Throughout March, Treece Financial is honoring Women’s History Month by examining the topic of women and investing.
In general, at least from a superficial perspective, men invest more frequently than women. One contributing factor is that the two sexes are viewed differently by financial advisers.
According to a study performed by the National Bureau of Economic Research (Mullainathan et al., 2012), women are asked less personal and financial information by their advisors on average than men. This leads to a lower quality of advice as less details are available for effectively developing a risk profile.
Women invest more efficiently than men
Data from Fidelity Investments (Fidelity Investments, 2017) found that from their investing population, women’s portfolios achieved a 0.4% higher investment return rate than men. This might seem like a small improvement, but with compounding interest over time, this difference becomes larger.
On the more conservative side of finance, women tend to invest more in savings accounts. When Fidelity Investments analyzed workplace savings accounts (Fidelity Investments, 2017), they found that women had a higher average proportion of savings to men, 12.4% to 11.6%.
“Gathering” investment style proves a winner
Women tend to take a more conservative investment stance than men, shying away from more aggressive and risky tendencies. A study performed by the University of California (Barber et al., 2004) found that women tended to be more successful in the stock market by an average of 1% because their portfolios were more conservative and risk-averse than men, who tended to make more rash decisions.
Statistically speaking, women see investing as a means to an end, whereas men see investing as an end unto itself. Women aim to retire early or purchase a home, while men are more intrigued in beating the stock market’s general return. This conservative-based strategy has worked very well for the women who have garnered the courage to invest in a male-dominated industry. It may be indicative of a wider trend of increasing investment by women (The Economist, 2018).
An even more interesting aspect is how much more effective women are at researching and self-education compared to men, even though they invest less frequently.
An HBSC study (HSBC, 2018) demonstrated that 17% of women, against 13% of men, spend more than a month when it comes to researching potential investments. Women put more thought and caution into their investments and are more calculated and data-based than men.
Empowerment = Equality
These statistics, along with societal trends, demonstrate that as women become more active in the financial market they are remaking the rules of smart investing and may just beat the men of the financial industry at ‘their own game.’
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Barber, B. M., & Odean, T. (2004). Boys will be Boys: Gender, Overconfidence, and Common Stock Investment. SSRN Electronic Journal. doi:10.2139/ssrn.139415
HSBC. (2018, March 01). How women and men invest differently. Retrieved from https://www.hsbcprivatebank.com/en/discover/news-room/2018/women-men-invest
Investment by women, and in them, is growing. (2018, March 08). Retrieved from https://www.economist.com/finance-and-economics/2018/03/08/investment-by-women-and-in-them-is-growing
Mullainathan, S., Noeth, M., & Schoar, A. (2012). The Market for Financial Advice: An Audit Study. doi:10.3386/w17929
Who's the Better Investor, Men or Women. (2017, May 18). Retrieved from https://www.fidelity.com/about-fidelity/individual-investing/better-investor-men-or-women