A 2001 survey of investment advisers, a 2005 report by Merrill Lynch, and a 2011 study by Barclays Capital and Ledbury Research all reached the same conclusion: Women are better investors than men.
Why? No one knows for sure. And, of course, there are plenty of exceptions like Warren Buffett. But when tallied over the long term, women generally produce better investment returns than men. Here are four likely reasons:
Men are more competitive. You'd think this would be a good thing. But as in so many areas of investing, the obvious answer is not the right answer. For many men, the most important thing is not absolute return, but beating the other guy. And the second most important thing is bragging about it. As we all know, men are also less likely to ask for advice, perhaps because it’s somehow seen as a mark of weakness. All this leads men to focus on the short term and lose sight of the real objective of investing: producing consistent, positive returns over an extended period of time.
Women take fewer risks. Women, in general, are more conservative than men, and they tend to put safety first. For example, studies have shown that women are more inclined than men to wear seat belts, avoid cigarette smoking, and get their blood pressure checked. They are 40 percent less likely to run yellow traffic lights. So it should come as no surprise to find that women gravitate toward safer investments and hold stock portfolios that are less volatile.
[See 5 Economic Myths of 2011.]
One investment study concluded that when things go wrong, men get angry, while women become more fearful. Anger can lead people to take action, bet on riskier investments, and take bigger losses. By contrast, fearful women are more likely to pull in the reins and step away from big disasters. Men are more likely to double down on a loser, or try to “catch the falling knife.” Long-time Wall Street experience has shown that both of these impulses are high-risk, low-return strategies.
Women do more homework. Women are less confident than men, or perhaps less afflicted by overconfidence. They are less likely to be deluded into believing they know more than they do. They want to be in control, and therefore do more research to find out exactly what they are investing in.
Women also have more realistic ideas about what an investment can reasonably deliver. In short, they have lower expectations. They are therefore less likely to jump on the next big thing or fall for a can't miss stock tip. One report found that a quarter of the men surveyed admitted they would gamble on a hot investment without doing any real research, while only half as many women would make that same mistake.
As a result, women trade less frequently. They incur fewer transaction costs and fewer tax consequences. Women commit to their investments, and because they've done their homework, are more likely to honor their commitments. They are more patient investors and typically do not get spooked by a short-term hiccup in a company's performance.
Women realize they are not in control. Surveys have shown that women are more likely than men to attribute success to factors outside themselves, like luck or fate. This apparent contradiction—aiming to achieve control when you know you can only control so much—gives women the perspective they need to avoid panic. And yet, paradoxically, this also allows them to admit it when they have made a mistake.
Women look out for the next storm. When it arrives, they batten down the hatches and ride it out. They know the market is like the ocean. It is much bigger than we are and subject to huge global forces. But over time there's a certain ebb and flow, and if you're a good navigator you can sail on to richer shores.
Tom Sightings is a former publishing executive who was eased into early retirement in his mid-50s. He lives in the New York area and blogs at Sightings at 60, where he covers health, finance, retirement, and other concerns of baby boomers who realize that somehow they have grown up.