MyWallSt is celebrating Women's History Month by highlighting how women can take control of their financial future through investing!
This article is part two in MyWallSt's Women In Investing series. We discussed the wealth divide in our first article; Closing The Gender Wealth Gap By Investing.
Countless studies have shown that women's portfolios can outperform their male counterparts because of the inherent qualities that we possess. If females overcome the obstacles that hold us back from investing including the pay gap, generational prejudice against women in the financial world, and many other hurdles, we can find our way in this male dominated industry.
Women outperform men when investing
When women do take the plunge and start investing, studies show that they actually outperform men. A Warwick Business School study found that women in the U.K. beat men by almost two percentage points when managing an investment fund. Furthermore, Fidelity Investments also reviewed 8 million investment accounts in the U.S. and came to the conclusion that women earned higher returns and were better savers.
A study titled, "Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment," analyzed stock investments of men and women from over 35,000 households in the states from 1991 through January 1997. The research found that:
- Men traded 45% more frequently than women
- Women outperformed their male counterparts by almost 1% per year
Over-trading results in higher trading fees, meaning not only did women beat mens returns in the above study, but they also saved on investing fees. One of the greatest qualities women hold is their approach to investing. Women by nature are more risk-conscious and the long-term investment method we tend to stick to is the winning formula.
Females are naturally more risk-conscious
In general, women tend to avoid risky investments. A BlackRock Investor Pulse survey showed that 72% of American women rejected investments in "riskier" investments compared to only 59% of men. Female investors typically take fewer risks because they are more likely to live longer but earn less on average which makes them more careful with their cash. Therefore, most female investors try to mitigate risk by diversifying their portfolio by spreading their money across several industries and assets, so if one market falls, only a smaller portion of their investments will be affected.
Women think long-term
Females often start investing with long-term projects in mind like buying a house or saving for their children's university. Women tend to buy investments and keep them for years, regardless of volatility, and are more likely to ignore the short-term noise in the market.
Thinking long-term and diversifying your portfolio are actually two of MyWallSt's 6 Golden Rules for investing. These two philosophies are paramount for successful investing and prove that women make great investors.
So what is holding women back from investing?
Even with these positive attributes which make us ideal investors, women still rely on savings too much. A 2015 study found that women in the U.S. save around 43% less than men for retirement. This is a massive difference and one that needs to be addressed. Further research has found that women prefer to put their money in a standard savings account instead of investing their hard earned cash and allowing it to work for them.
Another study claimed that females in the U.S. keep around 71% of their income in the bank, compared to only 60% for men. If we look at average life expectancies between the genders, we see that females generally live longer, meaning we actually need more funds for a longer period of time.
Our overreliance on saving accounts instead of buying stocks is a contributing factor to the gender investing gap which feeds into the wealth divide.
So why do women still prefer saving their cash?
It comes down to fear of risk. Yes, the very risk-averse nature that makes us successful investors can actually hold us back in the first place. Helena Morrissey, Head of personal investing at Legal & General Investment Management stated;
"Women's dependence on savings accounts is recklessly cautious."
Finding the perfect balance between risk and reward is paramount to investing success, so for women to close the wealth gap, we need to see investing as beneficial and not hold all of our wealth in a savings account if we want to own our financial future.
How women can start investing
If you want to start investing but don't know where to start, our free Learn app might just be what you are looking for. The app is packed full of lessons on everything you need to know about investing and the stock market. Download the Learn app now so you can get on the path to financial freedom today!
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.
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