Venus, Mars and Investing
A number of studies have found that women are less willing than men to take risks, and thus they invest more conservatively. Yet recent research suggests that risk tolerance may have more to do with experience than gender, and that men and women with the same level of experience make similar investment decisions.
Although women in general may be more risk-averse than men, 85% of women agree that risk-taking can be beneficial, and 81% believe they can adapt to changing market conditions and investment outcomes.
OVERCONFIDENT MEN One area in which men and women differ is in the level of confidence in their investment knowledge. Of course, believing in one's knowledge and actually having knowledge are very different.
Women like to study an investment before making a commitment and generally have realistic performance expectations. Many men also do extensive research, but overconfidence may lead some to "dive in" without sufficient information.
The combination of confidence and competitiveness could explain why men tend to trade more frequently, potentially sacrificing long-term results for short-term wins and losses. The 2011 book Warren Buffett Invests Like a Girl makes the point that Buffett's careful, value-driven, buy-and-hold philosophy is similar to the approach of many women.
Response to market downturns also differs by gender. Men are more likely to take further risk in the hope of salvaging a losing investment. By contrast, women tend to avoid overexposure to risk in the first place and are more likely to sell a losing investment rather than risk more.
Research has demonstrated that female investors consistently outperform male investors over the long term due in large part to their better results during down markets.
OVERLY CONSERVATIVE WOMEN Though a moderate investment approach may be an appropriate strategy, some women might need to invest more aggressively in order to generate the retirement income they will need. This is especially true considering that women have been at a disadvantage in the workplace and, on average, live longer than men.
In an industry survey, the average retirement savings for a woman aged 65 to 69 was about 22% less than that of a man of the same age. Even though much of this difference can be explained by such factors taking time off from the workforce to have children, a Federal Reserve economist estimated that 10% of the difference in retirement account balances may be attributed to women's more conservative investment choices.
Differing trends for men and women could provide a helpful framework for assessing your own investment approach. However, the body of research on gender and investing makes it clear that there is no on-size-fits-all strategy, and that all investors could benefit from greater knowledge, experience, and engagement in investment process.
(The author wishes to thank Pete Pallone of Pallone Financial Services, Inc. for permission to reprint this article from his newsletter.)
