We’ve all heard about the book Men Are from Mars, Women Are from Venus.
Indeed, there are countless differences between the sexes, and that’s true even when it comes to investing.
Research shows that men and women take different approaches with their money – and in the end, women turn out to be the better investors. This difference holds true among both professional and retail investors, as well.
In fact, a related book highlighting these differences might be called Men Are from Vegas, Women Are from Fort Knox.
Stick With Female Hedge Fund Managers
A recent study from Hedge Fund Research Inc. found that hedge funds owned or run by women have beaten the average industry return over the past one, three, and five years.
If you go back to 2007 and take into account a full stock market cycle, female-run funds returned 59% versus the industry average of 37%. (The data collected by HFR goes through June 2015.)
Yet, of the more than 2,000 single-manager funds examined, only 60 were headed by women!
Meanwhile, this outperformance extends to average investors, too.
A study conducted this year by the portfolio platform SigFig looked at 750,000 individual portfolios. In 2014, female investors outperformed their male counterparts by a whopping 12%. On a $100,000 portfolio over 30 years, that adds up to an additional $58,000 for women.
So why are guys having this “performance” problem?
Men vs. Women: The Investing Differences
It really just comes down to their makeup.
First, men are often overconfident in their abilities. This confidence leads them to trade more often, which hurts their results. After all, transaction fees add up. The SigFig report revealed that portfolio turnover is an incredible 45% higher among men than women.
Another study from the automated investing service Betterment had similar results to SigFig’s research.
It found that the portfolios of women are more stable, staying the course during market downturns. Men had a tendency to check their accounts more often, leading to changes in their allocations.
Women also take less risk, holding on to secure blue-chip stocks for longer periods than men, who like to chase those risky highfliers.
Perhaps most importantly, women tend to save more than men. Among its clients, Fidelity found that men saved 7.9% of their salaries, versus 8.3% for women.
In retirement plans run by Vanguard, women had a higher participation rate (73%) than men (66%). Vanguard also found that women save more of their salary (7%) than men (6.8%).
These percentage differences may sound small, but over a lifetime, they really add up.
All these academic studies are fine. But what about real-life experience?
In my 20 or so years in the business, I found real differences between the two sexes.
First, women have a greater tendency to actually seek professional advice. Men are often active traders and “don’t need” any professional help.
Women also “looked” before taking the leap on an investment. They’d prepare for a meeting by doing their own research and ask questions before giving the okay on any move.
On the downside, I found that women were often too risk-averse, and they frequently underinvested in stocks. That’s worrisome when thinking about retirement and the fact that, on average, women live longer than men
At times with male clients, I found myself wondering why they even came into the office. I thought to myself, “You’re going to do what you want and chase those hot stocks no matter what I say.” I often imagined the guys thinking to themselves, “Forget mutual funds, I’m a great stock picker.”
So I told male clients, “Play the market to your heart’s content with no more than 5% of your money. But leave the ‘serious’ money alone.”
As you can imagine, that didn’t win me many fans.
But the bottom line here is that each sex can learn from the other when it comes to investing. And with that in mind, here’s my message to both.
Women: Become a little more aggressive in your investment choices. You need more stocks in the portfolio to have a comfortable retirement.
Men: Quit checking your stock quotes every five minutes. The investing game is a marathon, not a sprint. You don’t have to be a winner on every trading day.