Men are from Mars and women are from Venus when it comes to many things in life—hobbies, traveling, personal hygiene—but what about investing? Are there any real noticeable differences in the way women invest compared to men?
In general, when it comes to playing the stock market, studies repeatedly show that men are typically more active risk-takers, while women are more inclined to stay safe and heed the advice of others. In investor lingo this means a majority of men have bullish tendencies, whereas women are apt to gravitate to the bear side of the market.
Essentially, this conclusion only confirms what comedians and sitcoms have been harping on for years–men don’t ask for directions, but women do. But what we wanted to know is what other distinctions exist between the sexes in terms of their investment habits. Here’s what we found:
Women’s Portfolios Frequently Outperform Men’s
A 2001 report by University of California professors Brad Barber and Terry Odean, who have scrutinized gender stock picking for more than twenty years, found that although men traded 50 percent more stocks, women’s portfolios tended to outperform the guys’ picks.
The 7-year study entitled “Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment,” found that male overconfidence leads to too much trading, which can often result in loss.
Trading reduced men’s net returns by 2.65 percentage points a year as opposed to 1.72 percentage points for women, according to the data. What’s more, female investors bested their male counterparts by 2.3%, and women’s investment groups outperformed the men by 4.6%. The simple reason, said Barber and Odean, was overconfidence—the more you trade, typically the more you lose.
“Overconfident investors overestimate the precision of their information and thereby the expected gains of trading,” said Barber. “They may even trade when the true expected net gains are negative.”
This is why buying and sitting on physical gold bullion or other precious metals often yields higher returns in the long-run than short-term trading in futures and options.
Women Are More Risk Averse
With the economy slowly making a comeback, most American investors—both male and female—are against big risks these days. However, women in general tend to have a much lower appetite for risk-taking than men.
A study by Prudential found that over two-thirds of women see themselves as savers rather than investors, and 60 percent are only interested in guaranteed/FDIC-insured products. In contrast, men are more willing to take a risk for the chance of a greater financial reward.
Other data gathered by the report suggests that:
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Women are less pessimistic than men about the near-term future of the U.S. economy
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More women are becoming breadwinners, yet the confidence gap is widening (Women are twice as likely describe themselves as financial “beginners”)
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Female investors value more collaborative decision-making processes than men do
Ultimately, making smart financial decisions isn’t about one gender’s investment style over the other, or even being a bear vs. a bull—there can be a time for each.
Rather, the lesson to take away here is that, whether male or female, as long as you recognize your weaknesses and play to your strengths, you’re on the path to positive investment decisions.
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