Curiosity abounds surrounding women’s investing prowess. A Google search for the question, “Are women better investors than men?” yielded over 69 million responses.
Despite data that finds more men ooze investing confidence, that bravado masks lower investment returns than those of women. A Fidelity survey of approximately 3,000 adults equally split between men and women found that on average, women’s returns were 0.40% higher than those of men. Supporting Fidelity’s research was another study by the UK-based Warwick Business School, conducted on behalf of Smarter Investor that found women’s returns were approximately 1.8 percentage points higher than men’s.
In fact, only 9% of women think they make better investors than men, reports Fidelity research. But, despite women’s investing diffidence, on average women are better investors than men. There are a variety of reasons why women are slightly more successful investors, on average.
1. Women Tend to Trade Less Frequently Than Men
The investing confidence of men can prompt more frequent trading. And there is a negative correlation between returns and frequent trading. A classic study in the Journal of Finance, “Trading is Hazardous to Your Wealth,” by Brad M. Barber and Terrance Odean studied 66,465 households. The results showed that frequent traders accounts, on average returned 11.4%, while the market returned 17.9% during that same time.
To be a better investor, trade less frequently. Overconfident male investors are likely to earn lower returns than their less-frequently-trading counterparts.
2. Women Save More, On Average
Fidelity found that women typically saved 9% of their salary, compared with 8.6% saved by men. It stands to reason that if you save more and earn higher returns, like women, you’ll come out ahead with your investments.
But saving isn’t enough. With rock-bottom interest rates, retirement and long-term-goal money needs to be invested in the stock market to keep up with inflation and earn capital appreciation.
3. Women Educate Themselves About Investing
Feeling more insecure about investing has a benefit for women who invest. Those women are more likely to learn about investing, and therefore will often make smarter decisions, leading to greater returns.
Female investors tend to think “long term,” and those who understand market volatility are less confident and less eager to attempt to beat the stock market. These women will invest in target date funds with a reasonable mix of stock and bond funds, versus more aggressive investors who seek out momentum investment approaches that can lead to frequent trading and investment mistakes.
Good investment starter books for women and men include “The Elements of Investing” by Burton Malkiel and Charles Ellis, or “Broke Millennial Takes on Investing” by Erin Lowry.
4. Women Allocate Their Portfolios More Appropriately
Fidelity found that men overweighted their portfolios towards greater stock allocations, while women created more diversified and balanced portfolios. To invest like a woman, try investing in a target date retirement fund. The target date asset allocation between riskier stock funds and more conservative bond funds adjusts as the investor ages. This one-stop investment vehicle owns more stock funds initially, and as the retirement date approaches, the portfolio allocation shifts to one with greater bond holdings.
Or investors can DIY invest and create their own portfolio with a mix of stock and bond funds, geared towards their risk tolerance.
5. Women Are Willing to Ask for Help
There’s no shame in getting help with investing. For those investors who want guidance, there are an abundance of fee-only financial advisors that can guide an investor towards a low fee, appropriately allocated investment portfolio. Use brokercheck.finra.org to vet financial planners.
For the cost conscious investor, Ellevest has created an investment platform, designed for women (although men are allowed as well). This robo-advisor offers education, digital investment management and a premium service with financial and career counselors as well.
Ultimately, women tend to educate themselves, plan and act deliberately when it comes to investing. The only disadvantage to this style is that women’s lack of investing confidence can cause them to avoid the stock market, one of the best long-term wealth building strategies available.
Despite recent-term market performance and innate volatility, both men and women will benefit from sensible investing in a diversified portfolio of stock and bond funds.
Finally, for men who tend that way, don’t let your ego drive you to invest and trade too aggressively for your needs.
Barbara A. Friedberg, MBA, MS is a veteran portfolio manager, expert investor, and former university finance instructor. She is editor/author of Personal Finance; An Encyclopedia of Modern Money Management and two additional money books. Also, she is CEO of Robo-Advisor Pros.com, a robo-advisor review and information website. Additionally, Friedberg is publisher of the well-regarded investment website Barbara Friedberg Personal Finance.com. Follow her on twitter @barbfriedberg and @roboadvisorpros. As of this writing, she does not hold a position in any of the aforementioned securities.