Women make great investors. They don’t lose their cool, know when to cut their losses and build their portfolio for the long game.
In fact, research has shown women are generally better at investing than men. Warwick Business School ran a study looking into the habits of investors and the results really highlight the different approaches men and women take.
The study took into account a range of criteria, including the type of investments held, age, trading frequency and the amount of money invested.
“Analysis of 2,800 investors found that not only did the female investors outperform the FTSE 100 over the last three years but they also outshone their male counterparts.”
The study showed that the annual return by the men was 0.14% above the performance of the FTSE100 but women achieved a 1.94% annual gain above the FTSE100.
These numbers might seem small, but let compounding do its magical thing over time and the results for the women who invested are impressive!
So, why do women make better investors?
Women Investors are more conscious of risk
Women are more risk-conscious and it makes sense this is reflected in the type of stock they choose to invest in. Preferring a more ‘slow and steady’ risk-averse approach to investing, the study showed women don’t tend to choose the riskier ‘lottery style’ investment options that men often favour.
“Lottery style” investing as a tendency to invest in more speculative, lower priced shares that might increase in value substantially, along with a desire to keep to shares that show a loss while selling off their winners – the ones that have actually increased in value.” – Professor Neil Stewart, Warwick Business School.
A global survey by BlackRock Investor Pulse echoed similar findings, showing 72 percent of women rejected “riskier” equities, bonds or real estate, as opposed to 59 percent of men.
A risk consciousness is definitely a good thing when it comes to investing but being too risk-averse isn’t. It’s one of the main factors that hold us back from getting started with investing.
Women leave their investments alone
“If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.” – Legendary investor, George Soros
The kind of investing we see in the movies is massively hyped up.
The truth is, smart, long term investing is actually kinda boring if you’re comparing it to the likes of The Boiler Room and Wolf Of Wall Street.
Taking a complicated, risky approach where you’re fiddling with and tweaking your strategy often isn’t going to do you any favours in the long run.
The research by Warwick Business School showed that women are more likely than men to approach their portfolio with an ‘in it for the long haul’ mindset and keep strategies simple and more cost-effective.
The Warwick study observed women investors, on average traded nine times each year while men traded 13 times.
Expensive fund management fees associated with complex trading can quickly eat into any profits generated.
Women are better at letting go
“Cut your losses short and let your winners run.”
When investors can’t let go of their portfolio losers, it can have a big repercussion on their outcomes. Many investors don’t feel a loss or gain is ‘real’ until they sell and hang on far too long to a dud stock.
Dealing with stock that drops in value is part of the investment game. You can’t avoid losses but you need to minimise them. Knowing when to let go of a diving stock is a skill that separates a successful investor from the pack.
Once again, women trump men when it comes to the art of cutting their losses. Men tend to sell the winners but hang on to their losers, while women do the opposite.
Ok, so the first few reasons we’ve looked at about men vs women investors have been backed up by studies. The next couple of points are some of my personal observations about why women make better investors in my experience working with my clients and students.
Women are more consistent
It has been my experience working with new and experienced investors, that once women decide that they are going to do something about their wealth, they are far more consistent at applying themselves and taking action.
I think this observation is linked to the research data above, where men are chasing the quick win, the thrill ride. When it doesn’t come, because it rarely does, men tend to turn their attention to something else.
Women on the other hand are far more patient. They made the decision to be a long term investor, they hear my message that this is a long game, and they buy in. They put their heads down and apply the knowledge consistently and diligently.
For women it is less about quick wins and more about making sure they have applied the knowledge and strategies correctly. I love this trait, it means they are more likely to get the outcomes they are seeking.
There are of course exceptions to every rule, I have male clients who are also very consistent in their application of what they are learning, however it is more likely that the women will stay the course and apply themselves for the long game.
Women put in the time to research and learn
Following on from being more consistent is the observation that women also tend to put more time into the research and learning phase of investing.
Again I believe this is because women have a DNA that drives them to understand at a deeper level then us men.
Women will spend the time to fully understand what they are looking to invest in, it’s part of their risk management skills, they want to know everything there is about the investment before they pull the trigger.
Now this is also noted in the research as a watch point. It is important that a deep understanding and lots of research does not become procrastination. We all know that procrastination is the enemy of success, right?
What’s this all mean for you?
So what does this mean for you?
Whether you are a woman or man, how can you use this information to improve your results?
Knowing these tendencies is the start. As a man you can note the research findings and notice if any of the data outcomes apply to you. If you have noticed that you have a tendency to chase quick wins, to want to invest more often, or that your research has not been as thorough as it could have been, acknowledge it and accept it.
Once you can accept that these are things that you have been doing, you can take the steps to change. This is the real power of this research. If you are prepared to accept the outcomes and make the changes, there is no reason why you can’t achieve the same results as the women are getting.
For women, it is important to also acknowledge these strengths exist and to develop them further.
Often you will hear people talk about how they need to work on their weaknesses to become better at something. I like the other opinion, which is to work on your strengths. If you can make your strength an even stronger part of your capabilities, you will gain even more momentum.
It is far easier to improve something that you are already good at then it is to improve something that you are not so good at, at least that is how I have heard this theory explained. Now having said that, you don’t get to ignore your weaknesses, you still want to put some time into working on these, just not at the exclusion of your strengths.
So what are you good at when it comes to investing? Let us know in the comments…
…And if you know you need to work on money and investing, keep an eye out for the launch of The Wealth Academy soon. It’s going to be an awesome resource of knowledge, tips, how to’s and like minded money managers that you aren’t going to want to miss out on.