Women also say they are less confident about investing. A 2018 study by Merrill Lynch and Age Wave reports that just 52 percent of women are confident investors. In contrast, 68 percent of men felt confident about their investment abilities. A 2016 Wells Fargo survey found much the same thing.
But an increasing number of studies say women are better investors. Consider the tumultuous period from 2005-2010. U.S. stocks went on a gut-wrenching ride. But according to a Vanguard study, the investment firm’s female clients earned 5 percent more than its male investors.
When U.S. Stocks Struggled Women Beat Men
According to a 2015 Wells Fargo study, women tend to be more conservative, holding higher bond allocations. When stock markets plunge, bonds never fall as far. Sometimes, bonds even rise when stocks drop. That’s why you might expect women investors to beat men when stocks don’t perform well, such as the time period between 2005 and 2010.
But women beat men when stocks rise too. University researchers Brad Barber and Terrance Odean studied 35,000 household brokerage accounts between 1991 and 1997. As you can see on the chart below, U.S. stocks soared. But over this time period, women beat men by almost 3 percent per year on a risk-adjusted basis. But an increasing number of studies say women are better investors. Consider the tumultuous period from 2005-2010. U.S. stocks went on a gut-wrenching ride. But according to a Vanguard study, the investment firm’s female clients earned 5 percent more than its male investors.
When U.S. Stocks Soared Women Beat Men
Let me explain what risk-adjusted means.
Stocks beat bonds over long periods of time. That’s why, long-term, portfolios with high stock allocations beat portfolios with high bond allocations. Women tend to be less risky. More often, they build portfolios with lower stock allocations than men. A risk-adjusted analysis compares apples to apples. It would compare, for example, men’s portfolios with 80 percent stocks and 20 percent bonds with women’s portfolios that comprise the same allocation. When looking at portfolios of equal risk levels (a risk-adjusted basis) Barber and Odean found that women beat men by 3 percent per year from 1991-1997.
Too many men might dismiss these reports. But the evidence is growing. In 2016, Fidelity tracked performance for 8 million of its clients. That year, U.S. stocks gained 11.9 percent. In other words, it was a strong year for stocks. That should have been great for men: the riskier investors. But Fidelity found that its female clients beat its male clients by 0.4 percent. That study, however, wasn’t risk-adjusted. If it were, women would have won by more.
Wells Fargo found much the same thing. They compared investment performances between 2010 and 2015. Once again, women beat men. Unlike Fidelity’s study, they adjusted for risk. As a result, women pulled even further ahead.