In today’s world there is increasingly less space for stereotypes. You can feel it in all the little movements; little ripples that are beginning to create changes. And it’s about time. Old embedded ideas were turning into lasting legacies.
Every day in my work I feel the gentle but seismic shifting of old boundaries in two areas in particular – women’s roles in business, and women’s involvement in the financial industry. By that, I don’t just mean financial professionals, but women actively engaging with their own finances, too.
And that’s great – there is a real, practical need for this. I hate to say it because it sounds like such a grim statistic, but between 40% and 50% of first marriages now end in divorce, with subsequent marriages even less likely to run the course. Plus women outlive their husbands, generally speaking. So being financially independent is almost a necessity, really.
But we don’t need to think like that. These days, it just feels right that a woman has financial equality, and that’s just that. Women are becoming wealthier. The financial gap IS closing. More of the world’s billionaires are now women (even if it’s just 11% of them) and the wealth is slowly being handed over. So why are women still not investing as much as men? Do women make good investors, or not?
Women are Less Likely to Invest but When they Do, they Do It Better
A study in the UK found that only 21% of women have their money invested – they’re far more likely to save their money as cash. Women are far less likely to invest a windfall than men are. Really frustratingly to me, some of this has been explained by women just being overwhelmed by the choice of investments available and their reluctance to risk their original pot of money.
However, I just don’t see this in my clients. I see empowered women making bold decisions with their finances. But I do see that the current landscape of the financial industry is still very male-dominated.
So at the moment, it takes a special kind of woman to step forward and claim a bit of the action for herself. It needn’t be that way; all women should be investing with knowledge, purpose and confidence, just like their male counterparts.
Because the evidence shows that when women invest, they do it better. Women are excellent investors. They just don’t do it as much.
Why Do Women Make Good Investors?
Studies at Warwick Business School in the UK and Hargreaves Lansdown (as well as many others) have consistently found that women’s investment portfolios outperform that of men in their study.
Over a three year period, women’s portfolios grew by 1.8% more than the men’s. While that may not sound like a huge amount in the short term, by following the same investment principles, the women’s portfolios would be 25% more valuable than the men’s after thirty years. And that’s down to the investment decisions they were making.
But why do women make good investors, when a common belief is that women are less risk-averse than men? Some studies say that this is because of how we’re brought up – boys are encouraged to be explorers and to break boundaries, and we’re more likely to protect girls and subconsciously steer them towards less adventurous pursuits.
Others say that this difference just doesn’t exist – it’s just that we’re looking at risk incorrectly, especially when it comes to calculating risk. Women are more likely to collect more information before making decisions, but once they have the information they need, they’ll make just as bold decisions as a man would.
There’s also the belief that women are just generally more emotional as men. But again, studies have shown that when it comes to investing, they’re not. They make calm, calculated, rational decisions. They’re far less likely to sell up and run when the market dips; they’ll weather the storms, more often sticking to a ‘buy and hold’ approach to investing. And this buy and hold approach has long been seen as a very wise and successful investment strategy.
It’s Down to the Investment Strategies Women Favor
There are some principles that women apply to their investments, whether consciously or not, that hold the key to their investment success.
Firstly, women tend to hold more diverse portfolios than men. They’re more likely to hold the majority of their money in funds, which spreads the risk and decreases the likelihood of volatility. If one part of their investment sees a dip, others are more likely to be more secure, which helps the portfolio to bounce back.
Secondly, women are more likely to ‘buy and hold’, so make an investment that they keep for the long-term (at least three years), riding out any market dips and seeing the benefits of subsequent upturns.
Not only is this a reliable tried-and-tested strategy for investing (it’s the one that made Warren Buffet rich, after all), but it’s cheaper too. Women trade shares 49% less frequently and funds 67% less frequently than men, so they’re not paying those trading transaction costs.
Finally, women are more likely to seek out advice than men. Whereas men overestimate their own abilities, women tend to underestimate their own abilities. They will gain confidence and empowerment in taking on knowledge from professionals.
Seek Advice to Support Your Investment Decisions
Let’s do away with asking the question as to whether women make good investors. Instead, let’s focus on why women make good investors. Looking at women’s strengths – their willingness to seek advice, their propensity to diversify their portfolio, their inclination to equip themselves with robust information – you can see exactly why women stand to be so successful when they come to investing.
But it can be tough to take those first steps, especially when some of us are still fighting the feeling of being an outsider in a male-dominated arena. If you need some financial advice or would like to talk about making the most of your investment opportunities, please get in touch. I’ll be happy to help you consider your options.