Over the last decade, a plethora of studies have found that women make better investors than their male counterparts. More recently, an analysis of five million Fidelity accounts over a 10-year period showed that US women’s returns were 0.4% higher than men. This difference is even higher according to a Berkeley study, which showed women’s returns were nearly 1% higher.
Warwick Business School in the UK found that among stock market investors between 2012 and 2016, the annual return by the men was 0.14% above the performance of the FTSE100 versus the 1.94% annual gain achieved by women. A separate study by Hargreaves Lansdown, the UK’s biggest consumer investment platform, found that women investors returned on average 0.81% more than men over a three-year period. It may not sound like much, but Hargreaves points out that if this pattern were to continue for 30 years, the average woman would end up with a portfolio worth 25% more than the average man.
It is difficult to generalise or to ascertain if this is idiosyncratic, but there are some key characteristics that women tend to possess that may account for their outperformance in the market.
- Women are more risk-conscious – A survey by BlackRock found that 72% of women rejected “riskier” equities, bonds, or real estate, as opposed to 59% percent of men. A slower, measured, and less gambler-esque approach to investing generally results in higher returns over the longer term. This also means that outside of an absolute outperformance relative to men, women also record a much higher “risk adjusted return” than men.
- Women leave their investments alone – High levels of trading tends to diminish returns, and women make changes to their portfolios less often than men do. The Warwick study found that female investors traded nine times a year on average, while for men it was 13. It may surprise many to learn that women tend to be less emotional about money than men and, as a result, they do a better job of avoiding impulsive decisions and they tend to stay calmer during periods of market volatility. US financial services company, Nationwide, calculated that during periods of chaos in the market, 15% of men would liquidate their portfolios versus 8% of their female clients. It is a terrible idea to sell your investments when markets are falling because massive dips are almost always temporary, and markets have always recovered following major shocks.
- Women are better at letting go when they should – Loss aversion is a major emotional bias that limits investor success. A recent study published in the Journal of Risk and Uncertainty has found that men are more loss averse. This means they are more likely to hold on to their “losers”, hoping for a turnaround in fortune, than women are.
- Women are less sure of themselves when it comes to financial decisions – A 2020 study by George Washington University’s Global Financial Literacy Excellence Centre found that women are less confident investors. Specifically, 54% of the women surveyed in their study self-identify as having a high level of investing knowledge versus 71% of men; and 34% feel comfortable making investment decisions as opposed to 49% of the men surveyed. Overconfidence is a major emotional bias inhibiting investment success. Being less certain could lead to more research going into buying (and selling!) decisions.
- There is some evidence that women are less likely to hop on investing fads/trends – As an example, Gallup Analytics found that in 2021, 11% of US male investors owned Bitcoin as opposed to 3% of female investors. Also, during the meme-stock fad of early 2021, Hargreaves found that trades in the likes of GameStop and AMC Entertainment were dominated by men, with 86% of orders on these stocks placed by male investors. This could indicate that women are less likely to exhibit FOMO (another emotional response) when it comes to making investment decisions.
The issue remains that women are less likely to invest in the stock market than men, but the reasons for this could be exactly why they should invest in the first place. Risk aversion, a perceived lack of wealth, and low confidence in their abilities may aide rather than limit success in the equity market.
Thankfully, there have been some encouraging changes in this regard, particularly internationally. The Fidelity study found that the percentage of women who invest outside of retirement grew from 44% in 2018 to 67% in 2021 and women are opening brokerage accounts at a younger age. There has also been a major shift in the wake of Covid-19 – a 2022 global survey from trading company, eToro, found that of the 9 500 female investors surveyed, 48% entered the market for the first-time post-2020. This was backed up by Fidelity who showed that 50% of women surveyed in 2021 were more interested in investing since the start of the pandemic.
Investing in the stock market is an excellent way to build wealth and protect your money from the detrimental impact of inflation. Importantly, investing is for everyone and there are a range of options suitable to any level or type of investor – the key to success is to just start.
Article by Chantal Marx, Investment Research Head, FNB Wealth and Investments