The news has been rife with stories about the “gender investment gap.” Does gender make a difference as to how a person invests? Traditionally, it’s been thought that men are the greater risk-takers and therefore the better investors. That said, we often ignore women’s strengths when it comes to investing.
A Northwestern Mutual study claims that women are more cautious investors, but is that really true? After working for more than 20 years with both male and female investors, my opinion, anecdotally anyway, is that women are usually better investors than men. Don’t believe me? Let’s look at the facts.
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The Data on the Gender Investment Gap
Most people don’t have an accurate view of the gender investment gap. Surprisingly, when you ask women whether men will do better with their investments than they will, women assume that men will fare better. But they’re mistaken.
When comparing female investors with male investors, women almost always save more of their income and have better returns on their investments.
Women earned 0.4 percent more from their investments than men in 2016, according to a study by Fidelity Investments. Additionally, they saved 9 percent of their income for retirement while men saved only 8.6 percent of theirs.
This slight difference will result in women having a lot more money to live on later compared with their male counterparts. However, because of the gender wage gap, women generally earn less money, so even if they choose to invest, they often begin with a lower principal.
The gender investment gap is basically this: Although fewer women invest than men, women tend to do it better.
Women have told me that fear and a lack of knowledge sometimes hold them back from investing. I’ve found that women are more afraid of investing money and the risks associated with the market than men are. But women need to worry less and trust themselves more because they often make better investors than men do for several reasons.
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7 Reasons Women Are Often Better at Investing
As I’ve worked with hundreds of women over the past two decades, here are some observations I’ve made as to why women are typically better investors than men, To be sure, these are my observations, but two decades of experience has accentuated certain trends that I think are important:
1. Women Are Planners
Let’s face it, women often plan out their whole lives from the time they’re little — what their wedding will be like and how many kids they want to have, if any, and what kind of profession they hope to pursue.
Women are also purposeful when they consider financial planning. Instead of trying to beat the market or get in on “the next big deal,” their investment strategy is usually centered around their life goals.
2. Women Are More Willing to Educate Themselves About Investing
Women are often willing to do research on topics they don’t understand. In general, men do research on the next Apple gadget or Google invention while women usually research information that empowers them financially, relationally, or health-wise. That’s not to say women don’t invest in Apple or Google, if it’s a good strategy for them.
3. They Understand Risk More Fully
This goes along with No. 2 above. Because they’ve educated themselves, women have a better idea of how much risk they should take, and they take less risk. However, they aren’t totally opposed to the concept. They are willing to take calculated risks. This means they will usually have less risk in their portfolios, too, while men seem to be quicker to take financial risks.
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4. Women Are Less Emotional About Investing
Yep, you heard me right. Let’s throw out the stereotypes, please!
Women don’t let their emotions drive them when they invest.
Instead, they rely on what they’ve learned. For example, men sometimes struggle with the fear of missing out, or “FOMO”, while women remain steadier knowing that markets go up and down.
5. They Aren’t as Competitive
Now don’t mistake what I’m saying — women can be and are competitive. But I don’t often hear them talking with one another about how big their portfolios are or how much they made off of one stock.
But men are always competing with one another. If men hear that a friend’s financial adviser did really well on a particular stock, they begin to feel inadequate or like they are missing out on a sweet deal.
6. They’re More Patient
Women aren't usually looking for a “hot tip” or the “next big thing.” They understand that investing is for the long term. They don’t chase returns. Instead, they remain steady, knowing that consistency is the key to success.
Women generally make an investment and hold on to it longer, while men are more likely to trade and make other changes in their portfolios.
7. Women Also Have More Realistic Expectations
While planning, women understand that there are going to setbacks and bumps in the road. They don’t lose focus when they have a setback.
Women understand that investing the market is a marathon, but men often think of it as a sprint.
Men want to hit a home run right off the bat, but women know that getting a base hit and going from base to base will eventually get them home, too.
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Closing the Gender Investment Gap: Developing Bolder Portfolios for Women
As you can see, the gender investment gap is more about women overcoming their fears than it is about their competence. Although there’s nothing wrong with being a cautious investor, I have some ideas for women who want to develop a bolder portfolio and increase their earnings:
1. Girlfriend Power!
Women enjoy talking with other women about so many intimate parts of their lives. Why should that be different when it comes to investing? Talk to a female friend or group of friends about investing questions if that’s where you feel most comfortable — especially when you’re just starting out.
2. Consult With a Financial Planner
This is back to the old “I know where we are, I don’t need to ask for directions,” says the lost man. Women are more likely to ask for help, and consulting with a professional is a great way to embolden your investment portfolio.
However, steer clear of any advisers who prey on your fear and pressure you to do more than you feel comfortable doing. Also, trust your gut. If something doesn’t make sense to you, wait. That said, there are many good financial planners out there who put client needs before selling a product.
If you want financial advice, but interacting with live humans seems daunting, you can go the digital route. For instance, Ellevest is a robo-adviser that helps women build portfolios based on their individual goals, with tailored recommendations to work within your budget.
Since women generally earn a lower income than men, may take career breaks that impact lifetime earnings, and live longer than men, the traditional investment advisers build recommendations based on a typical man's career trajectory. Ellevest's algorithm factors these differences into their portfolio creation and even offers optional impact investing, which allows women to invest in companies with more women leaders, policies that advance women and companies that provide loans to support women-owned businesses.
3. Learn the Ropes
Sometimes when we don’t understand something, we just shy away from it. We avoid it. Instead, do your research and find the answers you need. Then take the plunge slowly. Make the investments, make the trades, or expand into a whole new investment area altogether.
4. One Step at a Time
Sometimes all it takes is one step in the right direction to help you broaden your portfolio. You don’t have to change everything at once. Small, consistent changes over time can help you reach your goals without risking the stability you value.
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Women, Investing, and the Gender Gap: Wrapping It All Up
Women don’t have to succumb to the gender investment gap. They understand that making money overnight isn’t the goal. On the other hand, they need to stop underestimating themselves when it comes to investing.
The numbers say that women do it better than men, so hop on board and start planning for your future! Don’t be afraid to take the next steps to secure your financial future for yourself and your family, whether it’s preparing your “Just in Case” File, understanding your unique risks in your retirement years, or choosing ways to prepare for retirement.