Perhaps the 74 million-mile distance between Mars and Venus has an influence on why men and women invest so differently. But most actual investment happens on Earth, where it may be advantageous to bring both perspectives to the table. How do men and women invest differently, how can they impact the long-term outcome of a portfolio, and why is it important to find a balance?
Research is fairly consistent about how men and women invest differently – the differences, though generalizations, are stable and turn up in multiple studies. Let’s take a look at some of the primary ways in which men and women manage assets differently, which will be a key to understanding how to make use of the best of both worlds.
Women look longer-term, men are more likely to track short-term fluctuations.
This is probably the biggest difference researchers see between men and women in their investment styles. Women tend to look out toward future goals and then carefully and patiently build a long-term strategy to meet those goals. They will then stick with that strategy, despite any market ups and downs. Men, on the other hand, make an estimated 50% more market trades than women1, being more attentive and reactive to short-term market movements. “[Men] are more likely to track short-term fluctuations and abandon ship at the slightest sign of market volatility.” 2 This means that men are often more likely to buy high and sell low, while women have the advantage of maintaining long-term investments. Frequent trading may also result in higher fees.
Women have a lower tolerance for risk, men seek out more risk.
Men are more aggressive and tolerant of risk than women, who are generally much more risk-averse than men. Both of these can be advantageous or disadvantageous, depending on the situation. Men also tend more toward overconfidence, which can amplify risk-taking. Women, on the other hand, sometimes fear to take adequate risk to reach their investment goals. The end result is that men will generally take on more risk in a portfolio, while women will invest more cautiously. Combining both a cautious and thoughtful approach with careful risk taking is usually optimal.
Men and women have different investment values.
In general, women tend toward more altruistic behavior, while men tend to be more competitive. This can influence their choice of investments; women will want their portfolios to align with their values as well as outperform, and men will focus more on a desire to compete and outperform. Another key difference is that women are more likely to seek out professional investment help than men, who more often have the confidence to go it alone.
If investing was a contest, it would be a close one. Recent data from Fidelity suggests that although only nine percent of women believe they would outperform men, in actuality, women do outperform men by an average 0.4% over time. 3 Fidelity attributes this small but significant margin of outperformance to women’s patience and propensity to take on less risk. Other researchers also estimate that women outperform: “Even though financial services are dominated by men, women have the edge over their counterparts. The more conservative approach women take has been found to generate median returns of 5.3%, while males earn just under 5%.”4
All of this information makes a strong case for why a successful investment strategy should incorporate viewpoints and tactics from both sides of the gender fence. For instance, men could learn from women’s patient, thoughtful, and cautious approach, and women might benefit from an increase in risk tolerance and confidence. For both genders, being aware of the ways in which they differ can help to better take advantage of gender-related strengths and counteract weaknesses.
The finance industry is currently heavily male-dominated; only 10% of funds are managed by women5, and only 11.5 percent of financial advisors are women. 6 There are efforts to draw more women to the finance and investment industry, and they are starting to work — Cerulli reports that about 28% of new advisors are female7 — but there is still a long way to go! Increasing awareness of what women bring to the investment table and thus increasing demand for female investment advisors and managers will spur the process.
We are proud to be ahead of the curve in this area, with more than 40% of our investment advisors being women. We believe this has been a differentiator for Arnerich Massena, lending us an edge by providing a more diversified well of knowledge and experience from which to draw. And it is exciting to be part of the movement toward bringing gender diversity to the investment industry.
Stay tuned for more information on this topic.
1 “How Men and Women Invest Differently” by Trevir Nath; Nasdaq; April 8, 2016
3 “Who’s the Better Investor: Men or Women?” Fidelity Investments; May 18, 2017
4 “How Men and Women Invest Differently” by Trevir Nath; Nasdaq; April 8, 2016
5 “Morningstar Research Report: Fund Managers by Gender,” Morningstar; June 2015; http://corporate.morningstar.com/US/documents/ResearchPapers/Fund-Managers-by-Gender.pdf
6 “Number of Women Advisors on the Rise, Especially at Banks,” WealthManagement.com; August 21, 2014
7 “Challenges Facing Female Financial Advisors” by Steve Garmhausen; Barrons; June 4, 2016