By Brandon Miller, CFP–
A favorite taunt of schoolyard boy bullies trying to bolster their fragile egos is to tell other boys that they do something “like a girl,” as if that was the worst insult in the world. The truth is, we could all benefit from doing a lot more things the way women get them done.
Investing is one of those areas. Yes, women really are better investors than men. And that’s demonstrated in study after study. Research from Fidelity Investments in 2017 showed that women earn higher returns than men while taking on less risk—an ideal combination. They also found that women save more than men do, which is good because they probably earn less.
These findings are supported by a 2016 paper from Australian economics professors, a 2015 study from a computerized portfolio management company, and all the way back to a 2001 scholarly article that found women earned 1.4% more in annual risk-adjusted net returns than did men.
So, what’s their secret?
Turns out, some of the traits we think of as inherently feminine are perfectly suited to successful investing. This means that employing women’s strategies—whether you’re a he, she or they—can potentially help you to yield better investment results.
What Women Usually Do Right When They Invest
Save more. The best thing that women do for themselves as investors is to put aside more of their earnings than men generally do. The Fidelity Investments study shows that women contribute an average of 9% of their paychecks into workplace retirement accounts vs. an average of 8.6% for their male counterparts. Outside of the workplace, IRAs and brokerage accounts, for example, the average percentages are 12.4% for women vs. 11.6% for men. At first glance, these percentages may seem small. But with the miracle of compounding, over many years, these fractions can add up to hundreds of thousands of extra dollars.
Focus on goals. Perhaps women save more because they tend to view investing as a way to accomplish life goals for themselves and/or their families. Men too often view investing as a competition, a perpetual game of “beating” the market. Rather than make investing decisions based on whether they advance life goals, too many men resort to that stereotypical male trait of focusing on performance. And my, my, my that can lead to bad decisions.
Take less risk. Another trait that works in their favor for investing is that women are generally more risk-averse than men. Trying to maximize the efficiency of their investments, women are apt to use an asset-allocation strategy—just as every financial professional suggests. Women are particularly drawn to target funds, which manage risk based on when you need the money.
Overconfidence often leads men to take on more risk than is appropriate for their circumstances, or is needed to achieve similar results. They’re also more prone to commit that financial sin of chasing returns, often watching their “sure things” and “best” investments fizzle out months after buying.
Buy and hold. Patience is most often considered a feminine virtue, perhaps because you have to be highly patient to choose to sacrifice your body for nine months to welcome new life. But lo and behold, patience is exactly what’s needed for the buy-and-hold strategy stressed by financial professionals.
Men, well, need I bring up that competition thing again? “Hey, how can you beat the market if you don’t buy and sell?” may explain why the Fidelity Investments study found that men are 35% more likely to make trades than women do. This can lead to higher fees and a lower return, which is obviously no one’s goal.
Admit they don’t know it all. We could call this the “women will stop and ask for directions” trait. I hate to keep beating the same drum, but male overconfidence can also be blamed for men’s tendency to plunge in and buy or sell something without always understanding if it actually benefits them. Women are more apt to ask questions, do research and consult with friends and professionals before making decisions.
What I’m trying to emphasize is that if you want to pump up your portfolio, it might be smart to get in touch with your feminine side, regardless of how butch you consider yourself to be. In a nutshell, you’ll probably benefit from taking a long-term view, saving more and trading less—just like women often do.
Brandon Miller, CFP® is a financial consultant at Brio Financial Group in San Francisco, specializing in helping LGBT individuals and families plan and achieve their financial goals.
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