Men are from Mars, women are from Venus, but we all invest on Earth. Gone are the days when men controlled the finances and women raised the children. Today both genders have equal say in major household decisions, including financial planning and investing. However, there is still a large degree of parity of investment styles between men and women.
This stems from the inborn tendencies and cultural expectations surrounding gender and money. Many of the fundamental stereotypes we try to abandon, show up in the way each sex approaches investing. While modern research claims women are better investors, the ultimate investment strategy strikes a balance between the two approaches.
Investment Horizon
By nature, women tend to focus on the future and what’s down the road; whether that’s in relationships or money. Research has even shown that females behave in a way that better suits long term investing. This consists of constructing a well thought investment strategy and sticking to it, even through its ups and downs.
Their male counterparts, on the other hand, are more likely to track short term fluctuations and abandon ship at the slightest sign of market volatility. This occurs throughout all types of investing, even retirement planning which is typically a long term endeavor. It is estimated that men tinker with their portfolio 50% more than women.
Generally speaking, women are more patient and allow their investments to grow. This is important because frequently trading and acting on short term fluctuations cultivate negative outcomes. In this regard, men could borrow a page from women.
Risk Tolerance
Choosing an investment horizon and being patient is only step one. Determining what assets to buy can also vary between both genders. Fundamentally, men are more competitive and overconfident which leads them to take on more risk. They’ve been found to invest in unfamiliar companies or deem recent news as unique arbitrage opportunities. Unlike men, women are more risk averse and make investments to maintain their principal. Many of these investments are goal oriented with lower potential returns.
Risk tolerance, too little or too much, can be a problem for both men and women. To generate substantial returns in the long run, some risk may be necessary, which women often neglect to a fault. As a result, they lean towards target date funds while men prefer stock funds. Surprisingly, the overall equity exposure for men and women is about the same at 73%.
Financial Planning
Financial planning is often very subjective and can vary from person to person and even between both genders. In the long run, women tend to save more than men, whether that’s in a savings account or long term investments like a child’s education or retirement. One common theory explaining women’s conservative approach comes from the gender wage gap.
Since women earn less than their counterparts, they have more to lose by taking on additional risk. Another theory suggests that biology and maternal instincts play a role. Either way, research has found that women save 8.3% of their salaries while men only save 7.9%.
Moreover, women are more cautious or lack confidence in their financial decision making. They are often more receptive to financial research and may even require a financial advisor as a resource. Men on the other hand, make more brash decisions and frequently focus on making a quick buck.
Final Take
As we now know, women are more thoughtful and risk averse when it comes to investing while men are thrill seekers with a quick trigger. 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%.
Economic research has found that a passive strategy habitually outperforms an active one in the long run, so it makes sense that men are 25% more likely to lose money in the market. That said, men have greater upside potential since higher risk typically means higher returns. Furthermore, men and women gravitate towards certain stocks like Tesla (TSLA) for men or Pfizer (PFE) for women. Despite what the numbers may say, both men and women can take notes on how the opposite gender invests.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.