Warwick Business School did an interesting study – Are women better investors than men? An analysis of 2,800 investors found that not only did the female investors outperform the FTSE 100 over the three year study period, but they also outshone their male counterparts. While annual returns on investments for men were on average a marginal 0.14 per cent above the performance of the FTSE 100, annual returns on the investment portfolios held by women were 1.94 per cent above it. This means returns for women investing outperformed men by 1.8 per cent. Compound that up over a longer period, and it makes a huge difference. If the FTSE grew by 5% a year, with £100 invested a month we’d expect the men to enjoy a gain of £18,000 over 20 years, while the women would make £28,000.
So what were the reasons? Behavioural sciences play a key role. While there were significant differences between the genders – women, for example, only traded 9 times a year on average, compared to 13 times for men – the biggest difference, and the one that impacted their returns, came in their appetite for the type of stocks they invested in – female investors were less likely to indulge in the “lottery style” of investment. “Lottery style” investing is 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. Women also take a more long-term perspective investing more to support their financial goals, whereas men are also attracted to the thrill of investing. The difference in performance reveals a more considered approach from women, rather than caution.
Two generations ago, when newspapers still ran gender-segregated ads, there were virtually no women on Wall Street aside from the secretaries. But once women were grudgingly welcomed to the business world, Wall Street was not their first choice. Male brokers largely worked for commissions alone — an “eat what you kill” mentality that did not appeal to women. Instead, professional women gravitated to stable sources of income in fields like law, education or medicine. The gender gap in finance presents itself as not only an ethical quandary but also potentially a financial blow to millions of households.
Finance in general, continues to be viewed as an industry plagued with slick con artists. Banks and brokerage firms consistently rank rock bottom on lists of the most beloved companies and brands — and not by coincidence. A major basis of the distrust is rampant conflicts of interests. The financial crisis of the last decade can be traced to bankers convincing clients that investing in high-risk subprime mortgages was a safe bet. In 2015, the Department of Labor in the U.S. estimated that the cost of conflicted investment advice for retirement savers is more than $17 billion per year.
The stock market is often portrayed as a high energy, risky environment, but this analysis shows that taking a more long-term view about what to invest in, rather than picking eye-catching and potentially more volatile shares, is actually likely to provide a better return on your money. You really don’t have to be a stock market genius to invest. Reducing risk over time would result in good returns that will be better than what you’d have achieved if you’d kept all of your money in cash (albeit that cash provides certainty as it cannot fall in nominal value).
As much as we may trust our best friends and close relatives, we rarely disclose to them the most private and sensitive aspect of our personal information: the state of our money. That discretion is instead placed with our financial adviser, who ideally is one of the good guys (or gals) in your life. He listens first and adheres to the fiduciary standard of putting clients’ interests first. Your financial plan should not conveniently lean on products that happen to pay a hefty sales commission. Your planner should be anticipating your needs before they arise and be ready for when you make that call.
So for the women – keep your eye on financial goals; and for the men – there is a lot we can learn from women and investing is no exception.