- Bargaineering - http://www.bargaineering.com/articles -

Should you invest like a girl? Women investors may have natural advantages

Like almost every other aspect of a person’s life, gender exerts a powerful influence over the way we invest and the ultimately, the returns we achieve.

Numerous studies,  including one performed at UC Davis [3], indicate that “boys will be boys” when it comes to overconfidence in their abilities. On the other hand, women are more likely to make investing decisions that benefit them in the long run, although many women could stand to take on a little more risk.

It’s these differences, though, that may make women investors better than men — at least when it comes to the long haul.

Lack of confidence

One of the biggest differences between women and men when it comes to investing is a lack of confidence. Surveys on the subject consistently find that women are less confident than men in their ability to make investing decisions. A 2010 Prudential [4] report indicates that women investors are twice as likely to express a lack of confidence in their capacity to make good decisions about retirement planning.

This lack of confidence also leads many women investors to ask more questions and be more dependent on financial advice from others. That reliance on others often informs women’s decisions about investing [5], especially since it appears that many advisers give women different advice than they give men. In 2012, the National Bureau of Economic Research published a paper indicating that women were less likely to be steered toward actively managed funds than men.

So, between the lack of confidence and the fact that financial advisers often steer women away from active investments, it seems likely that women tend to be more conservative investors.

What does this mean for women investors over time?

Some experts read the general risk aversion displayed by many women investors as a drawback. Many women might not take the risks needed to find success, especially those who see themselves as “savers” rather than “investors.” But does it mean it’s all bad?

A study from Vanguard released in 2010 indicates that during the 2008/2009 financial crisis men were far more likely to sell their shares at market lows. The women who were more likely to stay in for the long haul were more likely to be in place to see recovery when the market rally began a little bit later. According the study, overconfidence in their own abilities [6] can also lead to more reckless decisions by men.

Women, on the other hand, are more likely to stay the course, investing in their index funds, and minimizing costs, since they aren’t as prone to active trading (and the fees that come with it).

Of course, the generalizations drawn from studies don’t apply to all men and all women. There are also those that wonder if the deference that women feel toward others when making investing decisions, as well as the general lack of confidence, has to do more with socialization than with any innate quality. As women become more financially independent, more educated, and more confident, will their long-term investing advantages disappear?

What do you think? Are there differences between the way men and women invest? How do you prefer to invest?

(Photo: Flickr user Ed Yourdon)