The truth has been revealed: women are better investors than men.
Actually, it’s not really a secret anymore, as the evidence is too compelling.
Warwick Business School ran a study that showed the annual return on investments by men was 0.14 per cent above the performance of the FTSE100 but women achieved a 1.94 per cent annual gain above the FTSE100.
This type of difference, on an annual basis, can represent more than $200,000 over a period of 20 years or more.
Yet, women often downplay or minimise their money management abilities. In a survey by Fidelity Investments, only 9 per cent of women think they make better investors than men.
I have reviewed a few studies on this matter and, across them all, the consistent results show that women outperform men by between 0.3 per cent and 1 per cent per annum.
So why is it that women are better investors than men?
Women are less ego-driven and more disciplined
The first identified reason relates to the amount of trading activity.
Research by Vanguard showed women are 34 per cent less likely than men to trade at all – meaning fees will eat away at returns more for men than they would for women, who generally perform fewer transactions.
This overactivity seems to stem from another factor considered in the research – the overconfidence of men.
Men have a tendency to treat investing like a sport, wanting to win and believing they can ‘pick the market’. This leads to men taking on more risk, often driven by their ego of ‘knowing better’.
Women generally assume less risk, preferring to invest in more diversified assets and taking a longer-term view, rather than loading up entirely on one asset class and seeking those quick dopamine hits that some men crave.
Women also tend to do more research and prefer to buy low and sell high. They are less interested in ‘timing the market’ (like a game) and are more focussed on the long-term gains.
It seems women have embraced the words of the legendary investor George Soros: “If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.”
The kind of investing we see in the movies is massively hyped up. The truth is smart, long-term investing is actually boring if you’re comparing it to the likes of The Boiler Room and Wolf Of Wall Street.
But as George says, good investing is boring, and women seem to have a greater appetite for the slow and steady approach.
Investing is about being in the game, and from the research women ‘get it’ and are better at implementing this strategy.
Women have more curiosity and interest in the how and why
A global survey by BlackRock Investor Pulse showed 72 per cent of women rejected “riskier” equities, bonds, or real estate, as opposed to 59 per cent of men.
What this result shows is that women are prepared to do the work to understand their investments. Their level of curiosity drives them to learn everything there is to know about their investments before jumping in.
I believe this is because women have a DNA that motivates them to understand at a deeper level then most men.
My experience with my clients, 60 per cent of which are women, is that they want to know all about the how and why of investing. That is, how they should go about creating wealth, and why one investment is a better option over another.
This dedication to knowledge leads most women to make more informed decisions that are likely to achieve above average returns, without overcomplicating it.
Women adopt a ‘process’ when investing
Another reason that enables women to achieve better results is the fact that women prefer to use a process for their investing. Whereas men treat investing more like a game and allow their ego to contribute to decision making.
Women are more likely to seek out someone they know (or have been referred to) that uses a process they can understand that has proven to produce results.
One of the biggest inhibitors to success with investing is fear. It has stopped more people from getting started than any other factor. By following a proven process, women can eliminate this fear in the knowledge that they are using strategies that have worked for other women.
Women are more open to being coached
In my experience working with new and experienced investors, once women decide that they are going to do something about their wealth, they are far more consistent at applying themselves and taking action.
They are far more coachable.
I think this observation is linked to the research data above, where men are chasing the quick win, while women are far more patient.
Women have made the decision to be a long-term investor. They put their heads down and apply the knowledge consistently and diligently and are happy to be guided by someone who has been there and done that.
Women are taking charge of finances
The majority of women are going to have to take sole control over their money at some point in their lives.
Women are getting married later, divorcing more, and frequently outliving their spouses. It’s becoming more evident that they need to know how to handle their money.
And given we know that women are better investors than men, there is no reason for them not to take charge of their finances.
