The rules of smart investing are gender-neutral. That goes without saying. Yet, a growing number of studies have explored the ‘men vs women’ debate and show a significant difference in the way their investments perform.
Does that mean that one gender is more adept or diligent in following the rules of good investing? When it comes to men vs women, who exactly is better at investing and why?
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Let’s try to find out.
Men vs women: who wins at investing?
You may have heard that women are supposed to be better at managing money than men.
Well, when it comes to handling investments, it appears that there might be some evidence to back this saying. Several studies suggest that women are generally better at investing than men.
A study by investment firm Fidelity that analysed more than eight million customer accounts found that women performed better on their investments than men by 0.4%. At first glance, that might not seem like much. But over time, 0.4% can have a huge impact.
Another study from Warwick Business School involving 2,800 investors found an even bigger performance gap between the two genders over a three-year period.
While the annual returns on investments for men averaged 0.14% above the performance of the FTSE 100, women beat the index by a respectable 1.94%. In a nutshell, women’s returns from investments outperformed those of men by 1.8%.
Why are women better at investing than men?
As it turns out, the better investing performance of women is not down to mere luck.
The real reason is that men and women have different strengths and weaknesses that often translate into different investing approaches.
More often than not, it’s the approaches of women that tend to yield better returns, suggesting that men can perhaps learn a thing or two from women.
The different investing approaches of men vs women can be summarised under four headings.
1. Investing goals
Research indicates that women generally trade their shares less than men (nearly half (49%) as frequently according to a report by HSBC Private Banking).
This is attributed to the fact that men tend to focus on short-term portfolio performance, which often leads to impulsive and frequent trading. More frequent trading means more brokers’ fees, commissions and other expenses.
On the other hand, women tend to be focused on the longer term. They hold onto their investments for longer, riding out the ups and downs. They are less likely than men to sell during times of uncertainty.
2. Risk appetite
Women adopt a more conservative approach, focusing on tested and trusted shares with a good track record. Men tend to be more speculative, taking more risky positions, including investing in new and untested shares.
Men do less research than women and are often more independent and impulsive. Women research their investments comprehensively and also spend more time going over their decisions.
Men tend to be more optimistic about their investment performance, which can lead to overconfidence and overestimation of their abilities. The ultimate result is a more aggressive and risky approach to investing.
Women tend to adopt a more pessimistic outlook, which often protects them from bad investment choices. The downside is that this can sometimes lead to missed opportunities.
What do these findings teach us?
Based on the above analysis of men vs women, some could say that men should start investing more like women.
On some level, this makes complete sense. For example, the prospects of successful wealth building through the stock market are much better with a long-term investing strategy than with short-term and speculative trading.
So, men could perhaps improve their investment returns by focusing on long-term investment rather than short-term portfolio performance which is often quite risky and unpredictable.
That being said, it’s important to note that there’s no right or wrong investment approach. No matter your gender, the most important thing is developing an investment strategy that’s based on your preferences and capabilities, and sticking with it.
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