The truth has been revealed, women are better investors than men.
General consensus of thought for some time has been that men are better at managing money and investing then women.
It seems to stem from the fact that in most cases men are drawn to investing jobs and activity, and therefore by extension they must be better at it.
The sad part is that this has been the feeling of most women, which has dramatically reduced the number of women who are confident of their ability to succeed at investing.
Barely 9% of women in a survey by Fidelity Investments thought that women make better money managers.
Last week I wrote about silencing the mental noise.
One of the most common reasons for not investing, and therefore noisy internal chatter, was fear.
Fear has prevented women from actively participating in managing their money and investing for their financial future for decades.
This fear has been based on societal views that men are better investors…
As is normally the case, if you hear something often enough you start to believe it.
The Law of Attraction tells us that like attracts like. So if you have grown up hearing that men are better investors then women, then chances are you will think it, feel it and therefore believe it.
But wait just a minute…
Research is in and the facts tell a different story.
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% and 1% per annum.
Now before you say, so what, that’s not much. Let’s have a look at what that really means.
Let’s assume annual returns of 8% as the standard.
A 0.3% better performance represents almost a 4% better result for women per annum…
A 1.0% better performance represents a whopping 12.5% better result for women per annum.
Over 30 years this type of outperformance would add more than $250,000 to the women’s portfolio.
Now that is not something to sneeze at, right?
Why Women are better Investors
So why is it that women are better investors than men?
The first identified reason relates to the amount of activity.
Men are 35 percent more likely to make more transactions, which means fees will eat away at returns more than they would for women who perform less transactions.
This over activity 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.
Women assume less risk, preferring to invest in more diversified assets rather than loading up entirely on one asset class.
By contrast, women tend to do more research and prefer to buy low and sell high. Women are less interested in timing the market and more focussed on the longer term gains.
If you have followed my earlier posts, you will recall that I have been writing that investing is a long term game, it isn’t about having to pick the perfect time to invest or the absolute bottom of any market.
Investing is about being IN the game, and from the research women ‘get it’ and are better at implementing this strategy. Go girls!
Another reason identified in the research for why women are better investors than men was the fact that women are better savers.
By being better savers, women are more able to add consistently to their portfolio and leverage the power of compound returns.
How you can benefit from this knowledge
Despite the research that women are better investors than men, they still have one major hurdle when it comes to investing: They’re fearful.
As noted last week, fear is one of the biggest reasons why people don’t invest, and women have historically been most fearful of property and stock markets.
So what can you do with this knowledge and use it to overcome this fear?
These tips are as applicable to men as they are to women…
Firstly, save more…
Nothing will make as big a difference in your financial future as the amount you set aside for investing.
Remember the first step in my 5 step system to take charge of your money: pay yourself first.
Every additional dollar you can add to your wealth generator (that’s how I describe your investment strategy) will have a significant impact over the life of your investing activity.
For example: A 35-year old earning $60,000 a year who puts an extra $50 per month into their wealth generator will have an extra $3200 per year to live on in retirement (assuming a 7% rate of return and 1.5% pay rises).
Second, avoid overcomplicating investing…
The financial markets, whether it is property or stocks can be complicated…
But they don’t have to be.
If you stick to simple strategies to start out, you will be in the game and on your way.
This can be as simple as determining an allocation of where you want to invest. That is, how much into stocks, how much into property and how much into fixed interest investments like bonds.
Once you know how much you want to allocate, it’s a case of accumulating each asset class as money becomes available.
As the research indicated, the stock market is something that women fear.
Demystify it by sticking to index based investments, such as ‘Exchange Traded Funds or ETFs’, these replicate an index and provide great diversification and risk management for beginners.
And finally, know thyself…
This is where the differences between men and women can be most telling.
Research indicates men are significantly more likely to exhibit erratic behaviour when it comes to reaction to market news or events.
Acknowledge that this is the antithesis of what investors should be doing…
The key is to try to understand who you are and how you will react to market moves.
Make it a habit to only check your investments monthly rather than when the spirit strikes…
It’s a far better way to avoid over reaction and over activity.
And as a final tip, something that has proven to be helpful to get started is to ‘bring a friend’.
If you have been fearful of investing and want some moral support, bring a friend, and start together.
Having someone you can talk to and share experiences with is a known way to overcome fear and overcome the unwarranted confidence gap that exists when investing on your own.
Why it’s important to discover investing
Nearly 90% 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 (unfortunately) and frequently outliving their spouses.
It’s becoming more evident that they need to know how to handle their money…
And we now know that women are better investors then men.
So let’s work to overcome the fear and mental noise that has prevented you from being more confident to participate and get started today investing for your financial future.
This week instead of leaving a comment, practice the ‘bring a friend’ concept and share this post with a friend and then just comment ‘done’ below and enjoy the inner glow that comes from knowing you helped someone else.
Have a great week.