Do women investors outperform men?
An understanding of some common yet unconscious behaviours could help to improve investment returns. Advisors can play a fundamental role to observing these behaviours and helping to ensure decisions being made are mindful.
According to a study by US fund manager Fidelity, in 2021, women investors outperform men, with 67% of women investing further than their pensions.
What the study also shows is that the natural tendency for many women is to ‘squirrel’ their funds away, retaining cash. This is a characteristic which may cause them to miss out on profitable investment returns.
The same study showed that women investors achieve positive returns and surpass men by 40 basis points on average.
Why do women investors tend to outperform men?
There are three main reasons. Women do better because they hold their nerve, don’t make rash decisions and trust their long term choices better than some men, who tend to crytallise losses and incur trading fees.
But the same behaviours can have a negative side. The research suggests some women are hesitant when it comes to investing.
“Boys will be Boys: Gender, Overconfidence and Common Stock Investment”, a study by Brad M. Barber and Terrence Odean, “ found that in 35,000 brokerage accounts, the female sample outperformed the male.
Why? Men’s returns were eroded as a result of over trading based on overconfidence.
There’s also evidence that women prefer different kinds of investments.
Hargreaves Lansdown, the FTSE100 investment firm, found that women are more likely than men to invest using investment funds. Investing in funds gives broader diversification to a portfolio with multiple assets, companies, geographic locations and currencies. In addition, assets are regularly rebalanced by the investment manager supporting a set-and-forget approach.
So what does mean for your clients?
The key point is that we all make assumptions as we consider and deliver professional advice.
Here are some to consider:
1) Is our advice gender-aware? For example, corporates looking to provide financial advice as a staff benefit could consider whether their advisors consider a range of views when developing their advice. There is much to understand about the influence of gender in the investment world.
2) Are you holding excessive cash? Male or female, individual or corporate, many Irish people are long on cash and short on assets positioned for growth in the inflationary environment of 2022. Regular investing could be a solution.
3) Think longer term: Investing over long periods of time will likely reduce the frequency of trades allowing money more opportunity to compound growth, and avoid panicking during periods of uncertainty.
4) Male or female, an investing approach which favours diversification, placing only a small proportion of your investments into highly speculative assets, and focusing on the long term looks set to deliver more reliable returns.
You can watch Ralph Benson, Co-Founder & Head of Financial Advice at Moneycube discuss some of these topics here in an interview with Dan Malone of Malone Financial.