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Could women make better investors than men?

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Plenty has been written about the gender pay gap and how much less women earn compared to men. But there’s another gender gap that could be preventing women from reaching their financial goals and this one can be found in the investing world! Although women often oversee household bills and the family budget, some may be reluctant to enter the investing arena. And yet, when they do invest, women tend to do better than men.

 

Female investors tend to outperform men
Many studies reveal that women who invest get higher returns than their male counterparts. Academic research found that women outperform men by up to 1%1 a year, which in investing terms can be a lot! A more recent study led by investing platform Hargreaves Lansdown, shows that between August 2014 and August 2017, their female clients saw their investments increase by 0.81%2 more than men’s investments. The difference might seem negligible, but it can become more important if replicated over the long-term. Let’s take a £20k investment over 20 years with a yearly return of 7.81% for women and 7% for men. Whilst women would get £94,885.53 after 2 decades, men would end up with around £14,000 less as their returns would reach £80,774.78.

1: Reuters, June 2017 - https://www.reuters.com/article/us-money-investing-women/why-women-are-better-investors-study-idUSKBN18Y2D7
2: Investment Week, Feb 2018 -
https://www.investmentweek.co.uk/investment-week/news/3026206/women-outperform-men-in-investing-finds-hargreaves-lansdown

 

Women are risk-averse
Many reasons can explain why women tend to outperform men when they invest. The main one is that female investors typically take fewer risks. As women are more likely to live longer but earn less on average, they might become more reliant on savings and investments as they grow older and understandably, women can be more concerned about losing money and want to keep as much as they can. Therefore, most female investors try to mitigate risk when they put their money in stock markets. Studies3&4 show that women are more likely to diversify their portfolio notably by buying funds, ready-made hampers containing a large number of investments from markets across the globe. Instead of picking individual assets with the hope to win big, women prefer to spread their money across several markets and assets, so if one or two markets fall, typically a smaller portion of their investments would be affected.

 

Women think long-term
When women invest, it’s often with long-term projects in mind. And whether they invest to buy a house or prepare for their children’s future, female investors appear to favour a ‘buy-and-hold’ approach. Put simply, they buy investments and keep them over a number of years regardless of the markets’ fluctuations. They ignore the short-term noise and see investing as a long-term journey to achieve financial goals, not a game to be won. Research found that women trade shares 49%3 less frequently than men. Another study confirms this trend as it reveals that men are 35%4 more likely to buy/sell stocks than women. As a result, women typically pay less trading fees than men, meaning they tend to keep more of their returns.

3: Investment Week, Feb 2018 - https://www.investmentweek.co.uk/investment-week/news/3026206/women-outperform-men-in-investing-finds-hargreaves-lansdown
4: Fidelity, Aug 2017 - 
https://www.fidelity.com/about-fidelity/individual-investing/better-investor-men-or-women

 

To sum up, the myth that men are better at investing than women is being eroded by studies and data-based evidence that show women generally make better investors. Such findings will hopefully give even more women the confidence to invest and encourage others to try. And for those busy high-achievers juggling family and careers who don’t have the time to invest themselves, there are services like Wealthify that are super easy to use and will do all the work for them.

 

Please remember that the value of your investments can go down as well as up and you could get back less than invested.

 

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The comments and opinions expressed in this article are the author's own and should not be taken as financial advice from Wealthify.

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