Women May Have an Edge: What Research Suggests About Women’s Investing Behaviors
Some stereotypes have painted women as financially timid, leaving the investing arena to men. But research suggests a different reality: some studies suggest women have, on average, better investing outcomes than men.
Going back to a study from the 1990s titled Boys Will be Boys: Gender, Overconfidence, and Common Stock Investment, Brad Barber and Terry Odean concluded in the study’s sample that men underperform women by almost one percent per year. Making matters more interesting, they found the gap between single men and single women was even wider at 1.44 percent per year.
A 17-year Finnish study completed in 2016 found “significant and remarkable gain made by female investors at the expense of male investors.”
A 2021 Fidelity study across 5.2 million accounts reported that in the accounts studied, women outpaced men when it came to investing. The study found women traded half as much as their male counterparts. Less trading means lower costs and fewer emotional reactions to the market.
Why might women’s investing behaviors differ? From the research mentioned above, along with our own observations, there could be several factors:
Long-Term Visionaries: Forget chasing the next hot stock. In some studies, women have tended to prioritize long-term goals, taking a measured approach that values steady growth over risky bets. This focus can translate into fewer impulsive decisions and a commitment to a well-defined investment plan.
Risk Realists: Let’s face it, a cool head can prevail in the market. The studies above illustrate that women tend to be more risk-aware, opting for a balanced portfolio.
Trading Tamely: Frequent trading based on emotion can lead to higher costs and missed opportunities. According to some studies, women, on average, tend trade less often than men. This “buy and hold” mentality can help them to ride out market fluctuations and potentially benefit from long-term growth.
Collaboration is Key: Just like asking for directions (pre-GPS), women may be more likely to seek help. This willingness to learn and leverage expertise from professionals can help some investors stay disciplined.
The Power of Patience: Building wealth takes time. Women tend to be patient investors, understanding that significant returns come with a long-term commitment. This focus on the marathon, not the sprint, can be beneficial for many investors.
Humility vs. Overconfidence: Although overconfidence is a trait that may have helped men in their professional careers, it has proven to be a liability in the investment arena. Humility on the other hand, means freedom from the overconfidence that can cloud judgement and can lead to poor decisions.
Hypothetical Illustration of Potential Performance Gap
Starting at $100,000 with women earning 8% and men earning 7%
It’s Not About Gender: This isn’t about pitting genders against one another. The key takeaway is that successful investing hinges on specific behaviors, not chromosomes. Anyone can cultivate the characteristics that may support long-term investing discipline: patience, prudence, knowing when to seek help, and a long-term vision.
So guys, it may be worth considering some of the research-backed behaviors when it comes to investing.
Kenneth R. Duetsch
Managing Partner / Financial Advisor
CFP®, CFA®, MBA