This article was published in the New Haven Register on September 30, 2017.
Numerous studies have shown that women are better investors than men on average. If you’re a man who is interested in maximizing your investment returns, you should consider what you could learn from women.
And if you’re a woman, you should feel more confident about your portfolio management abilities: A recent study by Fidelity Investments shows that only 9 percent of women think they would outdo the average man at investing, yet the statistics show otherwise.
Women investors earn 0.4 percent higher annual returns than men, a gap that can make a big difference over the long term. They also save more, socking away an annual average of 9 percent of their income compared with 8.6 percent for men. That may not sound like a big difference, but over decades it is magnified significantly.
So what can men learn from women investors? According to Fidelity’s customer analysis, women excel at:
Holistic Financial Planning. While men often focus largely on portfolio performance, women craft financial plans with the goals and needs of themselves and their families at the core of their decisions. As a Certified Financial Planner, I endorse, and practice, a strategy of placing life goals at the foundation of financial planning and retirement planning.
Patient Investing. Men are 35 percent more likely to make trades than women. Studies have shown this reflects higher self-confidence on the part of men. Sounds good, except that when it comes to investing, slow and steady more often wins the race. Women are more likely to adhere to a “buy and hold” policy, earning higher returns in the long run and avoiding the expenses associated with frequent buying and selling.
Diversification and Age-Appropriate Allocation. Men are more likely to have their entire portfolio invested in equities than women, and women are more likely to allocate between stocks, bonds and cash based on their age.
These three factors show that women are generally more conservative investors while men are more likely to take on risk. Part of the reason is that women worry more about financial matters. As I discussed in a column earlier this year, 68 percent of women report losing sleep over money, compared with 56 percent of men, from bills to retirement savings.
That is partly a reflection of self-doubt on the part of women, who sometimes lack the self-confidence of men. But as I noted before, a more cautious approach tends to produce better results over the long term (although too much stress is clearly not a good thing). Women need to feel more positive about their habit of worrying about money, while keeping such stress under control, while men need to think about what they can learn from the women in their lives.
Finally, one way to combat money stress is to enlist the help of a financial adviser: A 2015 survey showed that 89 percent of people working with financial planners felt “very prepared” or “somewhat prepared” financially, compared with 63 percent of people with no adviser.