Different approach, better outcomes?
A new study by investment firm Fidelity shows that, although only 9 per cent of women thought their investments would outperform those of their male counterparts, on average, women performed better than men by 40 basis points, or 0.4 per cent1. So what’s behind that better return?
There are several factors, the first one being that women tend to save more. They keep an average of 9 per cent of their annual salary as opposed to 8.6 per cent for men1. However, other characteristics also play a role.
Looking more generally, the different approach men and women take to investing can be summarised in four ways:
1. Risk appetite – Studies suggest women tend to be more risk averse than men. Men tend to favour new, untested shares, whereas women will stick to tried-and-trusted, recognisable names. The equity market, with its greater risk profile, tends to be more popular with men, and women are also more likely to invest in targeted funds with a risk profile adjusted accordingly.
2. Different goals – Research from Hargreaves Lansdown, for example, found that women trade shares nearly half (49 per cent) as frequently as men1. This seems to be because men focus on short-term portfolio performance, leading to impulsive and frequent trading. That typically incurs more commission charges, fees and other expenses.
This same research shows women tend to focus on longer-term goals, inspired by non-monetary considerations such as security, independence or lifestyle improvements. Women tend to hold investments for longer, riding out the ups and downs, whereas men are typically more reactive. Research has found that men are six times more likely to make massive allocation shifts than women2.
3. Research and advice – HSBC research shows that 17 per cent of women spent more than a month researching investment options opposed to 13 per cent of men3. Women generally take a more holistic approach to investing, undertaking research and spending considerable time over decisions. They adopt a consultative approach and are receptive to advice. Men are typically more independent and impulsive.
4. General attitude – men are more optimistic about investment performance, which studies show can lead to over-confidence and an over-estimation of their own abilities, as well as an aggressive approach4. Women exhibit less confidence and a more pessimistic outlook, which could lead to missed opportunities.
There is no right or wrong approach to investing; as in many areas, balance seems to be the key. Risk is a great example of this. To achieve rewards in the long-term, some risk is essential; the greater the risk, the higher the potential return, but balancing that with a realistic approach to risk based on individual circumstances, goals and tolerance is crucial.
Similarly, experience shows that investing for the longer-term, rather than impulsively trading, can create better prospects and is less likely to deplete returns, but hanging on to under-performing funds is a poor investment strategy.
By understanding the different investment attitudes of men and women and how those attitudes influence their overall strategies, you can potentially take the strengths from each and adopt a more balanced approach.
Interested in changing your investment portfolio? Speak with your Relationship Manager or Investment Counsellor.
1The female investor is more savvy than the male, The Times, 2018
2Women investors get a bad rap, Hargreaves Lansdown, 2017
3Risk appetite and financial decision making, Willis Owen, 2017
4Subtle but important difference between genders when it comes to investing, HSBC, 2018