The investing industry is one of the most male-dominated sectors of the economy. Only around 10% of mutual funds and hedge funds have female managers, and women account for only around16% of financial advisers.
Evidence also shows that although men and women tend to share financial decisions generally, decisions specifically about investing are made overwhelmingly by men. Women also tend to think theyknow less about investing and are less confident about making decisions than men.
This lack of confidence is one explanation for what’s called thegender pension gap. According to recent research byBoring Money, British men have almost £600 billion more in their investment portfolios than women, a sum that’s larger than the GDP of Switzerland!
Returns of men and women compared
The irony is that several academic studies have concluded that women actually makebetter investors than men, and that includes professional investors. A study conducted by Terrance Odean and Brad Barber at theUniversity of California found that although men trade 45% more often than women, their average annual risk-adjusted returns are 1.4% per annum smaller.
Research by the fund management companyFidelity has also found that, as investors, women receive slightly higher returns than men. The company analysed the returns of 5.2 million self-directed investors in the United States between January 2011 and December 2020 and found that women outperformed their male counterparts by 0.4%.
So, why should this be? Well, there are probably a few contributing factors. Generally, for example, men are more prone tooverconfidence. Women tend to be more cautious, and also less competitive. Once they’re thoroughly researched a subject and decided on a plan of action they’re often better than men at sticking to it; and nor are they as likely to follow the herd.
Yet it’s during periods of market volatility, when individual markets can go up or down by 5% or more on a single day, that women tend to have an edge over men.
Women less likely to react to market falls
Research byBetterment, an online wealth manager based in the US, shows that, most of the time, its male and female customers behave remarkably similarly. However, women are far less likely to panic when markets start to slide. They are 45% less likely than men to sign into their accounts to check how their funds are performing, and they change their asset allocation 20% less frequently.
Betterment also found that male customers were far more prone to “erratic behaviour”. For instance, men were six times more likely than women to dump all their shares or all their bonds in one go.
Again, why this should be makes for fascinating discussion. There are those, for example, who put it down to biological differences between men and women. Scientists have demonstrated thatincreased testosterone levels can cause male traders to become over-confident and take on more risk, especially in stressful and competitive situations.
Others would argue that psychological factors are more important than biochemical ones. Faced with a problem, any problem, not just financial uncertainty, men generally like to do something about it, to take action. Women, on the other hand, often just want to talk about it. They want support and reassurance.
Of course, it’s easy to generalise. There are many women who make very bad investors. Similarly there are many men who are acutely aware of their behavioural biases and who’ve learned to keep their emotions in check when their friends and colleagues are baling out of shares, or indeed when they’re piling in and throwing caution to the wind.
Lessons for both men and women to learn
But there are important lessons that men can learn from these various studies. Yes, there are times when it’s very hard not to react to what’s happening in the markets or the economy. But almost invariably, for those who have the right financial plan in place, the best course of action is to do nothing.
It’s also very important for women to pay attention to theirfinancial wellbeing not to shy away from investing. They also need to realise that they have a valuable role to play in discussing investment-related issues with their partners.
So don’t leave it to your other half to make investment decisions on their own. And, even if you’ve agreed between you that it’s mainly your responsibility, always consult your partner before making major changes.
FIND OUT MORE
Want to find out more aboutrockwealth Leamington and how we can help you to achieve your goals? Thengive us a call or send us a message. We would love to hear from you.
