While there are far fewer women investing in the stock market than men, research shows they are better at it! Why is this?
THE DIFFERENCE IN MALE AND FEMALE INVESTING
In 2018 Warwick Business School published a study where they had surveyed 2,456 investors, 450 of which were female, between April 2012 and July 2016. It compared male and female investors through Barclays and their trading behaviour over a 36-month period. The study look at a range of criteria; the amount of money invested, the type of investments held and how often investors bought and sold.
HOW DO WOMEN INVEST DIFFERENTLY?
- Women invest for the long term and are more risk aware
“Women also take a more long-term perspective, trading less frequently. This possibly means women are investing more to support their financial goals, whereas men are attracted to what they see as the thrill of investing.” “The study showed women prefer a more ‘slow and steady’ risk-averse approach to investing. the don’t tend to choose the riskier ‘lottery style’ investment options that men often favour.
Women are motivated by what they can create through investing rather than the success of the activity itself. They prefer a ‘slow and steady’ approach to investing, the study showed women don’t tend to choose the riskier ‘lottery style’ investment options that men often favour.
She explains: “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.
Put money into less speculative or ‘risky’ investments
They keep hold for the investments that are doing well and
2. Women buy and sell less
The purpose of investing is putting money into assets. You buy and hold assets to create wealth for you in the long term through providing an income and/or an increase in value. In the study it was found that women only traded nine times a year on average, compared to 13 times for men.
In the words of George Soros ”good investing should be boring. The largely male hobbyist investors who analyse, fiddle, tweak and take punts are generally doing less well than someone adopting a much cheaper, less complex approach,”
Women buy and sell their investments less than men. Make less speculative investments and keep the costs down. Buy it and leave it alone rather than moniter, tweak and make changes in an attempt to second guess what is going to happen to the stock market. Women save on the fees needed to do this and the impossible task of trying to work out what the stock market is doing ‘timing the market’ and get the full benefits of time in the market.
Women only traded nine times a year on average, compared to 13 times for men.
3. Women have a greater diversity in their investments
The biggest difference in the way that men and women invested and the one that most impacted on their returns was in the type of stocks they invested in. Female investors had their money in funds. This means their money was invested across a range of companies, sectors and parts of the world and spreading the risk. The Warwick Business School analysis identified that men were more likely to adopt a “lottery style” of investing which they described as the tendency to invest in more speculative, lower priced shares that might increase in value substantially. Women tended to research what they were buying and stick to those investments that had a good track record.
“Men are just a little more likely to be drawn to more speculative stocks whereas women are more likely to focus on shares that already have a good track record.
It was also found that men would keep hold of shares that that lost money, hoping they would recover, while selling off the ones that had actually increased in value.
It is well documented how a lack of knowledge and confidence is one of the biggest barrier to women investing in the stock market. This confidence can become overconfidence in their ability to actively manage a portfolio. That makes men susceptible to an “illusion of control,” which is a tendency for people to believe they control chance outcomes more than they really do. This mentality often leads to over-trading and higher transaction costs that dilute performance.
An overconfident investor will often feel an extra urge to buy more in good times to capture more gains, or sell more in tough times to prevent future losses. Men are more vulnerable to such impulsive behavior, on average and this affects their investment returns negatively.
THE DIFFERENCE THIS MAKES
The group of women outperformed males in the study by about 1.8% per year.
With the magic of compounding these differences in how men and women invest can make big difference over time.
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.
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A Yougov study found that 52% of women have never held an investment product, compared to 37% of men. 45% of women are open to investing and think it is good idea but want to understand what they are doing and the jargon filled nature of the financial sector is very off putting. But when women do invest they achieve better returns.
Following on from being more consistent is the observation that women also tend to put more time into the research and learning phase of investing.