Most of the women I meet in Paris when I’m talking about money and investing look frankly shocked when I lightly mention that many studies show women are actually better investors than men.
Finance is still considered such a male-dominated realm. Despite the fact that more and more French and Anglo-Saxon women work in the finance sector (and other math-related fields), many women still leave it to their husbands to sort out money-related subjects.
Frankly, I do the same when it comes to technology – it’s so much easier to pass difficult subjects like that on to some techie husband or financial whizz kid of a son or daughter.
Yet when women make the effort, it seems our better control of our emotions (yes, really!!) and other factors win out in the investment world.
The first study to demonstrate this surprising finding was published in 2011 by Brad Barber and Terrance Odean (Boys will be Boys: Gender, Overconfidence, and Common Stock Investment, University of California Berkeley). It examined account data for 35,000 household accounts held at a large discount brokerage firm and found women tended to outperform men by a margin of roughly 1% per year. That might not sound like a lot, but it makes a big difference over the long term.
Some of the main reasons (based on several studies) why women are considered to be better investors
- They don’t put all their eggs in one basket: Women are more likely to buy a large variety of different investments and diversify which reduces the risks of losing money.
- They do their homework: This is partly because women tend to have less confidence in themselves so are more likely to research their investment well before they take the plunge. Male investors, in contrast, tend to suffer from overconfidence.
- They trade less often: Subsequently, they don’t waste money on transaction costs. Some studies have found men trade up to 67% more than women. Unfortunately, active traders tend to have the poorest results.
- They are better at admitting their mistakes: This can work in the investment field because it means female investors are more likely to sell out of a poorly performing investment.
- They are more likely to accept help: A survey by BNP Paribas Investment Partners conducted in the summer of 2015 on French people’s attitudes towards retirement savings found that 33% of French women always spoke to a financial advisor before investing. Similarly, a study done by Vanguard in the US in 2015 showed women tended to use professionally-managed retirement accounts rather than build their own portfolios, which often led to better performance.
Some proof for doubting Thomases
If you still don’t believe me and want more proof, here are some resources:
- Author LouAnn Lofton’s book Warren Buffett Invests Like a Girl: And Why You Should Too, The Motley Fool, April 2012. She says that, like female investors, Buffett does not trade very often and is able to control his emotions during even volatile market moves.
- A Vanguard study analyzed the market falls in 2008 and how owners of IRAs (individual retirement accounts) reacted. It found that men were more likely to panic and sell at the bottom than women.
- In her book, Women of the Street: Why Female Money Managers Generate Higher Returns (Palgrave Macmillan, May 26, 2015) Meredith Jones suggests that male hormones like testosterone could be part of the reason why men are more likely to panic and sell at the wrong time.
- A study by John Coats found that male traders can become addicted to the feeling of euphoria they get known as ‘the winner’s effect’.
“When under the influence of testosterone, male investors, particularly younger males whose testosterone levels are at their peak, may become less rational and more dogmatic and not execute their strategy faithfully”.
Coates also found men’s probability weighting skills became more distorted under stress, which was related to their levels of cortisol.
Unfortunately fewer women use these innate skills
Research by Fidelity Investments found that in the USA, men save 7.9% of their salaries and women save 8.3%.* However, the BNPP IP survey found that in France women had much lower levels of savings (50% lower on average) than men. This was largely because they prioritized spending on their children rather than savings or investments. However, even younger women in France (aged 18 to 24) who had no children still saved less than their male counterparts.
Perhaps if they realised how well-qualified they were, more French women would start saving and investing?