Over the past decade, several studies found that women were better investors than males. Recently, an analysis of 5m Fidelity accounts over 10 years showed that US women’s returns were 0.4% higher than men’s.
According to a Berkeley study, this difference was even higher, by nearly 1%. The Warwick Business School in the UK found that among stock market investors between 2012 and 2016, the annual return by men was 0.14% above the performance of the FTSE100 versus the 1.94% gain achieved by women.
A separate study by Hargreaves Lansdown, the UK’s biggest consumer investment platform, found women investors returned on average 0.81% more than men over three years.
It might not sound like much, but Hargreaves said if this pattern continued for 30 years, the average woman would have a portfolio worth 25% more than the average man.
It is hard to generalise or tell if this is idiosyncratic, but some key characteristics women tend to possess might account for their outperformance in the market.
• Women were more risk-conscious. A survey by BlackRock found 72% of women rejected “riskier” equities, bonds, or real estate, as opposed to 59% of men. A slower, measured, and less gambler-esque approach to investing generally resulted in higher returns over the longer term. That also meant outside of an absolute outperformance relative to men, women recorded a much higher “risk-adjusted return” than men.
• Women left their investments alone. High trading levels tended to diminish returns, and women changed their portfolios less often than men. The Warwick study found female investors traded nine times a year on average, while for men, it was 13. It might surprise many to learn that women tended to be less emotional about money than men, and, as a result, they did a better job of avoiding impulsive decisions and stayed calmer during market volatility.
The US financial services company Nationwide calculated that during periods of chaos in the market, 15% of men liquidated their portfolios versus 8% of their female clients. It is a bad idea to sell your investments when the markets fall because massive dips are almost always temporary, and the markets always recover following shocks.
• Women were better at letting go when they should. Loss aversion is an emotional bias that limits investor success. A study published in the Journal of Risk and Uncertainty found men were more loss averse. That meant they were more likely to hold on to their “losers”, hoping for a turnaround in fortune, than women were.
• Women were less sure of themselves making financial decisions. A 2020 study by George Washington University’s Global Financial Literacy Excellence Centre found women were less confident investors. Specifically, 54% of the women surveyed self-identified as having a high level of investing knowledge versus 71% of men, and 34% felt comfortable making investment decisions as opposed to 49% of the men surveyed. Overconfidence was an emotional bias inhibiting investment success. Being less confident could lead to more research into buying (and selling!) decisions.
• There is evidence women were less likely to hop on investing fads. As an example, in 2021, Gallup Analytics found 11% of US male investors owned Bitcoin as opposed to 3% of female investors. Also, during the meme-stock fad of early 2021, Hargreaves found trades in GameStop and AMC Entertainment were dominated by men, with 86% of orders placed by male investors. That could indicate women were less likely to exhibit FOMO (another emotional response) when making investment decisions.
The issue remained that women were less likely to invest in the stock market than men, but the reasons could be exactly why they should invest in the first place. Risk aversion, a perceived lack of wealth, and low confidence in their abilities may aid rather than limit success in the equity market.
Thankfully, there were some encouraging changes in this regard, particularly internationally. The Fidelity study found the percentage of women who invested outside of retirement grew from 44% in 2018 to 67% in 2021, and women opened brokerage accounts at a younger age.
There was also a shift in the wake of Covid-19. A 2022 global survey by trading company eToro found of the 9 500 female investors surveyed, 48% entered the market for the first time post-2020.
Fidelity backed this by showing 50% of women surveyed in 2021 were more interested in investing after the start of the pandemic.
Investing in the stock market is an excellent way to build wealth and protect money from inflation. Importantly, investing is for everyone, and there are options suitable to any level or type of investor – the key to success is just to start.
