokerage accounts over a six-year period in the 1990s. The study found that women outperformed men by around one percentage point. The average real rate of returns is around 5%, so even a 1% rise is impressive.
The Confidence Problem
One barrier to investment for women is a lack of confidence. Indeed, only 9% of women believe they are better investors than men. The research tells us something different. However, it also highlights the fact that men tend to overestimate their ability as investors.
The Global Financial Literacy Excellence Centre (GFLEC) underlined this in a recent survey. The women survey were less confident in the US stock market. Additionally, they were less confident in their ability to make investment decisions. GFLEC believe that confidence and knowledge are strongly correlated. If true, this underlines the importance of education to close the investment gap.
If you're hoping that these attitudes will change with newer generations, you might have to wait a little longer. 56% of Millennial women said that fear is what is holding them back from the market.
Why Don't More Women Invest?
In light of the statistics demonstrating great results, why don't more women invest? One interesting reason is that 77% of women see money as a tool to help their families. Men are less likely to see money this way, which could partially explain why they invest more.
As the wage gap continues to close, women will have more funds to invest. However, more work must be done, especially when it comes to granting raises.
Summary
Women can teach men a lot about investing. Sticking to a disciplined strategy, managing risk, and not trading too much all help long term returns.
Discipline, patience and a willingness to learn are all great qualities in an investor. Research shows that women tend to exhibit these attributes when it comes to managing their portfolios. And with mutual funds managed by women outperforming their male counterparts this year, maybe it's time that more men started to listen. See my campaign to help a million people become better investors with free education to learn more – www.campaignforamillion.com
