What Women and Men Get Right about Investing
Yes, I know that with this loaded topic, the potential exists for this article to quite easily go off the rails. This could become yet another article about Mars vs Venus. Another opportunity to perpetuate stereotypes about bringing home the bacon vs buying yet another pair of shoes. One more piece that paints women as financially inept and men as financially savvy.
That’s why I’m going to take a different approach here. Instead of pitting men against women or making one group of investors out to be better than the other, I want to highlight what it is that both women and men do well when it comes to money. Specifically, when it comes to investing.
Women Invest Wisely
First, it’s important to point out one significant fact that may or may not surprise you: women are better investors. It’s true.
Several recent studies have shown that women who invest outperform men:
- A 2017 Fidelity study showed that women perform better than men by 0.4 percent. While this may seem negligible, the increase can compound over time to create a significant return.
- A 2018 Warwick Business School study showed even better stats: women outperformed men by 1.8 percent. That’s a 0.6 percent increase over their 2016 study.
And that’s not to mention that women are better savers, putting aside 9 percent of their paychecks while male counterparts are saving 8.6 percent of their paycheck.
Yet, despite this positive performance in the market, women self-report a surprising lack of financial confidence. Only 47 percent of women rate their financial understanding as good or very good. Of those women who do invest, only 43 percent of them were confident about those investments.
Nevertheless, trends among female investors show a number of factors that contribute to their increased performance:
- Women are wary of risk. Almost half of women (48 percent) worry about taking on too much risk. The result is that women tend to seek balanced portfolios that minimize risk via asset allocation, producing more steady results over time.
- Women tend to be patient. When the stock market is volatile, women simply remain calm and focus on long-term returns. Think tortoise vs hare, with women adopting a slow and steady strategy to win the race.
- In general, women seek guidance. Women are more likely to ask for help when they’re ready to invest. Seeking professional advice can help align long-term goals with well-informed investing strategies, rather than just making “hot picks.”
Men Invest Confidently
While women may be better at investing, men approach investing with less trepidation and more gusto. The result is more men taking greater advantage of the financial gains via investing.
A litany of research exists to show just how prolific men are when it comes to investing:
- Men invest 60 percent more money than women do.
- Men hold only 60 percent of their assets in cash while women hold 71 percent in cash.
- Overwhelmingly, men(53 percent) choose the most aggressive investment plan, compared to just 38 percent of women.
- When asked what they would do with an extra $1,000, men were 35 percent more likely than women to put that money into investments.
So how do men come by this seemingly natural level of confidence? Well, there’s a lot we can say for how we socialize kids regarding money. A recent PNC survey among Millennials indicates that having the money talk with boys tends to focus on how to build wealth. 37 percent of males said their financial education included wealth-building while only 29 percent of females said the same. Girls were more likely to be told to focus on savings (67 percent of females vs 58 percent of males).
It seems that men are getting the investment message loud and clear from the time they are young. No wonder they tend to embrace risk, manage their own investments, and engage in active trading.
What Can We Learn From Each Other
Well, it’s pretty simple really: women should take a confidence cue from men, while men should mirror women’s more measured approach to investing. But how do we make progress in bringing these mindsets closer together?
First, we can start by educating both boys AND girls about wealth-building. It’s outdated to think that personal finance for women revolves around household management, or that men are solely responsible for being the breadwinner. Let’s have balanced discussions that stress the importance of holistic money management with all kids.
Second, we can work together with professionals that consider these gender differences as part of the advising process. As women investors increasingly become an area of focus for finance professionals, more advising firms are taking a female-centric approach to working with clients.
For male investors, adding a female advisor to your team can provide a different perspective to balance your strategy.
Finally, being cognizant of these differences and learning to appreciate our individual strengths can move us closer to embodying those positive financial behaviors of the opposite sex.
Becoming a better investor should include learning from anyone with a proven track record, regardless of gender. Shifting our mindset to look at these differences in terms of successful outcomes instead of uniquely male or female traits can help bridge this gap.