The men don't get it: What women can teach us about investing
Is there gender equality in investing? While the importance of gender equality should not be undermined, it is also hard to ignore the common stereotypes between men and women such as how men tend to be financial daredevils and how women are more averse to risks. Thanks to popular culture and the media, these stereotypes are further reinforced into our minds through its constant portrayals. Although these clich's may not be reflective of the behaviour among people of all genders, but naturally, there are still differences between men and women, and that is reflected in investment behaviour1. Do women really make better investors than men? We take a closer look at how men and women behave when it comes to investing and how they make investment decisions.
1) Women earned higher returns and were better savers
In a survey by the Warwick Business School on the investment performance of men and women between 2012 and 2016, women outperformed the men by about 1.2% per year2. Women also earned higher returns and saved better as compared to men in another study conducted by Fidelity where over 8 million investment accounts were reviewed2. The reason for this outcome could be largely due to overconfidence which leads to misjudgements. Men are more likely to be overconfident in their ability to actively manage their portfolio which leads to over–trading and also tends to be impulsive in this aspect2. Interestingly, single women were found to be trading 27% less frequently than single men5. However, men's trading activity generally tends to quiet down when they are sharing accounts with women6. These studies shown how women can be better investors than men and that reflects further on their behaviour towards retirement planning. For example, in 2018, 87% of women earning $50,000 to $74,999 participated in their employer's retirement plan – compared with 78% of men in the same income group.
2) Confidence gap between men and women
Traditionally, investing has always been dominated by the men and women on the other hand, don't seem to have the same level of confidence in it as compared to fashion and beauty, for example. A Merrill report based on data from 11,500 investment personality assessments completed by Merrill's clients found that 55% of the women questioned agreed or strongly agreed with the statement, “I know less than the average investor about financial markets and investing in general,” compared with just 27% of the men7. This confidence issue could be one of the reasons why some women are less likely to start investing as they may feel worried or anxious about the outcome. But this is slowly changing as shown in a research by the Harvard Business Review where more female investors in Asia are increasingly generating their own wealth and are more assured of their financial literacy than their spouses4, which could mean they want to take their personal financial matters into their own hands.
3) Women may not be as risk averse as we think
While it may be true that many men tend to be more comfortable with risks and women are more cautious with their money, a study by the German Institute for Economic Research (DIW) evaluated data on the investment behaviour of more than 8,000 men and women and found that 38% of women were invested in risky financial products, whereas it was 45% for men, which was not a huge disparity between both genders1. In fact, a regression analysis from DIW found that women would take more risk if they had more money1.
4) Best of both worlds?
By understanding how both genders behave and how it affects their investment decisions, men and women can learn from each other's best habits and find the best approach for themselves when it comes to investing. Despite investing being a male–dominated arena, a Fidelity research in 2014 shows that 92% of women want to learn more about financial planning and 83% want to get more involved with their finances within the next year8. Regardless of gender and wealth level, you can easily start investing with dollarDEX with a wide selection of close to 1,000 unit trusts where you can start investing regularly with as low as $100 or through a diversified model portfolio based your risk tolerance – all of these at no extra fees charged to you, which means you won't need to pay any platform fees nor sales charges for your investments.
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Information is correct as of 15/10/2019.
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1 https://www.investopedia.com/articles/basics/11/myths-and-realities-gender-finance.asp
3 https://pressroom.vanguard.com/nonindexed/Research-How-America-Saves-2019-Report.pdf
4 https://www.sc.com/my/stories/sorry-guys-but-women-make-better-investors/
6 https://www.sofi.com/learn/content/male-vs-female-investment-behavior/