When it comes to industries, the investment industry is one of the more male dominated around. Because of this, many people just assume that men are better investors.
They would be wrong.
According to data from US financial services giant Fidelity Investments, women are actually superior investors. At least, that’s what US data appears to show.
In sifting through more than 8 million US investment accounts, Fidelity discovered that women not only save more than men (approximately 0.4% more per annum on average), but their investments also earn an average of 0.4% more per year.
Those differences may seem too small to matter, but, extrapolated over a lifetime of saving and investing, the disparity at retirement age is anything but minor.
For a 22 year old starting out with a salary of $40,000 a year, a female investor that both saved more and achieved a higher investment return would see her eventual retirement savings significantly outstrip her 22 year old male counterpart.
What is it, exactly, that makes women better investors?
According to Fidelity, there are three main factors:
1. Planning with purpose
Women tend to think much more holistically about their investments, and build their financial plans around life goals rather than trying to beat the market.
2. Taking less risk
In this context, taking less risk means generally managing risks better. For example, women tend to make fewer overtly risky bets, such as putting all of their money in a handful of shares, which would be prone to suffering larger price swings and bigger losses in turbulent markets. Consistent with taking less risk, women are also more likely to pick investments that are appropriate for their age and time horizon.
Women generally place fewer trades and are much more diligent at carrying out a long term, buy and hold strategy. Men are 35% more likely to make trades than women, and that extra trading is costly.
Men can also be prone to becoming overconfident that they understand with great precision the value of a share, and this confidence encourages them to trade more.
Unfortunately, many men regard their share investments as a sport that comes with bragging rights, and that is what ends up getting them into trouble.
Sometimes their trades will be right, and other times, they will be wrong, but they’ll always pay the costs of trading, and that impacts performance over time.
The data in New Zealand is less revealing. That’s not because the attributes of female investors in New Zealand are necessarily any different, but, absent a New Zealand version of the Fidelity study, it’s very hard to isolate trends in the limited New Zealand savings data available.
While the average KiwiSaver balances of New Zealand females are lower than males, this may have more to do with gender pay inequality than being the result of different savings and investment habits.
Overall, women – at least in the Fidelity study – tend to be more successful investors than men because they do the simple things better. Women have long term goals, and they are better at sticking to their plan. They focus on saving and investing for retirement or a university fund, and are less likely to adopt high turnover strategies attempting to outsmart the market.
However, while women tend to be better savers, they also tend to be more concerned about the risks inherent in the share market. In general, women lack a degree of confidence about investing, despite a growing body of evidence that they may be naturally better at it.
Another inescapable statistic is that around 90% of women, at some point in their lives, are also likely to be the sole decision maker in financial matters, due to divorce, death or other circumstances. In that event, having naturally good investment habits will be particularly valuable.
We think the biggest takeout from the Fidelity study is that these observed behavioural differences between men and women can, over time, lead to different investment outcomes. And, as the study found, those behavioural differences tended to result in better average investment performance by women over men.
That resonates with us. Not because we necessarily agree that women are superior investors, but because our investment philosophy and our carefully crafted investment strategies are based on some of the same favourable investment attributes referred to above (managing risk well, patient trading, etc).
However, in addition to these, we also incorporate significant academic evidence into our portfolio construction, and we focus on smart diversification and cost minimisation. When delivered within a well managed portfolio, these attributes provide additional benefits to all investors.
The end result, and the really good news for readers of this article, is that anyone (male or female) can adopt our investment strategies to become a significantly more effective investor.