Have you seen the statue of the fearless girl facing the Wall Street bull? She is brave and confident. She is ready to take on Wall Street’s boys club and take charge of her financial destiny.
There is plenty of research to suggest that women actually make better investors than men. For example, according to a 2016 Fidelity study of more than 8 million clients, women generated investment returns that were 40 basis points (0.4%) higher than men’s returns.
If you feel intimidated and scared to invest, don’t be. Women are better investors than men by nature.
Why? Because what will make or break your performance as an investor is not your ability to analyze financial statements, but your brain, your emotions, and your personality.
Here are five reasons why women generally tend to be better investors than men.
1. Female investors trade less frequently
Warren Buffett says that “if you are not willing to hold a stock for 10 years, don’t even consider holding it for 10 minutes”. The key to successful investing is remembering that you’re in it for the long-term. Frequently buying and selling your securities is not investing. It’s called trading. It’s not the game we are playing here.
Also, every successful investor understands that by owning stocks, she owns a piece of an actual business. The fact that someone is constantly putting a price on your business doesn’t mean you need to act on it, i.e. sell or buy.
The investing confidence of men prompts them to trade more frequently. There is a negative correlation between returns and the frequency of trading. According to a study by Barber and Odean, men traded the stocks in their accounts 45% more than women did. This excessive flip-flopping of securities reduced their net returns by 2.65%. Single men were even worse offenders, trading 67% more than single women.
2. Female investors exhibit less overconfidence
Men tend to be more overconfident than women in “manly” pursuits. Investing is one of them. Men think they know more than they do. Women, on the other hand, are more willing to admit that they know what they don’t know. They’re more willing to own up to the fact that they don’t know everything.
That brings me to my next point.
3. Women educate themselves about investing
Women put in more time and effort in researching possible investments, looking at every angle and detail, as well as considering alternative points of view. Those women who educate themselves about investing are more likely to make smarter decisions that lead to better results.
There are so many books on finance and investing out there, it’s easy to get overwhelmed. If you’d like to educate yourself on a subject of money, but not sure which book to pick, you are in luck. I’ve compiled a list of top 9 finance books for women that will give you the knowledge and confidence boost to start improving your finances today.
4. Women are more risk-averse in allocating their portfolios
All investing involves risk. It’s the nature of the game. However, there is no need to take on more risk than necessary.
Women are more risk-averse compared to men. When we invest our hard-earned cash, we tend to stay within our sphere of competence, stick to what we know.
Also, we are not interested in beating some arbitrary index. What we want from our money is to meet our financial goals – be it comfortable retirement, our children’s education, or a down payment on a home. Based on that, we tend to construct more suitable portfolios to reach our goals. Fidelity study found that men overweighed their portfolios towards greater stock allocations, while women created more diversified and balanced portfolios.
5. Women ask for help
Not only women are more likely to ask for help from a financial advisor or use a Robo-advisor, but they also listen to the advice that’s given to them.
According to the research done by Betterment (the largest Robo-advisor on the market), the majority of its customers followed its asset allocation advice. Among those clients who deviated, men were more likely to take on more risk, moving into a 100% allocation to stocks twice as often as women. Also, men were six times more likely to make major allocation swings, like moving from all stocks to all bonds. It looks like an attempt to time the market, which rarely yields positive results.
The Bigger Picture
When it comes to investing, women tend to educate themselves, create a plan, and stick to it. The only thing we could learn from men is to take action rather than waiting for the perfect time to start investing.
Women need to do a lot more financial planning than men. We live on average 6-8 years longer than men, make less than our male colleagues, and take more career breaks. As a result, women retire with about 2/3 of the money that men do.
I hope I convinced you that women are wired for investing success. Take advantage of it and start investing today! There is no time to waste.