Many studies have found that men and women manage money differently.Generalizations can be dangerous but there are some common gender traits that have been found to impact investment performance. An increased awareness of our strengths and weaknesses can help us adjust behavior for a better outcome.
Women are more focused on the long term. They are more likely to develop a plan and stick to it. Women are goal oriented and use investing to accumulate enough money to achieve a specific goal. Due to this long-term goal orientation, women are calmer and less likely to react to market volatility.
Men on the other hand place more focus on short term performance and are more likely to react to sudden changes in the market. Studies have found that men regard the performance of their investments as a competition and they strive to outperform the market.
Research shows that men are more confident than women about investing. A Merrill Lynch study found that 55 percent of women felt they knew less than the average investor about financial markets and investing in comparison to 27 percent for men. Men tend to be over confident resulting in an overreaction to market fluctuations. A 2016 study by Fidelity Investments found that men made 55 percent more trades than women. By trading more frequently they were more likely to trade at the wrong time leading to lower performance. Men could benefit from a more systematic, less reactionary investment strategy.
Alternately, women tend to be overly risk adverse. Some risk must be taken to earn a reasonable return. Women tend to associate investing with security, independence and wealth preservation where men associate investing with wealth accumulation.
In the 2016 survey by Fidelity Investments, only 9 percent of the women said they would out perform men. However, when Fidelity analyzed the actual returns of 8 million retail clients they found that women had outperformed men by .4 percent of 1 percent. They were more likely to maintain an allocation deemed appropriate for their age and were less likely to have a portfolio that was invested entirely in stock. They were also more likely to invest in target date funds. This study indicated that a woman’s lack of confidence and the tendency to trade less worked in her favor.
Fidelity also found that women saved more than men, 8.3 percent to 7.9 percent and a Vanguard study found that women were more likely to participate in employee retirement plans at a rate of 73 percent vs. 66 percent for men. However, women were more reluctant than men to invest outside of their company retirement plan.
The best approach to successful investing is a blend between habits practiced by both men and women. Generally, women can benefit from improved confidence and taking more risk and men can benefit from being more methodical, avoiding excessive trading and being less competitive.